The Existing Opportunities and Challenges of Financing CCUS projects in China

Under the current environment, the Chinese CCS project financing is facing both opportunities and challenges.

Professor Liu Qiang of NDRC National Climate Strategy Center addressed China's strategic positioning CCUS related incentives and domestic policies. He identified high costs, financing complexities, and public acceptance as the major hurdles to developing CCUS in China. In the absence of global CCS frameworks, governments should bear the responsibility of funding and supporting CCS projects. According to emissions reduction scenarios, CCS could contribute 13-14% of emissions reductions by 2050, with CCS particularly playing a paramount role in carbon intensive industries and countries. The technology’s role in combating climate change has become increasingly clear and its development is projected to reach its golden period in the mid- to long-term (between 2030 and 2050). Professor Liu Qiang recommended committing to extensive CCS strategic research and providing policy and legal framework in line with the industry's growth potential to adopt a clear future direction for the technology’s roadmap.

Ms Annika Seiler, Finance Specialist (Energy) of Asian Development Bank (ADB), described the CCUS financing model of ADB, emphasising the Bank’s long commitment to support the development of CCUS demonstration projects, in particular the undertaking of feasibility studies and preparatory research.

Mr Chen Lan, Director of UK-China (Guangdong) CCUS Centre, Vice President of China Energy Construction Group Guangdong Electric Power Design Institute (GEDI), addressed the influence of developing CCUS and its demonstration projects on the industrial transformation and upgrading in China. He acknowledged the need to develop 3 to 5 representative national large-scale CCUS projects with the support from international partners and assistance of overseas markets. He also stressed on the role that CCUS could play in capital markets and the importance of relying on market-driven innovations. Mr. Chen identifies price subsidy mechanisms and carbon market incentives as stable indispensable mechanisms to promote CCUS projects at this early stage of development. He also recommended the establishment of a multi-industry chain that could accommodate the interests and needs of CCUS by the Government in China.

Prof Lin Qianguo, Senior Advisor of Global CCS Institute (GCCSI), described the key issues hindering the incorporation of CCUS into the national carbon market. He noted that, ever since 2010, GCCSI initiated a set of steps to support China's CCS-related activities, starting with backing the offshore project in Guangdong. Professor Lin views that linking CCUS with the carbon market offers a strong market signal and incentives for investors. The downturn in EU carbon markets was one of the major reasons the development of many projects stalled and was even aborted, while the US and Canadian cases serve as a good example of the market push that could be gained from including CCUS in regional carbon trading plans. Professor Lin recommends setting research priorities for project requirements and methodologies, particularly focusing on carbon storage for EOR benefits.

Professor Liu Qiang admitted that while renewable energy technologies play an imminent role in optimising the Chinese energy mix structure and promote energy security, there exists a critical misbalance between the subsidy levels that renewable energies received in comparison to CCUS projects. Shaanxi Provincial Development and Reform Commission recommended the introduction of a unified policy for carbon capture metering in order to calculate subsidies, capture capacities and sequestration in the project approval phase, and that the NDRC should be in charge of approving megaton projects while the approval of one-million-tonne or less projects would be the responsibility of local Development and Reform Commission. In this regard, Dr. Gilbert recommended the reliance on a third independent party for accounting purposes. by an independent third party accounting. Shenhua Group representatives hoped that state governments could facilitate the demonstration of CCS projects by offering policy support that could overcome developmental obstacles in early stages. Professor Liu Qiang believes, based on the domestic experience with seven pilot carbon market schemes, that CCS projects could be integrated into the bottom-up approach adopted by the national emissions trading schemes and make use of the already accumulated experience in the field. Ms. Annika Seiler concluded that if no preferential status is awarded to CCS projects, the technology will lose its drive and lag in the race with other more established low-carbon technologies towards reaching market competitiveness.

Hosted by Ms. Annika Seiler of ADB, the forum on financing CCUS projects and policy environment construction saw the delegates call for support of CCUS programme policies and measures to link the technology with the carbon market. The delegates also advised learning from foreign policy measures and for domestic and foreign institutions to co-finance development projects in China as well as share in-depth knowledge through future and extensive discussions.

Professor Shen Pingping of the Petroleum Exploration and Development Research Institute stated that China should vigorously develop CO2-EOR applications but due to high initial costs of capture technologies, an appropriate level of corporate subsidy should be provided as well further investigations of saline aquifer storage potentials.

Dr. Liang Xi acknowledged that the government should establish clear financial incentives to consider the inclusion of CCS into the carbon market in the project development stage, where actions and responsibilities are to be clear. There is a wide agreement in China that a climate change mitigation strategy is a long-term goal and so a long-term policy roadmap should be developed at present.

Professor Liu Qiang believes that fiscal incentives are critical as he regards the high capital costs as the largest hurdle to reaching the market. For EOR-incorporating CCUS projects, revenue could be generated from increased oil production while non-EOR projects should rely on carbon pricing mechanisms. There should be emphasis on the need for sound coordination among all involved parties and governmental departments and between the government and the industry.

Graham Winkelman, Senior Manager at BHP Billiton Environment, envisages CCS as a more than viable emissions reduction technology. He noted that BHP shares technology knowledge and experience with the Boundary Dam project and stresses the need for innovative solutions to realize cost reductions.

Mr. Neal Carlin of the British Embassy said he had participated in multiple CCS-related activities in Guangdong and indicated that the UK and ADB had established a CCS Trust Fund to aid China and other emerging economies in developing the technology.

Mr. Li Dapeng of Shaanxi Yanchang Research Institute of Petroleum Hydrocarbon Research Centre stipulated that China’s coal consumption accounts for half of global consumption and if the government fails to commercialise CCS technologies, the private sector would be investment-demotivated.

Mr. Liu Qiang called for a multi-disciplinary, non-hasty approach in developing a policy framework to domestically develop, demonstrate, and commercialise CCS, suggesting that CCS monitoring standards would be released sometime later this year. Lastly, professor Shen Pingping acknowledged the important role that a significant carbon price could play in this aspect, labeling the carbon market as a pivotal driving force for the CCS market.

Mr. Brad Page concluded the workshop with the suggestion that “after this meeting, the first thing we could do is go to close relatives and our friends who have not heard of CCS so far and inform them, so that more people would recognise the importance of CCS in establishing energy security and fighting climate change”.