What went wrong? Learning from three decades of carbon capture, utilization and sequestration (CCUS) pilot and demonstration projects
Introduction
Despite a broad international climate agreement signed in December 2015 and a growing number of climate change mitigation policies, energy related CO2 emissions in 2018 rose by 1.7%–33.1 billion tons from the previous year (IEA, 2019). Because most major industrialized countries have failed to meet their pledges to cut CO2 emissions, scholars have begun to call for a shift to demonstrable action rather than goals and promises (Victor et al., 2017). Thus, governments need strategies for delivering “successful” projects in order to accelerate the deployment of clean technologies. Among numerous clean technologies, CCUS is an essential tool for holding average global warming to less than 2 °C (IPCC, 2014). CCUS is necessary for delivering the deep reductions in emissions from fossil fuel-based power plants and industrial manufacturing processes while providing the opportunity for “negative emissions” when combined with biomass combustion (Sanchez et al., 2018). A long-standing argument for including CCUS in the global mitigation portfolio is that CCUS can greatly reduce the cost of meeting emission reduction targets (Boot-Handford et al., 2014) (Rogelj et al., 2013). However, in contrast to the significant progress made with solar PV deployments, CCUS deployment is off track (IEA, 2018a, IEA, 2018b) and the investment towards CCUS has been falling (IEA, 2017). More recently, there are fears that CCUS deployment will occur too late to be meaningful (Renssen, 2011) (Scott et al., 2013) and may be caught in a technology “valley of death” in which technology and market risks remain high while investment incentives are low (Reiner, 2016).
For several decades, pilot and demonstration (P&D) projects have been widely used as a part of government energy research development and demonstration (RD&D) programs. Recent reviews claim that demonstration projects can also contribute to commercialization of new technologies13 and call for the in-depth study of public policy surrounding P&D projects (Frishammar et al., 2015). Some scholars also emphasize the learning effects realized through a portfolio of demonstration projects (Bossink, 2017) and empirically confirm the existence of motivation for learning through the implementation of pilot and demonstration projects (Nemet, 2018). However, there is growing sentiment that learning is not enough to justify investment in upscaled CCUS projects, particularly when the amounts of investment involved are large. The cost of large-scale CCUS demonstrations can exceed $1 billion; the cost of initial first-of-a-kind plants has exceeded $7 billion (https://www.eia.gov/todayinenergy/detail.php?id=33552). We have observed the almost complete withdrawal of CCUS in the European Union and numerous project cancellations in Australia, Canada, China, and the United States. In 2007, the EU announced its ambition to set up 12 CCUS projects by 2015 (European Union, 2007). However, both the European Economic Program for Recovery (EEPR) and the New Entrants Reserve 300 (NER300), which was designed to fund the large-scale demonstration of CCUS and innovative renewable technologies in the energy sector, have failed to award a single CCUS demonstration project (Lupion and Herzog, 2013) (Ahman et al., 2018).
Recent developments in the literature have highlighted the need for an in-depth study of CCUS P&D projects to improve investment efficiency and deployment strategy. A recent paper reported that the credibility of revenues and incentives to be among the most important attributes, along with capital cost and technological readiness to deliver successful CCUS projects (Abdulla et al., 2021).This study aims to fill the gap by revisiting three decades of deployment experience and by building a model explaining why, based on project-level evidence, CCUS is off track. In this study, we utilized the hazard model (Supplementary Fig. 1) in an effort to quantitatively evaluate the “failure” of CCUS projects. The model is empirically estimated using survival analysis,1 which is widely used in the pharmaceutical industry as well as by the community of strategic management (see Methods for details). We complied a comprehensive CCUS project database to analyze the reasons for failures. The database contains details on 263 projects that have been publicly announced since 1995. We attempt to discover common factors that can either reduce or increase the hazard ratio of projects. The effectiveness of government climate policies and incentives (tax credit, carbon tax, and emission trading scheme) are also examined.
In 2005, the Intergovernmental Panel on Climate Change (IPCC) published the Special Report on CCUS (SRCCUS) to review the innovation status and deployment progress of CCUS technology (IPCC, 2005). Since then, several countries have expressed ambitions to develop CCUS and Integrated Assessment Models (IAMs) have intensively examined the CCUS capacity required to achieve climate targets. The International Energy Agency (IEA) suggests a CCUS capacity of 2300 Mt of CO2 per year is needed in 2040 in its Sustainable Development Scenarios (IEA, 2018a, IEA, 2018b), while other researchers claim a CCUS capacity of 4000 Mt of CO2 per year should be in operation by 2030 in many 2 °C scenarios (Peters et al., 2017). Fig. 1 shows the evolution of global carbon capture/storage capacity and the gap in CCUS capacity required to achieve the 2 °C target. In 2019, 14 years after SRCCUS was produced, only 34 Mt of CO2 per year of CCUS is in operation, achieving only 1% of the targeted capacity. We also observed the halting of investment and declining effort on CCUS deployment after 2013; thus, little additional capacity is expected from 2019 to 2022 (Bui, 2018).
There are two direct explanations for why CCUS is lagging behind expectations. One is that large amounts of required investment have not yet been unlocked (IEA, 2017). Public funding, including grants and directed ownership by state-owned enterprises, dominates CCUS investment while private sector investments are not fully leveraged. Experience suggests that business drivers and mobilizing multiple financing methods are critical to successful CCUS projects (Herzog, 2016). However, CCUS projects are usually characterized by a low or negative internal rate of return (IRR) and a high hurdle rate which make it difficult to attract commercial bank loans and fulfil the requirements of existing financing options such as equity and debt (Global CCUS Institute, 2019). Another explanation is the high failure rate of CCUS projects. As Fig. 1 indicates, if every CCUS project planned in the last 30 years was successfully delivered, the CO2 capture capacity in operation in 2019 would be 232 Mt CO2 per year, which is 10% of the target capacity for year 2030 of the Sustainable Development Scenario. However, we observe that 43% of announced CCUS projects were cancelled or put on hold (see the Methods section for the definition of project status). Moreover, of all large-scale pilot and demonstration plants, i.e., those with a project size greater than 0.3 Mt CO2 per year, 78% have been cancelled or put on hold. Fig. 2 summarizes the project status by the year in which they were announced. The high failure rate of projects drains the social resources allocated towards CCUS, deepens the doubts on the social feasibility and potential of the technology, hinders the business model innovations, and can ultimately lead to an unsustainable cycle of innovation.
Section snippets
Methods
Global CCUS pilot and demonstration projects collection. As existing databases are not comprehensive enough for quantitative analysis, we compiled a comprehensive global dataset of CCUS pilot and demonstration projects at various stages from 1990 to 2017 with detailed project characteristics (such as announced date, current status, date of termination/postponement/completion announcement, budget, ownership, capture technology, capacity, and plant location). We combined the existing CCUS project
The decision-making model based on pilot and demonstration projects
Well-structured CCUS projects can deliver climate benefits over the long term, but these benefits usually do not materialize by themselves. Even well-structured CCUS projects can easily fail because of unforeseen events. The institutional conditions of a country as well as project-related factors can affect project outcomes. These factors can either influence performance and expectation of a project or risk and cost of a project. These factors indirectly affect the decision making of the
Discussion and policy implications
Our main insight from the model results is that existing support mechanisms have not been sufficient in mitigating the risks associated with CCUS project upscaling. We also argue that the real barrier to the widespread commercialization of CCUS is the imbalance between risk and return. For example, Fig. 6 compares hazard rates of CCUS projects with other commercial projects. For mature infrastructure businesses characterized as low-risk and low-return, project hazard rates are usually below
Additional information
Supplementary information is available for this paper.
Correspondence and requests for material should be addressed to N.W.
CRediT authorship contribution statement
Nan Wang: Formal analysis, designed the research framework, collected data, analyzed the data and wrote the paper. Keigo Akimoto: Supervision, Writing – original draft, contributed to the research design and supervised the study. Gregory F. Nemet: contributed to drafting and supervised the study.
Declaration of competing interest
The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.
Acknowledgements
This research is funded by ALternative Pathways toward Sustainable development and climate stabilization (ALPS III) (Ministry of Economy, Trade and Industry, Japan). We thank Dr. Ziqiu Xuan (RITE) for the advice of CCUS project hearing and the Global CCUS Institute for project data provision. We are also grateful for Dr. Kenji Yamaji, Dr.Toshimasa Tomoda and other colleagues from the System Analysis Group for the discussion and comments. We also gained valuable advice in the IEA GHGT-14
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