Facing China's Coal Future - IEA

© OECD/IEA 2012 Facing China’s Coal Future
Prospects and Challenges for Carbon Capture and Storage
During the UNFCCC negotiations in Cancun in December 2010, CCS was approved as an eligible
activity under the CDM provided that technical details are resolved. At the subsequent
COP 17/CMP 7 in Durban in December 2011, Modalities and Procedures for CCS in the CDM were
officially adopted. This means that CCS projects can now be developed to reduce CO 2 emissions
in developing countries and generate CO 2 emission reduction credits for sale to developed
countries with GHG emission reduction commitments. This is a critical step in acceptance of the
technology and in providing international incentives for its development. This decision would also
create an international standard for addressing technical details of a CCS project.
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The debate on whether or not to include CCS in the Clean Development Mechanism under the
UNFCCC has been ongoing since 2005, when CCS eligibility in the CDM was first discussed at the
COP/MOP in Montreal. These discussions have been protracted and hamstrung by two deeply
entrenched positions both for and against its inclusion. Broadly, developed countries and a
number of developing countries (including OPEC countries, the African Group, Pakistan,
Indonesia and Papua New Guinea) have supported the inclusion of CCS in the CDM, while the
opposition has come from a few influential developing countries, including Brazil and India, as
well as some countries in the Alliance of Small Island States (AOSIS). The opposition to CCS in the
CDM has been based on a range of objections related to technological, methodological/policy,
legal, finance/market and other issues.
While CCS has received mixed support among developing countries, China has been cautiously
interested and supportive. China, the leading beneficiary country in CDM projects, would clearly
additionally benefit from CCS in the CDM. Based on cost data for CCS in China, carbon offsets
could potentially bridge a much higher portion of the commercial cost gap in comparison to
developed countries. However, China and many other CDM host countries still have questions
and concerns related to long‐term liability and stewardship of storage sites and associated
financial liability. Modalities and Procedures for CCS projects under the CDM leave the decision
on assigning long‐term liability to the project participants and their respective governments. The
rules specify that liability and responsibility for the project rest with the project participants
during the project phase and until the liability is transferred to the host party (and to the Annex I
party if the host party does not accept the obligation to address a net reversal of storage in case
of physical seepage).
However, current weak CO 2 emission reduction targets in Annex I countries and resulting low
carbon prices as well as lengthy CDM project procedures mean that financing CCS through the
CDM remains highly uncertain. It is likely to be several years before the first CCS CDM projects
are able to raise capital through the sale of CDM certified emissions reduction credits. It is also
plausible that CDM financing will need to be combined with other financing mechanisms to
bridge the existing commercial gap of CCS projects.
Green Climate Fund (GCF)
The Green Climate Fund, adopted in 2010 at the UNFCCC COP 16 as part of the Cancun
Agreements, and officially launched by COP 17 in Durban, intends to mobilise and distribute
USD 100 billion annually by 2020 as climate finance to help developing countries meet GHG
emissions reduction targets and adapt to the impacts of climate change. The GCF will cover full
and incremental costs for mitigation, adaptation, technology transfer (including CCS) and
capacity building through grants and concessional loans.