Beware of politicians talking up carbon capture and storage

Andy Mayer

October 6, 2021

We’ve all been to classes or training sessions where the facilitator will kick off with the statement, ‘Now remember, there are no silly questions or bad ideas’. This is also how governments plan the energy transition to net zero. The latest great visionary to contribute is the Prime Minister, a salesman for all seasons, a man who could put a monorail in Shelbyville. His green and pleasant land will eliminate fossil fuels from the energy mix by 2035.

Or rather it won’t. That would be impossibly expensive with current technology. However, he assures us that all the naughty carbon dioxide molecules produced by residual gas generation will be herded like sheep from the power stations, and buried in the ground, a process known as carbon and capture and storage (CCS).

CCS to be clear is not new technology or desperately difficult. The chemistry around capture is pretty interesting and evolving science, the pipelines to transport it are… well pipes, and the storage facilities are geological structures like saline aquifers under impermeable rocks, ensuring that the sequestered CO2 stays buried. The UK has many such features, for example depleted gas fields. The issues with CCS are less technical or geological than economic.

The UK CCS story started with the oil industry. Pumping waste CO2 or other gases back into oilfields was found to be a good way of extracting more of the black stuff through a process known as enhanced oil recovery (EOR). This is a decidedly unfashionable use for CO2 now, but one of the original projects, Peterhead, was going to be a demonstration plant that converted natural gas to hydrogen and CO2. It would use the former to produce electricity, while pumping the latter into the Miller oilfield to extend its life by 15-20 years. It would have been a lovely, albeit useless scheme (why not just burn the gas to produce the power?), and required several hundred million pounds of subsidies to break even. It is the literal expression of Keynes’ parody of economic growth to pay people to dig (or find) holes and fill them in again.

The Government back then (in 2007) wisely decided against this bad idea, and began a long sequence of competitions for CCS demonstration projects, all of which failed to produce a scheme that made sense. During this period CCS was going to be the saviour of the coal industry, by enabling clean coal generation – it was going to enable a net negative future by sequestering more CO2 than we could generate. Most lately it will enable the clean gas generation (CCGT) needed to provide back up for all the times when the wind isn’t blowing, the sun isn’t shining, and the local nuclear power plant goes supercritical (hopefully not that last one).

But it’s nonsense. The central problem with carbon capture, like any chemical scrubbing technology is that it reduces the efficiency of plant. Any CCGT with CCS is going to be some 15-40 per cent less efficient than one without. That immediately increases the cost of energy production. The transport and storage infrastructure represents a large fixed capital investment, that without EOR serves no other useful purpose. This rules out CCS as a solution for any CCGT in a location without lots of heavy industry (who will also be required to use it). The economies of scale don’t work otherwise, rendering much of the current CCGT fleet redundant, and many industries outside a cluster. This is the hub and cluster model behind current schemes like net zero Teesside, and three other centres across the UK.

But, here’s the rub, if you add CCS to industrial processes, they, like the generators also become more inefficient and by inference for energy intensive industries (15-60 per cent of their costs are energy), uncompetitive. Commodity producers of cement, glass, base chemicals and other gas users do not exist in a cosy little bubble on ‘Boris Island’ with captive customers. They are not in that regard like domestic energy companies. They’re a part of global supply chains where small inefficiencies and the costs they entail mean they’re out of business. This is why the UK no longer has any aluminium smelters, and the Government recently nationalised a steel plant. The existing costs of the low carbon transition are already rendering the UK uncompetitive. You can’t solve this with solutions like carbon trade tariffs. The UK domestic market alone is not sufficient to justify investment in these industries; you’re either globally competitive or you don’t exist.

So it’s a perfect green growth paradox. To make CCS worthwhile, you need energy intensive industry. But CCS makes energy intensive industry uncompetitive. The UK, then, is not going to be the global pioneer of CCS: it is not an area in which we have comparative advantage, despite our favourable geology. Possibly the Chinese will be, but they are also looking over their shoulders at rising industrial powers and wondering if it will do to them what the Climate Act did to Britain.

Some argue that this is just a price and global agreement issue, and they’re partially correct on that. There will clearly be global prices of carbon where investment in CCS is considered plausible, certainly for the provision of dispatchable power to offset renewable intermittency, given other solutions like battery storage are also horribly expensive. But that’s also an argument to wait for those agreements rather than go it alone, let alone go first. A high domestic carbon price wildly out of synch with the rest of world just kills domestic industry faster. Meanwhile prototyping makes more sense for larger industrial hubs like China. The UK can then buy what works at the lowest cost, rather than running trials in one of the most expensive places on earth. If CCS has a future, it won’t be invented here.

So UK CCS is a monorail project and always will be. It is the perfect test as to whether a politician has the first clue about what they’re talking about when proselytising for a net zero energy plan. It is a test the Prime Minister just failed. How much will it cost us this time?

Author

Written by Andy Mayer

Andy Mayer is Chief Operating Officer at the Institute of Economic Affairs.

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