The inclusion of CCS projects in the UN's Clean Development Mechanism (CDM) is a breakthrough that has been a long-time coming. The CDM allows authorised CO2 emissions reduction projects in developing countries to earn Certified Emission Reductions (CERs) in proportion to the CO2 emissions that the project avoids.
The Durban announcement means that CCS projects can now benefit from the scheme. CER's can be used by Annex 1 countries under the Kyoto protocol to meet their emission reduction commitments and they are partially fungible with EUAs in the EU Emissions Trading Scheme. They therefore have a market value. Forward selling of the CERs that will be earned by a project once it is operational allows the project developer to raise finance to fund the projects construction. This is undoubtedly positive for CCS generally but raises concerns for European projects; if CCS can now be financed and demonstrated at commercial scale in the developing world, might this not prove an economically preferable option to demonstrating it in costly and regulation laden Europe?
On a more positive note for CCS in the EU, the Durban conference saw an eleventh hour agreement that appears to have the potential to lead to a replacement for the Kyoto Protocol by 2020. Whilst this timescale is long (and has already come in for a great deal of criticism because of that), it is notable that it would dovetail perfectly with end of the third phase of the EU Emissions Trading Scheme (ETS) and therefore should give increased security that the ETS will continue to operate past 2020. This is an important issue for those considering investing in long term investments in the EU with revenue streams based upon the carbon price, like CCS.
EU
At the EU level, the Directive on the Geological Storage of Carbon Dioxide (the CCS Directive) continues to be the central piece of legislation of interest to the CCS industry and the transposition of its requirements is ongoing. The Directive, in the main, deals with the permitting of CO2 storage and the measures that are to be taken by, and the obligations on, the storage site operator. The Directive constitutes an essential part of the CCS legal framework and helps to bring clarity in many important areas but it also raises some interesting issues.
The Directive's provisions include requirements that, once injection into a storage site has ceased, the operator must seal it, remove the injection facilities, and thereafter maintain and monitor it in accordance with a ‘post-closure plan'. The plan is initially drafted at the time of the grant of the storage permit but is subject to amendment at site closure.
The site maintenance and monitoring period will last for a period after site closure that is unlikely to be less than 20 years, but may be mush loner, and only at the end of this time can all legal obligations relating to the store be transferred to the state. Until that occurs the storage operator is responsible for a long list of liabilities and must maintain a ‘financial security' of a value which covers all of these liabilities for the entirety of the period. In addition, at the point of transfer of responsibility to the state the operator must provide a ‘financial mechanism' providing the necessary funds for the state to continue to monitor the site for a further 30 years or so. The magnitude of this funding is, again, subject to amendment up until the point of transfer. Read the full report here.
Source: Carbon Capture Journal.
