Carbon Capture and Storage faces challenges in Australia

Carbon Capture and Storage (CCS) is “high cost, undemonstrated, and faces key challenges – factors that are holding back widespread use in Australia, according to a report from Credit Suisse.

Sandra McCullagh, research analyst, Credit Suisse

Credit Suisse research analysts Sandra McCullagh and Zoe Whitton have written a report exploring the challenges and opportunities for CCS in Australia, reporting that “finding suitable reservoirs and then safely monitoring the sequestration seems to be what holds back the widespread use of CCS.”

Credit Suisse notes Federal Energy and Environment Minister, Josh Frydenberg, “has described CCS as ‘absolutely critical’ to deal with carbon dioxide,” but notes that Australian CCS projects “have struggled, with funding cut in 2014.” Finding suitable natural reservoirs for the sequestration part of CCS is “an if (not when) proposition at this stage in the game, with implications for Australian power mix under a decarbonisation scenario,” the report notes.

“There’s a long way to go until CCS is viable in Australia, particularly around whether it has any abilities to impact on climate change in Australia,” said McCullagh, Australia equities – head of environment, social, governance research. “When I spoke to various industry components, they were indicating that it was at least 20 years out for Australia. It’s not viable to focus CCS on coal fired generation, if we’re at least 20 years out.”

For example, the Credit Suisse report notes that AGL, which has disclosed a detailed 2-degree scenario approach for the company, assumes that it will close all coal fired generation in Australia by 2048. Further, AGL has committed to close the Liddell power station by 2022, Bayswater in the 2030s and Loy Yang in the 2040s. If CCS for coal fired generation takes 20 years to become commercially viable, it’s of limited utility to AGL.

The factoring in CCS to two-degree scenario models may not be an optimal assumption to build forward plans on for Australian companies, McCullagh said.

“We want to have a debate about CCS for those difficult-to-shift emissions such as from our industrial processes,” she said. “If Australia wants to have an industrial sector in 2040 onwards, and if we have a lot of renewables generation, we will be well set up globally, and we could have a good industrial sector, and perhaps that should be the focus, rather than focus on CCS for emissions from coal fired generation.”

Credit Suisse notes that “difficult-to-avoid” emissions come from industrial sources such as cement and steel, and those emissions might “be higher in the merit order for CCS than thermal generation emissions, which can mostly be avoided through alternative sources of energy.”

Credit Suisse has used this research as a starting point for engagement with companies, McCullagh said.

“Rio Tinto held a call on their climate related report for 2016, and we did ask them questions about their assumptions on CCS,” she said. “It’s something we now get to raise with each [impacted] company. Rio Tinto didn’t give much disclosure away, but my take on it was that they didn’t think CCS was going to be a big thing for thermal coal-fired electricity generation, but would be for steel and other industries. That’s where they thought that the R&D was going.”

Credit Suisse has discussed the topic with other companies as well.

“BHP is assuming that CCS is a necessary component, whereas AGL has taken a different tack and said that CCS is not part of their 2 degree scenario,” she said. “We’re in the early days of disclosure on 2 degree scenarios, and there is a lot more engagement to go.”

Rachel Alembakis is the publisher of The Sustainability Report a weekly digital publication that provides reporting into Environmental, Social and Governance (ESG) issues related to companies listed on the Australian Stock Exchange.