**Economics of CCS**

#### **Chapter 11**

**Provisional chapter**

#### **Economics of Carbon Capture and Storage Economics of Carbon Capture and Storage**

John C. Bergstrom and Dyna Ty John C. Bergstrom and Dyna Ty

Additional information is available at the end of the chapter Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/67000

#### **Abstract**

Human-engineered capture of CO2 emissions at the point source and subsequent longterm storage of this CO2 underground represent a potential mitigation strategy for global warming. The so-called carbon capture and storage (CCS) projects are technically feasible but have not been well established from an economic efficiency perspective. This chapter uses economic theory to describe the costs, benefits, and economically efficient level of CCS provision. Achieving the economically efficient level of CCS provision requires consideration of both the private and public costs and benefits of CCS and will also likely require some degree of government intervention in the form of economic incentives and/or direct regulation.

**Keywords:** CO2 , emissions, point source, capture, storage, economics, costs, benefits

#### **1. Introduction**

Since the late twentieth century, a newly developed technology has become one of the tools that can help mitigate the negative impacts on climate change from rising levels of greenhouse gases, especially CO2 . This technology is commonly known as the carbon capture and storage (CCS). CCS technology involves "capturing" CO2 emissions, say from a coal-fired power plant, and then depositing the captured CO2 gas in a storage site, such as an underground geological formation, where it will not enter the atmosphere. CCS projects are currently being tested and implemented throughout the world. However, economic feasibility of human-engineered CCS is not well established [1–4]. The purpose of this chapter is to discuss the economic benefits and costs of CCS projects from both private and public perspectives in order to shed light and provide insight on the potential for CCS technology to

and reproduction in any medium, provided the original work is properly cited.

© 2017 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, provide a viable mitigation strategy for helping to meet twenty-first century global CO<sup>2</sup> emission reduction goals, such as set forth in the 2015 United Nations Climate Change Conference in Paris, France.

#### **2. Carbon and oxygen cycles1**

Carbon (C) is the basic building block for plant, animal and human life—all are "carbonbased" organisms. Plants, animals, and humans also depend on oxygen (O2 ) for survival. The cycling of carbon and oxygen in ecosystems is ultimately powered by solar energy. In photosynthesis, plants combine carbon dioxide (CO2 ), water (H2 O), and solar energy to produce sugars, oxygen, and energy. In cellular respiration, animals and humans combine sugars and oxygen to produce carbon dioxide, water, and energy. Carbon-oxygen-hydrogen compounds (e.g., sugars) pass through the food chain or web in ecosystems via herbivores, carnivores, and omnivores. In the food chain, some of the carbon and oxygen stored in organic compounds are returned to the environment in the form of CO2 and H2 O via cellular respiration. When a large organism such as a plant or an animal dies and is decomposed by microorganisms, more of the CO2 and H2 O stored within the plant or animal is returned to the environment where it can be taken up again by plants to produce more carbon-oxygen-hydrogen compounds which can then be taken up again by animals and humans.

Not all carbon and oxygen are recycled in the relatively short-term cycle described above. Some carbon and oxygen from decomposing plants and animals are converted by relatively long-term geologic processes into rocks (e.g., carbonate rock formations such as limestone) and minerals (e.g., coal, oil, and natural gas) stored in the earth's crust. When coal, oil, and natural gas enter economic systems, they are termed fossil fuels. The "fossil" part of this term derives from the fact that they come from fossilized remains of plants and animals. The "fuel" part is derived from the fact that coal, oil and natural gas, and their processed derivatives (e.g., gasoline) are burned as fuel in engines and other machinery found throughout our economic system (e.g., planes, trains, automobiles, electricity power plants, and home furnaces). When fossil fuels are burned, CO2 (and other emission gases—CH<sup>4</sup> , N2 O) stored in these minerals is released back into the environment. The release of CO<sup>2</sup> from burning fossil fuels is the focus of recent concern and debate over global climate change.

As indicated in the discussion above, human activities affect global climate change through impacts on the carbon and oxygen cycle. Burning of fossil fuels is a major contributor to releasing more CO2 into the atmosphere, primarily from terrestrial sources of stored carbon (e.g., coal deposits, oil deposits, and trees). Human activities can also help to remove CO2 from the atmosphere, with one of the primary means being increasing the storage of carbon in terrestrial plants. For example, taking actions to protect "green space" including farmland from development (and managing forests in a sustainable manner following an optimal harvest and replanting schedule) helps to remove CO2 in the atmosphere through carbon sequestration in plants via photosynthesis. Farms, forests, and other green space

¹This section appears also in Ref. ([5], p. 16–18).

areas thus act as "carbon sinks" helping to counteract the greenhouse effect. Another means for storing carbon is through human-engineered carbon capture and storage projects.

## **3. CCS costs**

emis-

) for survival. The

O), and solar energy to produce

O via cellular respiration. When a

, N2

O) stored in these min-

from burning fossil fuels is the

in the atmosphere through

provide a viable mitigation strategy for helping to meet twenty-first century global CO<sup>2</sup>

in Paris, France.

of the CO2

and H2

When fossil fuels are burned, CO2

¹This section appears also in Ref. ([5], p. 16–18).

releasing more CO2

CO2

**2. Carbon and oxygen cycles1**

242 Recent Advances in Carbon Capture and Storage

tosynthesis, plants combine carbon dioxide (CO2

are returned to the environment in the form of CO2

can then be taken up again by animals and humans.

erals is released back into the environment. The release of CO<sup>2</sup>

focus of recent concern and debate over global climate change.

optimal harvest and replanting schedule) helps to remove CO2

sion reduction goals, such as set forth in the 2015 United Nations Climate Change Conference

Carbon (C) is the basic building block for plant, animal and human life—all are "carbon-

cycling of carbon and oxygen in ecosystems is ultimately powered by solar energy. In pho-

sugars, oxygen, and energy. In cellular respiration, animals and humans combine sugars and oxygen to produce carbon dioxide, water, and energy. Carbon-oxygen-hydrogen compounds (e.g., sugars) pass through the food chain or web in ecosystems via herbivores, carnivores, and omnivores. In the food chain, some of the carbon and oxygen stored in organic compounds

large organism such as a plant or an animal dies and is decomposed by microorganisms, more

can be taken up again by plants to produce more carbon-oxygen-hydrogen compounds which

Not all carbon and oxygen are recycled in the relatively short-term cycle described above. Some carbon and oxygen from decomposing plants and animals are converted by relatively long-term geologic processes into rocks (e.g., carbonate rock formations such as limestone) and minerals (e.g., coal, oil, and natural gas) stored in the earth's crust. When coal, oil, and natural gas enter economic systems, they are termed fossil fuels. The "fossil" part of this term derives from the fact that they come from fossilized remains of plants and animals. The "fuel" part is derived from the fact that coal, oil and natural gas, and their processed derivatives (e.g., gasoline) are burned as fuel in engines and other machinery found throughout our economic system (e.g., planes, trains, automobiles, electricity power plants, and home furnaces).

(and other emission gases—CH<sup>4</sup>

into the atmosphere, primarily from terrestrial sources of stored car-

As indicated in the discussion above, human activities affect global climate change through impacts on the carbon and oxygen cycle. Burning of fossil fuels is a major contributor to

bon (e.g., coal deposits, oil deposits, and trees). Human activities can also help to remove

carbon sequestration in plants via photosynthesis. Farms, forests, and other green space

 from the atmosphere, with one of the primary means being increasing the storage of carbon in terrestrial plants. For example, taking actions to protect "green space" including farmland from development (and managing forests in a sustainable manner following an

), water (H2

and H2

O stored within the plant or animal is returned to the environment where it

based" organisms. Plants, animals, and humans also depend on oxygen (O2

#### **3.1. Components of total fixed costs and total variable costs**

CCS projects are not cheap. For example, in the United States, NRG Energy and JX Nippon Oil and Gas Exploration, Inc., are investing around \$1 billion USD on the Petra Nova CCS project. This project when completed in late 2016 is projected to capture and store about 1.4 million tons of carbon per year from one of NRG's existing coal-fired power plants in the State of Texas, USA [6, 7]. In this section, we discuss the concepts and components of CCS costs.

First, we need to realize that CCS projects are actually two interconnected projects in one. The first project is "carbon capture" and the second project is "carbon storage." Each of these projects has various options with different costs. As indicated in the previous section, ecosystems via the carbon and oxygen cycle will naturally capture carbon dioxide from the air (e.g., through photosynthesis) and then store the captured carbon in plants, the soil, and rocks and minerals. While CCS through natural ecosystem processes and functions is a viable mitigation strategy in response to CO2 -induced global climate change concerns (e.g., planting trees), the focus of this chapter is on human-engineered CCS.

In the case of carbon capture, human-engineered means of capturing carbon focus on "endof-pipe technologies" that remove CO2 from industrial emissions, particularly fossil fuel-fired (e.g., coal) electricity power plants. The "best available technology" (BAT) in the current time period (2016) is chemical absorption of CO2 from emissions at the point source (e.g. power plant smokestack). Once the CO<sup>2</sup> has been removed from emissions, say from a coal-fired power plant, the CO2 can then be converted by pressurization to a liquid for transportation and storage [1, 2, 8].

Thus, one component of the costs of human-engineered carbon capture is the costs of the equipment (e.g., "scrubbers") and absorption chemicals used to remove CO2 from emissions [4, 9]. From a neoclassical microeconomics theory perspective, the "scrubber" equipment costs are "fixed costs" and the absorption chemicals are "variable costs." Fixed costs are so-called because they are a sunk cost which does not vary with the level of production. For example, once purchased and installed, a coal-fired power plant owner must incur the costs of scrubber equipment whether they are producing electricity or not (e.g., they still have to pay off the equipment as a capital cost).

Variable costs are so-called because they vary with the level of production. For example, as more (less) electricity is produced from a coal-fired power plant, more (less) emissions are generated, and more (less) absorption chemicals must be purchased. The fixed costs of humanengineered carbon capture can be quantified by multiplying the units of equipment purchased by the market price of equipment per unit (plus loan fees and interest if the equipment is financed). The variable costs can be quantified by multiplying, say the units of absorption chemicals purchased by the market price of chemicals per unit.

In addition to the direct, out-of-pocket fixed and variable costs of carbon capture discussed above, there are also opportunity costs of human-engineered carbon capture. For example, from an energy use perspective, human-engineered carbon capture at an electricity power plant comes with an energy use cost in the form of electricity generation that must be given up in support of carbon capture at the plant. This so-called energy penalty can be quantified by multiplying the amount of electricity lost in order to support carbon capture times the market price of electricity [2, 9–11].

After carbon is captured at a point source such as a coal-fired electricity power plant, it must be transported to and stored at a long-term storage site. At the time this chapter is being written, the most practical long-term storage sites appear to be various forms of natural underground geologic cavities (NUGCs). One option under this category is NUGC which once held crude oil and/or natural gas deposits but has been depleted through mining (e.g., oil and gas wells). Oil and gas companies already inject CO2 into operational oil and gas wells in order to squeeze more oil and gas out of the resource deposit. Thus, the technology for injecting CO2 captured from point source emissions into NUGCs where oil and gas deposits have been depleted through mining is well proven [9, 12, 13].

Because natural deposits of oil and gas have been stored by the carbon and oxygen cycle (see above) in NUGCs for thousands and millions of years, NUGCs have displayed the ability to store new CO2 injected into these formations for long periods of time with minimal leakage of CO2 back into the atmosphere. In addition to NUGCs where oil and gas deposits have been depleted, geologists and engineers can locate new NUGCs capable of storing large quantities of CO2 with minimal leakage for long time periods [9, 13].<sup>2</sup>

In order for carbon captured at the point source to be stored at long-term storage site, it must be transported from the point source to the storage site. The process for transport is generally to convert CO2 captured at the point source to a liquid through pressurization, and then move this liquid to the storage facility by truck, train, or pipeline. Assuming that NUGCs are used for long-term storage, the costs of carbon storage will mostly be the fixed and variable costs of converting CO2 to a liquid, transporting it to the storage site, and then injecting it into the NUGCs [9, 13]. After injecting the CO2 into an NUGC, the ongoing costs of storage should be minimal (e.g., limited to costs of monitoring for leakages).

The fixed costs of carbon storage (including transportation) include the costs of pressurized transport trucks and train cars, and the costs of installing a pipeline. Fixed costs also include the costs of any equipment needed to remove captured CO2 from a truck, train car, or pipeline and inject it into NUGCs. These fixed costs can be quantified by multiplying the units of equipment (e.g., transport truck or rail car) purchased by its market price per unit. The variable costs of carbon storage include payments to labor (e.g., workers who operate and main-

²As discussed in Section 2, natural chemical cycles covert carbon to hard rock and mineral deposits which further enhances long-term storage with minimal leakage.

tain trucks, trains, pipelines, and injection equipment), purchase of replacement parts, and the costs of fuel and power needed to operate and maintain trucks, trains, pipelines, and injection equipment. These variable costs can be quantified by multiplying the units employed (e.g., number of workers) or purchased (e.g., number of replacement parts) by the market wage rate for labor or the market price for replacements parts [8, 9, 13].

We can now define the total costs of carbon capture and storage (*<sup>T</sup> <sup>C</sup>*ccs) as

$$T\,\mathbf{C}\_{\rm as} = \left(T\,\mathbf{F}\,\mathbf{C}\_{\rm as}^{\rm c} + T\,\mathbf{V}\,\mathbf{C}\_{\rm as}^{\rm c}\right) + \left(T\,\mathbf{F}\,\mathbf{C}\_{\rm as}^{\rm T} + T\,\mathbf{V}\,\mathbf{C}\_{\rm as}^{\rm T}\right) + \left(T\,\mathbf{F}\,\mathbf{C}\_{\rm as}^{\rm s} + T\,\mathbf{V}\,\mathbf{C}\_{\rm as}^{\rm s}\right) \tag{1}$$

where

financed). The variable costs can be quantified by multiplying, say the units of absorption

In addition to the direct, out-of-pocket fixed and variable costs of carbon capture discussed above, there are also opportunity costs of human-engineered carbon capture. For example, from an energy use perspective, human-engineered carbon capture at an electricity power plant comes with an energy use cost in the form of electricity generation that must be given up in support of carbon capture at the plant. This so-called energy penalty can be quantified by multiplying the amount of electricity lost in order to support carbon capture times the market

After carbon is captured at a point source such as a coal-fired electricity power plant, it must be transported to and stored at a long-term storage site. At the time this chapter is being written, the most practical long-term storage sites appear to be various forms of natural underground geologic cavities (NUGCs). One option under this category is NUGC which once held crude oil and/or natural gas deposits but has been depleted through mining (e.g., oil and gas

to squeeze more oil and gas out of the resource deposit. Thus, the technology for injecting

Because natural deposits of oil and gas have been stored by the carbon and oxygen cycle (see above) in NUGCs for thousands and millions of years, NUGCs have displayed the ability to

In order for carbon captured at the point source to be stored at long-term storage site, it must be transported from the point source to the storage site. The process for transport is generally

this liquid to the storage facility by truck, train, or pipeline. Assuming that NUGCs are used for long-term storage, the costs of carbon storage will mostly be the fixed and variable costs

The fixed costs of carbon storage (including transportation) include the costs of pressurized transport trucks and train cars, and the costs of installing a pipeline. Fixed costs also include

line and inject it into NUGCs. These fixed costs can be quantified by multiplying the units of equipment (e.g., transport truck or rail car) purchased by its market price per unit. The variable costs of carbon storage include payments to labor (e.g., workers who operate and main-

²As discussed in Section 2, natural chemical cycles covert carbon to hard rock and mineral deposits which further en-

captured from point source emissions into NUGCs where oil and gas deposits have been

 back into the atmosphere. In addition to NUGCs where oil and gas deposits have been depleted, geologists and engineers can locate new NUGCs capable of storing large quantities

injected into these formations for long periods of time with minimal leakage

captured at the point source to a liquid through pressurization, and then move

to a liquid, transporting it to the storage site, and then injecting it into the

into an NUGC, the ongoing costs of storage should be

from a truck, train car, or pipe-

into operational oil and gas wells in order

chemicals purchased by the market price of chemicals per unit.

price of electricity [2, 9–11].

244 Recent Advances in Carbon Capture and Storage

CO2

of CO2

of CO2

store new CO2

to convert CO2

of converting CO2

NUGCs [9, 13]. After injecting the CO2

hances long-term storage with minimal leakage.

wells). Oil and gas companies already inject CO2

depleted through mining is well proven [9, 12, 13].

with minimal leakage for long time periods [9, 13].<sup>2</sup>

minimal (e.g., limited to costs of monitoring for leakages).

the costs of any equipment needed to remove captured CO2

*TF Cccs <sup>c</sup>* = is the total fixed costs of carbon capture at the point source;

*TV C*ccs *<sup>c</sup>* = the total variable costs of carbon capture at the point source;

*TF C*ccs *<sup>T</sup>* the total fixed costs of captured carbon transportation to storage site;

*TV C*ccs *<sup>T</sup>* the total variable costs of captured carbon transportation to storage site;

*TF C*ccs *<sup>s</sup>* the total variable costs of carbon storage at storage site;

*TV C*ccs *<sup>s</sup>* is the total variable costs of carbon storage at storage site.

With respect to economic efficiency, it is imperative we measure the marginal costs of human-engineered CCS. The short-run marginal costs (MCCCS) of human-engineered CCS are defined as

$$M\,\mathcal{C}\_{\rm ccs} = \frac{\partial T\,\mathcal{C}\_{\rm ccs}}{\partial Q\_{\rm O\_{i}}}\tag{2}$$

where *Q*CO2 = is the quantity of CO2 captured and stored.

#### **3.2. Measures of total marginal fixed costs and marginal variable costs**

In practice, there are two common measures used in the cost-benefit analysis to make per-unit CSS costs and benefits comparably equivalent for any given potential level of optimal quantities of carbon dioxide (CO2 ) being captured and stored. These units are measured through time and space either in millions of tons of carbon (MtC) or of CO2 (MtCO2 ) avoided per year, that is, MtC/year or MtCO2 /year.

As described above in the definition of the total costs of carbon capture and storage (TCCCS), TCCCS consists of total fixed costs and total variable costs of carbon capture at the point of source, captured carbon transportation to storage, and carbon storage at the storage site. With respect to economic efficiency, the marginal cost (MCccs) is the imperative measure of the costs of human-engineered carbon capture and storage technology. In this chapter, marginal costs of employed CCS technology (MCccs), as well as marginal benefits received from employed CCS technology (MBccs), are quantified as US dollar per ton carbon (\$/tC) or US dollar per ton carbon dioxide (\$/tCO2 ),3 where one ton of carbon equals 3.67 tons of carbon dioxide.4

According to recent literature, an estimated avoided total cost of CCS per unit (MCccs) is between US \$225/tC and \$315/tC (or US \$61/CO2 and \$86/tCO2 ), but a considerable reduction in MCccs can arise in the near future because of continuously technological improvements in CCS [8]. To give a breadth of findings, estimates of marginal cost avoided can be shared in three cost components: (1) marginal costs of carbon captured at the point of source, which range from US \$200/tC to \$250/tC [8]; (2) marginal costs of captured carbon transportation to storage, which range from US \$5/tC to \$10/tC per 100 km [8]<sup>5</sup> ; and (3) marginal costs of carbon stored at the storage site, which range from US \$20/tC to \$55/tC [14].6
