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In its latest attempt to prop up Australia’s fossil fuel industry, the Turnbull government says it will seek to remove restrictions that prevent the $10 billion Clean Energy Finance Corporation from supporting investment in carbon capture and storage (CCS) technologies.

The move was announced by energy minister Josh Frydenberg on Tuesday, in what he painted as a “technology-neutral, non ideological” approach to national energy policy.

In a statement, Frydenberg said that CCS was cited by both the International Energy Agency and the Intergovernmental Panel on Climate Change as critically important for the world to meet its emission reductions targets.

But both those citations carry heavy caveats – only if the technology works, and only if the costs fall significantly. So far, there has been little evidence of either, with less than a handful of CCS projects actually capturing emissions from power generators and at great expense, despite years of investment.

Alpha Males and the Lump of Coal.
Coalition ministers with a lacquered lump of coal – the only known example of clean coal in Australia.

The Coalition has waged a war against renewable energy since its election in 2013, canning the carbon price, seeking to abolish and then cut the 2020 renewable energy target, and seeking at various points to close both the CEFC and the Australian Renewable Energy Agency, before slashing ARENA’s funding.

That war has intensified since the state-wide blackout in South Australia last September, even though that, and subsequent events in South Australia and other states, have been shown to be the fault of network problems, software issues, storms and poor grid management and in some cases, failing fossil fuel generators.

Frydenberg claims that CCS is a “proven technology” that is being deployed globally, with 17 large-scale commercial CCS facilities already in operation storing around 30 million tonnes per annum of carbon dioxide.

This included the Gorgon LNG project in Western Australia, which will soon become one of the world’s largest CCS projects when it begins sequestering up to 4 million tonnes per annum in carbon dioxide in the coming year.

It is true that CCS is given a better chance of success in industrial processes rather than energy markets, simply because of the plunging cost of renewable energy and battery storage.

Coal costsBNEF puts the estimated cost of new coal plants at double the cost of wind and solar, at between $125/MWh and $169/MWh for “ultra-super critical” coal plants, and the cost for coal with carbon capture would likely double again, to around $350/MWh.

Even with government de-risked finance, coal fired power stations with CCS would cost around $A216/MWh.

This compares to the cost of $55-$80/MWh for new wind and solar plants, with costs falling fast.

“CCS is a pre-commercial technology, so its hard to see how it fits within the CEFC’s mandate, or how they would practically be able to deploy any capital into a project, which would invariably be much higher risk than a bank like entity should be willing to take,” BNEF analyst Kobad Bhavnagri said.

This compares to the cost of $55-$80/MWh for new wind and solar plants, with costs falling fast.

As Bob Burton wrote in February, all the existing coal plant CCS units come with big price tags, while two out of three suffer significant problems, so much so that “the technology is fast becoming the orphan child of 1990’s coal utility thinking.”

The flagship CCS project for power generation is the US Kemper project, which turned out to be such a basket case and ended up costing more than $US7.4 billion ($A10 billion) – more tan twice the budgeted amount – before the owners considered whether to not burn coal because gas was so cheap.

Other projects include Petra Nova and Boundary Dam in north America, but these are small and are mostly focused on re-injecting the C02 into oil fields so that developers can extract more oil.

CCS is still regarded as a potential solution in industrial processes, such as iron and steel production, cement production and natural gas processing, even though others have pointed out that renewable energy could also make inroads into those processes.

However, BNEF’s Bhavnagri says the overall rationale given by the government for this change is sound, given  there is no viable way to achieve near total decarbonisation with the current suite of clean technologies.

“No matter how cheap batteries get, they cannot viably provide inter-seasonal, or even intra-month or intra-week storage, and they will not decarbonise steel making or chemicals processing,” he says. “Without a huge new technological breakthrough, we need CCS to get to 2 degrees.”

Given the poor economics of CCS technology, it is difficult to see how the CEFC can provide finance for any such projects and meet the government’s benchmark returns, which requires it to make an overall profit significantly above the government bond rate.

As Ian Dunlop, the former chair of the Australian Coal Association, and now an activist, wrote in his submission to the government’s climate change policy review, the government’s “technology neutral” approach – first outlined by Turnbull in February – ignores numerous “inconvenient” realities.

“Years of research have failed to establish the basis for CCS expansion at scale. CCS works where emissions are stored in depleted oil and gas reservoirs, which the oil industry has practised for decades,” Dunlop writes.

“Storage in other types of geological structures is far harder. The substantial additional costs of CCS again reduce coal’s competitiveness, particularly if you refuse to price carbon, as the government are doing. CCS will be useful at the margin, but it will not save fossil fuels from their inevitable demise.”

The CEFC later issued a statement that suggested it was unlikely to invest in CCS for power generation, but could consider it for industrial purposes.

“The CEFC is committed to transforming clean energy investment to lower Australia’s carbon emissions. Under the CEFC Act, our investments include renewable energy, energy efficiency and low emissions technologies. To date, we have invested more than $3.3 billion in eligible clean energy projects, with a total project value of $8.3 billion, while also delivering a positive return for the taxpayer.

“In addition to potential applications in the power sector, CCS can also be used in the industrial sector to capture emissions from chemical processes, as well as fugitive emissions. There are some industrial processes for which there are currently very few alternatives to reducing emissions, making CCS an important technology if these sectors are to achieve deep cuts in emissions.

“The majority of existing large-scale CCS projects globally are in the industrial sector, including in natural gas, fertiliser, hydrogen, and iron and steel making. In Australia, there are several industrial pilot CCS projects either in operation or at a planning stage.

“The CEFC receives a steady flow of potential projects relating to a diverse range of clean energy technologies. We are in a continuous process of receiving and reviewing new project proposals and investing in eligible commercial projects.”

Frydenberg says the legislation will be introduced into parliament on Wednesday, but it will need support from most of the independent Senators.

Published by Giles Parkinson

Giles Parkinson is a journalist of 30 years experience, a former Business Editor and Deputy Editor of the Financial Review, a columnist for The Bulletin magazine and The Australian, and the former editor of Climate Spectator.

13 replies on “Coalition tries to push CEFC into carbon capture and storage”

  1. This government remains schizophrenic. Why the “Clean” Energy Finance Corporation could be allowed to fund a Coal power plant is beyond comprehension.
    If my shoes still had even 10% of the dog turd still on them then I wouldn’t be calling them clean. 10% is a generous comparison to CCS.

    1. I think the only person that has said sensible things about CCS was bill Gates. He suggested that a feasible way to get to 100% zero net emissions from electrical generation is to have a mostly renewable grid backed by gas turbine peakers with CCS. This is almost never how CCS is discussed, with most suggesting that you should take an existing coal fired power station and bolt on a CCS plant to the end of it. Then you run that power station 24/7. My personal opinion is that the later is not the most effective way to deploy the technology in Australia and would end up being very expensive.

      I am not an expert in CCS but I am sure there are a number of non-partisan, dull, sensible, cost effective ways to use this technology to reduce emissions. Hopefully if someone is going to sign on for a massive loan they will have done their sums and we will start to see some sense injected into the debate. I also think that sometime around 2040-2050 we are going to realise that we need to start taking CO2 out of the atmosphere adding a whole new dimension to CCS. IMO Power generation with CCS run on bio-gas or bio-mass will be a pretty vital component of that strategy.

      I think we will know when people are serious about CCS when the natural gas industry and ammonia industry start storing the CO2 that they produce. Both of those industries produce a pure stream of CO2 that they just vent – I find that particularly depressing with the gas industry because they are essentially co-located with the ideal hole to put the CO2 in…. the hole they just pulled it out of.

      BTW I think the 10-20% number is related to the emissions from mining not emissions from the plant.

      BTW2 Natural gas as it is drained from the earth is not pure methane, it contains significant amounts of CO2 which is separated from the methane and then vented. Ammonia is produced from hydrogen extracted from methane leaving you with a fairly pure CO2 stream which is vented.

  2. Did Bhavnagri really say “Without a huge new technological breakthrough, we need CCS to get to 2 degrees.” If so he needs to go and read some of the literature on the topic. I thought BNEF was better than that.

  3. “CCS is still regarded as a potential solution in industrial processes, such as iron and steel production, cement production and natural gas processing”. I note that this ‘solution’ conveniently leaves out the 25% of CO2 emissions from transport.

    We already know that CCS is impossibly expensive when added to coal-fired electricity generation, doubling the base cost of the electricity, and making it four times the effective price of renewable energy, which can often be generated ‘on-site’. So imagine having to capture and transport all of the CO2 generated in steel, cement and natural gas production to the same safe burial strata we are already using for electricity wastes, where extra space will also have to be found for the CO2 somehow captured from fossil fuelled transport as well!

    Was a dead horse ever more savagely and pointlessly flogged?

    We might have a really big problem with the whole economy if the costs of every sector doubles. The ‘solution’ for electricity is obvious already: substitute cheap, non-polluting technologies for the old coal burning technologies. Instead of pursuing the failed CCS ‘potential’, perhaps we ought to be pursuing alternative clean ‘electric’ technologies for steel and cement production, or finding ways of substituting other materials – such as carbon fibre for steel, and laminated wood for concrete.

  4. CCS in the Australian context is ludicrous.
    Where can a coal fired power station pump its CO2 into an oil field to at least mitigate the cost of doing this?
    Besides the situation that the resultant output price needed for the generation of the power is above the price they will receive.
    As pointed out in the article above without a carbon price this will prove a total dud.
    As a carbon price is a dud so goes the whole carbon usage industry.

  5. OMG Scott! Is that your brain? It’s a good thing you had it removed (says Barnaby)

  6. CCS must be true. All the expensive ads are telling me so. Either that or it’s cheap access to the public trough.

  7. I actually have no problem with these changes. If there are viable CCS projects we should support them, there is plenty of capacity in Victoria for CO2 storage. These are loans not subsidies or grants if there is a cheap way to capture and store CO2 we should do it. All the Cefc do is take bigger risks than regular lenders. CCS is risky as there are a lot of unknowns but it has the potential to make a big difference. Coal or gas is not the enemy pollution is.

    1. Coal and gas are certainly not the “enemy” the people trying to extend their usage,certainly are.

  8. Buggerinhell, auld Trumpty had the decency to dump the coal industry once he had their votes, what’s the excuse for the liberals? cant be many votes left in the Australian coal industry?

    1. I’d say conservative ideologies … we’ve been mining it since the 1790’s (at Coalcliff, unsurprisingly enough). Some politicians prefer the devil they know …

  9. Rather than the CEFC being pushed into CCS. I think CCS has been pushed into and parked with the CEFC.

    This means CCS projects will be directed to CEFC, rather than shopping themselves around to various departments with their hand out for grants.

    And in turn, the CEFC will dish out economic realities to any CCS proponents.

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