CARBON CAPTURE AND STORAGE (CCS) Analysis of Incentives and Rules in a European Repeated Game Situation (original) (raw)

Two mechanisms have been created to support carbon capture and storage (CCS) technologies at the European Union-level-stimulus spending of up to €180 million for one project in selected member states and allocation of up to 45 million EU-ETS allowances (EUAs) per demonstration project from a total pot of 300 million allowances. We identify a number of key risks in designing the project selection process including the carbon price risk, the variable cost risk, technological risk and inefficiencies including asymmetric information and collusion. A Technology Category Auction (TCA) would deliver learning from diversity rather than replication, which is more appropriate for the CCS demonstration phase. To be effective, however, the TCA will require a number of demonstration projects in line with EU objectives of 10-12 plants deployed by 2015. Policy background In 2007, the European Union's heads of government agreed to deploy up to 12 commercialscale integrated CO 2 capture and storage (CCS) demonstration projects across Europe by 2015. To encourage that deployment, the EU has recently agreed to two mechanisms for supporting CCS projects: (i) using 300 million emissions allowances (EUAs) set aside for CCS and innovative renewable technologies and (ii) allocating €1.05 billion of the European Economic Recovery Plan (EERP)'s stimulus spending during 2009/10 on CCS projects from a specified list of projects in seven member states, including €180 million each for projects in Germany, UK, the Netherlands, Poland and Spain, €100 million in Italy and €50 million in France. These EU-level mechanisms will interact with domestic support mechanisms such as the UK CCS Competition in determining the number and nature of the demonstrations undertaken across the entire EU. Whether explicitly or implicitly, the two EU decision processes and the domestic support mechanisms must ultimately address the question of what are the goals of demonstration, since a particular definition of demonstration will need to be enshrined in the selection process(es) and the decision criteria selected. What should be the basis for selecting projects? There are several lists of criteria that have been assembled, but perhaps the most pertinent set from a European perspective is that of the EU Technology Platform for Zero Emission Fossil Fuel Power Plants (ZEP). ZEP

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