The Viability of Carbon Capture Utilization and Storage: An International Perspective

Lisa Raitt: Thank you for tuning in to The Raitt Stuff. I’m your host, Lisa Raitt. And in this podcast, I’m going to share insights on current hot topics in the areas of public policy, politics and business with some guests along the way. And welcome back to The Raitt Stuff. Today we’re going to be talking about carbon capture and storage. Now, we’ve been talking about this in Canada a long time. In fact, it was in 2009 that I actually was the signatory of a document that allowed us to go ahead and do a project in carbon capture and storage project that’s out in Alberta. But it seems like not a lot has been happening in the course of the last 15 or so years. However, there is now, there’s lots of discussion about it. And for Canadian emissions reductions, carbon capture and storage is going to be a massive piece of us being able to meet our obligations in the Paris Accord. But it’s always interesting to see what’s going on around the world. So today I’m so delighted that we have with us Ruth Herbert, the CEO of the Carbon Capture and Storage Association, which is the trade body for the carbon capture utilization and storage industry in the UK. I’m reminded by Ruth that we may have crossed paths as far back as 2009. Ruth, welcome to The Raitt Stuff and thank you so very much for joining us here today.

Ruth Herbert: Hi Lisa. It’s really great to come across you again and to be talking about carbon capture and storage.

Lisa Raitt: Before we decided to push record on this podcast, we were chatting about how we have both been involved in the area for a long time now. Ruth, you’re a CEO of the association right now, but you have a very long and varied career in the public service in the UK. But it was the carbon capture and storage general meeting that we would have been in the same rooms as in 2009.

Ruth Herbert: That’s right. So in 2009 I was organizing the Carbon Sequestration Leadership Forum ministerial meeting in London. Ed Miliband was chairing that meeting. He was the Secretary of State for the Department of Energy and Climate Change, and I was the lead official supporting him. And it was a really exciting time, we had 15 secretaries of state, energy secretaries from around the world. We had Steven Chu from the US, we had Bric countries there Brazil, India, China, we had Mexico. We had a really great set of people getting around the table talking about how to get this technology going, and we also had heavy industries there like Rio Tinto and others that saw it as vital to their continuation in a lower emissions future. There was an awful lot of momentum around that time, you’re right, and a lot of countries were signing up pledges and the UK had its own competition to select carbon capture on a coal fired power station, carbon capture and storage, and that was at quite an advanced stage at the time.

Lisa Raitt: As we mentioned at the top, it seemed to dissipate or go away for a while. It wasn’t as front burner and as a result you ended up going into, I think, really interesting areas of renewables. Maybe you can give our listeners a little bit of an overview of your path back to carbon capture.

Ruth Herbert: It was a really a sad day when the government cancelled the competition. It was a kind of phase where there were cost cutting, going on, austerity and so forth in public finances. I went to work in the build team on Green Deal, Bill and while I was there and that was finishing, there was talk of a second session bill to do electricity market reforms. So I led the bid for that and then joined the team under Jonathan Brearley, who’s now the CEO of Of GEM, the energy regulator in the UK. But he then set out to deliver a series of mechanisms to reform the electricity market in the UK and make investment in renewable energy happen. And really that was key to sort of launching the offshore wind industry in the UK and the Contracts for Difference scheme or CFDs, very well known mechanism now, but it was very, very novel approach, and yeah, I was involved in kind of the design, the legislation, the implementation of those, including setting up the low carbon contracts company which would manage those schemes. So I’d say really took a sort of ten years in my career to kind of get offshore wind going. It was fantastic to be able to look back and say, well look, renewables have gone from sort of less than 5% of the electricity system to sort of 45% over that time, and also to see that the cost of offshore wind had come down from kind of over £150 per megawatt hour to sort of sub £50 per megawatt hour and ever decreasing. But in all of that time, of course, there was a second competition for CCS which was then also subsequently cancelled in 2015 and the CCUS industry was really in rather a bad place. I think what’s held the technology up is just a sort of economic policy kind of impasse, really nothing technological, nothing from an engineering perspective. All these technologies were ready to go. People had written hundreds of pages of contracts that they were ready to sign. But again, sort of economic policy said no, and maybe the climate policy wasn’t urgent enough. I think the difference now and why I’ve kind of come back to CCUS is the fact that now that countries are signing legally binding net zero targets and in many cases interim targets, which I think is what’s going to drive action, because everyone can put things off when it’s 2050. But the government came up with its 78% by 2035 target and then suddenly that really driving action because when you look at that and then you work back to 2030, you’ve got some really challenging stuff to do. And it’s not just about electricity, which people keep misunderstanding. That’s actually kind of the easiest bit, unfortunately, it’s the hard to abate sectors that we’ve really got to tackle now.

Lisa Raitt: Yeah, it’s interesting because the life cycle of carbon capture really follows the principle where if it’s easier to do, that’s the path that we’re going to go in, especially when it comes to politics. So increasing generation in the UK through the use of offshore wind obviously fraught with difficulties for sure, but a lot more easy, I would submit, than talking about decarbonization through carbon capture and storage. You mentioned something in there, Ruth I encounter a lot, it’s almost a bit of a disbelief that the technology is there or that the technology works, and that’s really not the case, is it?

Ruth Herbert: No, indeed. I hear it a lot that it’s an unproven technology. And yet the reality is actually it’s the technology we have today. It’s the technology we have, and we know very well and we’ve known very well for decades. So if we can’t deploy a technology we’ve known for decades urgently, whilst we continue to explore other new technologies as well, then what hope do we have? The common misconception is just because we in the UK cannot point to a large operational full scale plant and say, look here’s one that’s working. But as you know, Lisa, there are many large scale full chain plants operating or have operated for a period of time, part of various programs around the world. So we have those examples. We also know that we have huge experience in each separate element of the chain, and we have that in the UK and in most countries that have got subsurface capabilities of whatever type. They will have lots and lots of experience of geological storage. So that’s one thing that’s very well understood. And as you know, the Sleipner project in Norway has been storing CO2, a million tonnes of CO2 a year, but that CO2 since 1996, I think, and monitoring that and publishing those results online and hosting lots of scientists and industry people there to understand it for decades. So storage is well known. Co2 transport is very well understood as well. Lots of countries, especially North America, have decades of experience in onshore transport, of carbon dioxide, in pipelines. There’s also lots of experience of carbon dioxide in shipped as a commodity and in other industries. And then there’s the capture, which again is well understood, part of the chemicals industry. And so those same techniques that we’ve been using in the chemicals industry and in manufacturing we’re going to be using to separate off and the carbon dioxide from flue gases. So these technologies are all existing technologies. The difference is combining them and using them for the good of the planet. And it sort of saddens me a bit that all these technologies are being used just in day to day life to produce all the things we wear and all the fuels we use and everything else, and we’re quite happy with that. But as soon as someone tries to put them all together and use them for the good of the planet, we say, Oh no, it’s not to be trusted. So this is quite a frustration of mine. So you’ve touched a nerve there, but thanks for asking the question.

Lisa Raitt: It’s very true because you’re kind of gobsmacked when you hear somebody say that with a straight face and an earnestness that they’re worried. Now, look, there is some technology out there that is yet to be developed that’s going to be important to energy transition writ large. but carbon capture and storage is not one of them.

Ruth Herbert: No, and it’s here now. And so we really don’t have any time to waste. We’re already far behind where we need to be on climate change mitigation for sure.

Lisa Raitt: In Canada, the predominant use for carbon capture and storage is going to be through abatement of emissions from our oil sands operation. It’ll be used for natural gas abatement for generation of power. It’ll be used in aluminium production. Where do you think UK and Europe is going to be utilising carbon capture and storage?

Ruth Herbert: I think in Europe the main focus is industrial decarbonisation. In terms of the focus of policymakers, I think that’s really key. But actually many countries will be using for a range of applications. As you know, we’ve talked a little bit about the power sector in the UK as we have got growing large volume of offshore wind. We know and our own climate change committee has said that we need to have a certain amount of flexible, low carbon generation on the system to be able to balance that electricity system with the variable renewables and on gas fired power stations is one way of doing that. And actually the mechanism that UK government is moving forward with is a dispatchable power agreement. So that will actually micromanage how those plants dispatch. So when the wind isn’t blowing if you like their dispatch when the system needs them to and then ahead of unabated gas their very expensive, but a kit with a very niche role. They’ll operate for very short periods of time. But when prices are so very, very high and this is what we need for if we want to get to a 70% renewable system, then we need almost 20GW of this stuff. That’s one thing they can do. But I think the focus has been a lot on industrial decarbonization as well, because clearly there’s also a debate I think going on in Europe, but definitely in the UK as well around supply chain security. We want to be leaders in climate change and climate mitigation, but we can’t do that at the expense of our domestic supply chain security. And so in decarbonizing and with all the policies we might have, whether those are carbon taxes, mandates, whatever we have, we can’t let that result in offshoring of critical industries.

Lisa Raitt: You can’t really have a conversation about energy transition without at least mentioning the United States Inflation Reduction Act and what it has done in terms of investment in clean tech, renewables, nuclear, everything. Has the UK responded in a policy way to the IRA, or are they approaching this differently?

Ruth Herbert: What the IRA has done is provided a very clear example of how a bold, focussed policy can shift investment and can draw an investment, and that’s clearly what it’s doing. You can see that for what I call low hanging fruit, the projects that are slightly cheaper. So it may not be your dispatchable power plant with CCS, but if it’s cleaning up production of fuels, ethanol, things like that, that you can get those projects away under the tax credit at the level it’s at in the US. And that’s a combination of factors. Obviously, where CO2 is already separated as part of a process, then you know you’ve got very low cost of capture. If you can site that over a onshore storage site, depleted oil or gas oil onshore and reuse existing CO2 pipeline infrastructure, then you’ve got a viable project and replicate that. Lots and lots of small projects like that across states that have that infrastructure and you can get scale very quickly. It’s a very interesting policy that has really shown what boldness can achieve. I still think that there are other policy measures that are being put in place and some have been announced to to actually drive that kind of coordinated cluster infrastructure with different types of strategic capture plants, whether that’s industrial or power or hydrogen.

Ruth Herbert: Some of those things have got additional incentives for those, right? There’s the hydrogen, I think there’s the $12 billion for hydrogen hubs and so forth. On its own, the tax credit will only drive a certain level of project. I think it’s certainly turned a lot of heads. And I think what it does is it creates that critical mass of there’s loads of people there doing and so people go there and want to work on real projects because they’re so tired of waiting as we all are. And that drives the skills and the talent, the supply chain there. So I think it’s been a very clever policy actually. Is the UK responding? I would say, I mean, I’m sure that pressure from IRA had perhaps had quite a bit to do with the announcement of the 20 billion for carbon capture storage in the UK, which was back in the spring budget this year. I’m sure that helped and I think they’ve just announced a further two clusters, which was done at the start of the summer. So we now have four clusters moving forward in the UK. So yes, I think there’s been some level of response. Is it enough? I think you’ll find that a lot of project developers, especially our members that are developing projects all around the UK, are sort of looking at the cluster program and it’s great to see the momentum. We’re really grateful to get the focus from ministers, given where we are in the political cycle and all of the changes that have been at the top. But it’s very, very difficult for a lot of project developers to know when that opportunity to take their project forward to a final investment decision is going to come. When will they get access to the CFD? They think the CFD is great, but if you can’t get one, then it’s not the same, is it? So you could say, well, tax credit is not as good as a CFD, but at least it’s there, and I can just I can apply on an eligibility basis. Whereas for a CFD, there’s a lot of process to get one. It’s competitive, seems to take a long time. So this is where I think the UK could probably still learn a lot from the US, which is we’ve got a great mechanism now we just need to make it available and if we really unleash that, then we can actually drive skills talent supply chain in the UK and the EU, I think they’ve really made a bold attempt to respond to IRA with the Net Zero Industry Act. But again, I think what’s missing is sort of where are those incentives and how quickly, will they be unveiled? So lots and lots of enabling legislation, which I think is quite powerful, especially the state aid relaxations, because now you’ve seen billions announced in several countries for industrial Decarb Germany announced €50 billion for industrial decarbonization earlier in the year. You’ve seen other countries announce pots of money for this as well. If you add all that together, it does start to look like a lot of money in Europe, a lot of which can go to CCUS. It’s the process by which you access that, and is it as instant and as bold as the tax credit? But there are different systems and it’s quite difficult to do tax credits at an EU level. It’s just not possible, and in the UK we have a very different tax system. Every jurisdiction is going to be different. The key to securing investment is long term planning. So clear direction of travel and trajectory of volume of deployment across the different sectors. Regular opportunities to access those support mechanisms and the funds there, and clarity over the sort of continuity regularity of the funds doesn’t really matter what the mechanism is, as long as it’s predictable, foreseeable, reliable and available.

Lisa Raitt: We’re using the acronym CFD, which you and I both know are contract for differences. But some folks who are listening in may not actually know that terminology, just as we conclude, because Canada is looking at contracts for difference for our CCS with respect to power generation and the Pathways Initiative, can you give us a brief description of what a CFD is and understanding of how they work in practical measures as you had dealt with them in offshore wind?

Ruth Herbert: They can be configured in different ways, but the basic concept is that the CFD tops up, say, the carbon price if there is one, and that takes the cost of carbon up to the level that would make the project viable. Put it a different way, the CFD pays the developer the difference between operating with CCS and operating without CCS. And as part of that, it needs to cover the cost of the upfront capital as well as the ongoing operating costs, which is higher with due to energy usage. And the reason why it’s so important because in many of these sectors they’re internationally exposed. If you’re making aluminum or steel or glass or cement, you are in a market, you are exposed to international competition. You can’t set your price to include the cost of making those products low carbon, and so the CFD covers those costs and allows you to continue operating, but low carbon.

Lisa Raitt: Just a way for a country to deal with that notion as well as for carbon border adjustments to take into consideration the other areas and kind of level the playing field.

Ruth Herbert: Absolutely. This is a really interesting area because I think CFDs are required in the first instance for most applications of CCS, but there are some applications, as we said before, that might be driven by a carbon tax credit or a carbon price down the line. Obviously when we have lots of low carbon products and we have product differentiation, it should be possible to say, Well, here’s a different product standard and that’s a premium product. And so over time you would expect actually the end users of those products to be paying a premium for some of that to offset subsidy. But in the first instance, of course, the CFD payment will need to cover it. But over time, carbon price might rise, There might be more income from these products that are higher quality products essentially, and so you would see that subsidy reduce. So the dynamism of the mechanism and the ability to evolve into a commercial market I think is important. And then I think carbon border adjustment mechanisms can underline that because if you’re trading with a nation that doesn’t have carbon price, number one, you’re already at a disadvantage. But ultimately down the line, maybe it’s going to be also standards and things around low carbon products that enable us to scale up low carbon industries whilst avoiding carbon leakage and offshoring EU has obviously introduced one. The UK has been looking at that too. It’s an interesting area and you’re batting up against kind of trade and all of those other policies.

Lisa Raitt: Do you have a timeline in your mind as to when you think you’ll see the UK government move forward?

Ruth Herbert: The aim is to have the first CFD signed next year. We really hope that that will be in Q1. There’s not a lot of time between now and 2030. The industry is raring to go and the aim was to have the first two clusters operational in the mid decade. We’re now thinking that that’s going to be 2027. The other two clusters will need to follow on very quickly. So I do feel for the civil servants working there now because they have to parallel process all of these things at once. And effectively everything is back loaded. Everything’s going to happen together because 2030 is less than seven years away. They have a tough job and public resources are always under pressure. So it’s our role, I think, to point out why this is so important. And obviously the international pressure that comes with things like Cop 28, that’s coming up where hopefully lots and lots of countries will be showcasing their plans should help to expedite the putting of resources into this area.

Lisa Raitt: I’ve been speaking with Ruth Herbert, who is the CEO of the Carbon Capture and Storage Association, the trade body for the carbon capture utilisation and storage industry in the United Kingdom. Thank you so much for your time, Ruth, and for explaining these for us. Canada is on somewhat of a similar track. I have a feeling that the UK just may be a little bit ahead of us and we look forward to watching to see what happens.

Ruth Herbert: Thanks, Lisa. It’s been great talking to you.

Lisa Raitt: Thanks so much for tuning in. Now, if you have any questions or comments or even requests on topics to discuss, drop me a line at [email protected]. Your interactions actually will make this better. I’m your host, Lisa Raitt, and this has been The Raitt Stuff.

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