Abstract
This paper examines the conditions for a widespread adoption of Carbon Capture transport and Storage (CCS) by a group of emitters that can be connected to a common CO2 pipeline. It details a modeling framework aimed at assessing the critical value in the charge for the CO2 emissions required for each of the emitters to decide to implement capture capabilities. This model can be used to analyze how the tariff structure imposed on the CO2 pipeline operator modifies the overall cost of CO2 abatement via CCS. This framework is applied to the case of a real European CO2 pipeline project. We find that the obligation to use cross-subsidy-free pipeline tariffs has a minor impact on the minimum CO2 price required to adopt the CCS. In contrast, the obligation to charge non-discriminatory prices can either impede the adoption of CCS or significantly raise that price. Besides which, we compared two alternative regulatory frameworks for CO2 pipelines: a common European organization as opposed to a collection of national regulations. The results indicate that the institutional scope of that regulation has a limited impact on the adoption of CCS compared to the detailed design of the tariff structure imposed on pipeline operators.
Highlights
The current dominance of hydrocarbon fuels in the global primary energy mix is likely to persist in the foreseeable future, suggesting that there will be no sharp decline in carbon dioxide (CO2) emissions (IEA, 2011)
How far would the price of CO2 emissions have to rise for the Carbon Capture transport and Storage (CCS) technology to be adopted by that collection of emitters? Second, to what extent do the tariff and/or the regulatory structure imposed on the CO2 pipeline operator modify this break-even value for joint CCS adoption?
This paper examines the economics of a CO2 pipeline project aimed at transporting the CO2 captured at a number of industrial facilities and transporting it to a storage site
Summary
The current dominance of hydrocarbon fuels in the global primary energy mix is likely to persist in the foreseeable future, suggesting that there will be no sharp decline in carbon dioxide (CO2) emissions (IEA, 2011). Despite the amount of literature, little research has considered the spatial nature of this abatement technology (i.e., the fact that sources can be remotely located from geologic sequestration sites imposing the construction of dedicated CO2 transport systems) This relative lack of consideration can probably be explained by the engineering cost studies that typically highlight the inexpensive nature of CO2 transportation relative to the other components of the CCS chain (i.e., capture and storage). Our aim is to derive conditions for large voluntary adoption of CCS, as a function of: (i) the price of CO2 emissions (set through a tax or a cap-and-trade system), (ii) the CO2 transportation technology, and (ii) the nature of the tariffs regulation imposed on the pipeline operator. Accounting-only approaches neglect the coordination issues associated with the joint adoption of CCS by a group of heterogeneous emitters Because of this omission, average cost figures can underestimate the real break-even value. For the sake of clarity, all the mathematical proofs are presented in Appendix A
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