G 8 R E P O RT CLEAN COAL

The new face of King Coal?

Like it or not, China, India and the US are likely to burn a lot of coal over the coming decades. Can it be done without pumping massive volumes of carbon into the atmosphere? Greg Cook and Paul Zakkour examine the options
t the G8 Gleneagles summit in Scotland in July, discussions around how to use new technologies to mitigate rising carbon dioxide (CO2) emissions in emerging economies loomed large. This is particularly timely: rapid economic growth in economies such as China and India is leading to commensurate growth in electricity demand and power generating capacity with potentially massive impacts on climate change. The scale of this power plant building is staggering; over the next decade, China alone will need to add some 25GW of new capacity each year to meet demand equivalent to one large power station every week. And the vast majority of this huge generation requirement will be met through the construction of power plants that use the cheapest and most abundant fuel to hand namely coal. The environmental consequences of China and Indias coal-fired growth are potentially disastrous. Coal burning in China and India is generally inefficient and polluting emissions control is often lacking (or not enforced) and the quality of domestic coal is often poor. This means that larger quantities of coal must be burnt, meaning greater emissions of CO2 per unit of power output. International Energy Agency forecasts suggest that, by 2030, coal-fired power in these two countries will add some 3,000 million extra tonnes of CO2 to the atmosphere every year equivalent to around 20 times the UKs current total CO2 emissions from power generation. Over this same period, emissions from China alone are forecast to grow by as much as those of the entire industrialised world, by which time China will have long passed the US as the worlds largest emitter of greenhouse gases.

The real question from a climate policy view is therefore not whether China and India will burn coal, but whether they can burn it more cleanly

However, while coal is one of the most carbon-intensive fuels for power generation, it remains a plentiful and cheap resource for emerging economies. China and India have relatively modest natural gas reserves, and these are mostly located far from where power is needed. Developing gas infrastructure is costly and involves long lead times. In China and India, where brown- and blackouts are common, the priority is to build new capacity using proven technology as quickly as possible. Despite forecast growth in gas, nuclear and renewable energy in these countries, cost considerations, technical issues, energy security, and social and political factors all limit the scope for these alternatives to coal-fired power. The real question from a climate policy view is therefore not whether China and India will burn coal, but whether they can burn it more cleanly. All this means that it is a priority for the G8 to propose ways to reduce climate change through the deployment of advanced technologies for coal-fired power generation. A range of options exist. First, G8 countries could help promote the use of coal boilers and turbines able to operate at much higher temperatures and pressures than current plants can achieve improving combustion efficiency, thereby reducing coal consumption and CO2 emissions. A newly built standard pulverised coal plant achieves a typical efficiency of around 36%. But supercritical technology, employing new materials, can accommodate higher steam pressures and temperatures, achieving around 45% efficiency, with the potential to reach 50%.These levels of improvement reduce CO2 emissions by 25%. Ultra-supercritical technology is

expected to achieve efficiencies of up to 60% when it comes to market within the next decade, thereby halving emissions relative to existing standard plant. However, while the financial benefits from greater fuel efficiency easily offset the additional capital needed to buy such technology, the preference is still for least-cost sub-critical plant to meet accelerating demand, particularly in India where power sector reform has faltered and the government has numerous competing demands on spending. An alternative to building new supercritical plant is to retrofit existing capacity with more efficient turbines and boilers, thereby extending the station lifetime and avoiding the full cost of building a new plant. However, the downtime associated with a retrofit is costly, making it an unattractive proposition in both China and India, where supply is already struggling to meet demand. Co-firing of biomass with coal in conventional coal plants is another option for CO2 reductions, with proven deployment worldwide. While the uptake of co-firing in some countries has been slow usually as a result of unreliable biomass supply chains co-firing may be particularly well suited to countries such as India with large agricultural bases. However, even after overcoming the logistical and technical hurdles involved, the potential for CO2 reductions is relatively modest typically less than 10% and may be even less when considering the full life-cycle emissions associated with the growing and transportation of the biomass. lthough these options can make valuable contributions to reducing CO2 emissions, the greatest potential for large-scale cuts is likely to come from deployment of stepchange technologies, in particular CO2 capture and storage (CCS). This involves the capturing of flue gases exiting the combustion chamber, the stripping out of CO2, and its subsequent pumping into underground storage reservoirs. While the individual technology components are commercially available today, the capture, transportation, injection and storage of CO2 would add between 2060% to the cost of electricity. Of the different elements, the capture stage is the most difficult and costly, with a reduction in efficiency (an energy penalty) of around 1014% compared to a conventional power plant, largely because of the need to strip the residual CO2 from very large volumes of flue gas. Where the CO2

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can be utilised for enhanced oil recovery or for displacing methane in deep unminable coal seams (which can then be captured and used for power generation, in a process know as enhanced coalbed methane recovery) the associated economic benefit may offset some or even all of these costs. Capture costs are expected to fall significantly over the next 10 years or so, and one of the actions under G8 might be to persuade power plant designers in emerging economies to make new plant capture-ready, so as to facilitate deployment when technological breakthroughs make the technique cost competitive. Alternatively, the use of advanced coal combustion technology such as integrated gasification combined cycle (IGCC) plants combined with CCS can also reduce capture cost burdens. In an IGCC plant, the coal is reformed using steam to make a synthetic gas which can subsequently be separated into two streams: hydrogen, which can be combusted in a turbine; and CO2, which can be pumped underground. This combination can deliver power plant efficiencies in the region of 50%, with only a 34% energy penalty for the CO2 capture and handling. Problematically, however, commercial deployment of IGCC is still largely unproven and costly. Large-scale demonstrations of IGCC are ongoing in the US (with the FutureGen Initiative), Europe, Canada and Australia, and demonstrations and pilot CO2 storage projects are under way in Norway, Algeria, Canada and the US, although large-scale demonstrations of IGCC using CCS may be up to a decade away. Before this technology can be widely deployed, the costs of IGCC and CO2 capture must clearly be reduced.The capital cost of IGCC is expected to become competitive from around 2015, and the cost of CO2 capture using IGCC is expected to fall to $10 per tonne of CO2 over the same period the targeted objective of the US Department of Energy. At these levels, IGCC using CCS may emerge as a viable CO2 reduction measure if carbon prices in emissions trading markets are sustained at or above $1520 per tonne of CO2. Even with falling costs for IGCC and CCS, in the longer term the price of carbon is likely to be the only real commercial incentive for large-scale deployment of this kind of technology. However, under the rules for the Kyoto Protocols emissions trading flexible mechanisms, it is not clear that CCS is eligible for carbon credits, and many governments have not yet adopted a formal position regarding its use, largely because of uncertainties

Storing up trouble: Chinas insatiable demand for power, and massive coal reserves, could spell disaster for the climate

over the safety, permanence and public acceptance of CO2 storage. However, the EU is inching forward on accepting geological sequestration into its carbon dioxide Emissions Trading Scheme, subject to the development of suitable monitoring, reporting and site permitting requirements. In addition, the eligibility of CO2 storage under the Clean Development Mechanism the Kyoto mechanism that applies to reduction projects in developing countries is likely to be tested later this year through a project under development in Latin America, albeit using gas field permeate CO2 rather than power station flue gas. he acceptance of CO2 storage in emissions trading schemes is likely to be strongly influenced by the findings of the Inter-governmental Panel on Climate Changes Special Report on CO2 Capture and Storage, due for publication in September 2005. Such acceptance could improve the overall economics of capturing and storing power station CO2 by allowing projects to monetise their carbon reductions. However, even if marginal costs fall below the price of carbon, investors will need longer-term confidence in carbon prices than current trading schemes offer. As such, governments favouring the use of CCS will likely need to develop other policy and fiscal frameworks to address this uncertainty for investors. Within the G8, support for clean coal technology is growing. For energy

companies, such technology is increasingly seen as a way to preserve the value of their hydrocarbon assets in a carbon-constrained energy economy. For G8 members, the energy security afforded by burning domestic coal resources, particularly in the light of increasing prices and volatility in the oil and gas markets, will also be attractive. Governments and energy companies may find they are pulling in the same direction. For example, in the US, where powerful energy interests, and the voters in vital coal-mining states, have discouraged successive administrations from imposing carbon constraints, the promotion of clean coal technology may offer a glimmer of hope for US involvement in climate policy. As new coal-fired power stations built today will still be operational in 40 or 50 years time, decisions made now will have a major impact on CO2 emissions in coming years. Therefore, the G8 will need to focus on how to integrate clean coal technology into current power sector planning in China and India. There are several priorities for the G8 here. First, it will be necessary to continue the development and demonstration of low-cost carbon capture technology for use in coalfired power. Early storage and enhanced oil recovery/enhanced coalbed methane recovery opportunities should be encouraged to build capacity in geological storage. The G8 should search for opportunities to cooperate with emerging countries on specific projects and ongoing R&D initiatives wherever possible. At the same time, it will be important to ensure that the appropriate long-term policy and economic framework is in place to ensure the value of CO2 reductions is secure so that sound investment decisions can be made. Furthermore, with post-Kyoto options being tabled for the first time among parties to the next UN climate change conference later this year, the dialogue on rising CO2 emissions in emerging economies is sure to remain a central issue for policy-makers. Moreover, China and India offer huge potential for carbon credit projects through clean coal and, more importantly, export markets for clean coal technologies. As such, it may be that clean coal technologies present a powerful stimulus for American, Chinese and Indian engagement in the postEF Kyoto negotiations. Greg Cook and Paul Zakkour are London-based members of the energy and climate change team at international environmental consultancy ERM. E-mails: greg.cook@erm.com, paul.zakkour@erm.com

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