Morrison government to funnel climate funds into carbon capture and storage

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New climate change measures proposed by the Australian federal government in response to a review of its $2 billion Climate Solutions Funds are opening the door for funding of carbon capture and storage (CCS) from fossil fuel projects. In addition to championing CCS as a way to attract more private investment, the review has recommended expanding the investment mandate of the government’s clean energy financing agencies – the Clean Energy Finance Corporation (CEFC) and the Australian Renewable Energy Agency (ARENA) – beyond the green energy remit.

The Climate Solutions Fund, an extension of the Abbott-era Emissions Reductions Fund, pays polluters to reduce their carbon emissions and represents one of the main pillars of the Australian federal government’s climate policy intended to help it achieve its Paris Agreement goal by 2030. Its review was carried by an expert panel headed by the former gas industry executive and business council president, Grant King, who was asked to come up with new ways to reduce greenhouse gas emissions at low cost.

The panel found the government would attract more private investment in the Climate Solutions Fund if legislation were amended to “enable a method to be developed for carbon capture and storage”. The review has made 26 recommendations, 21 of which, including all those relating to CSS, were readily adopted by the government.

The King report also recommended an “expanded, technology-neutral remit” for the CEFC and ARENA allowing for funding for projects and technologies outside renewables, such as coal or gas-fired generators incorporating CSS. According to Energy and Emissions Reduction Minister Angus Taylor, such a policy is “the next step in the government’s ‘technology not taxes’ approach to reducing emissions.”

“The government will target dollar-for-dollar co-investment from the private sector and other levels of government to drive at least $4 billion of investment that will reduce emissions across Australia,” he said on Tuesday.

Climate funding for polluters

With ARENA’s funding set to dry up in mid-2020, the latest announcement can be interpreted as a potential new allocation of funds for the agency through an upcoming federal budget. However, this also means that renewable energy projects will now need to compete with fossil fuel incumbents for ARENA grant funding. Under the current legislation, both agencies are only allowed to support renewable energy projects.

However, earlier this month, Taylor committed another $300 million to the CEFC and issued new instructions around its investments in hydrogen projects, including those powered by fossil fuels. The move was followed by the government’s adoption of new legislation designed to buttress the production of hydrogen from brown coal and lay the foundations for future CCS developments, effectively clearing the way for a commercial-scale CSS project in Victoria’s Latrobe Valley.

Although shocking, the latest announcement does not come out of the blue. The shift away from solar and wind was signaled in February when Taylor said the Coalition would look to address “next challenges” in emissions reduction, as part of its as yet unreleased but much-anticipated technology roadmap, with the help of “hydrogen, carbon capture and storage, lithium and advanced livestock feed supplements to name a few”.

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But twisting the purpose of the national clean energy agencies to support CSS developments is deeply problematic for a number of reasons. First, reviving a technology that does not stack up and has a bad reputation for its low-efficiency and high cost can solely be interpreted as the government’s direct support for the fossil fuel industry. In Australia, CSS has been a hotly-contested topic after it was promised billions in taxpayer monies for very little result. Noting that despite decades of subsidies, there is not one single unsubsidized coal CCS project in the world, Tim Buckley, Director of Energy Finance Studies with IEEFA Australasia, said that “there is zero commercial justification for Australian fossil fuel firms to invest in CCS absent a price on carbon”.

While it may play a role in cutting emissions at industrial sites, CSS should not be allowed to take funding away from cheaper clean energy technologies, with the levelized cost of electricity (LCOE) for renewables more than competitive than any available alternative. “The race is over in electricity generation, with renewable energy and energy storage clearly the lowest cost, most efficient and investor-friendly technology solution,” the Clean Energy Council said on Twitter in reaction to the review. “It would be a distraction and inefficient use of taxpayer funds to provide additional support for CCS technologies that have already received billions of dollars of funding over the past decade and more, and which remain very difficult, complex and costly to deploy.”

The Climate Council stated the obvious – that propping up the fossil fuel industry instead of accelerating the transition to renewables and storage is completely at odds with action on climate change. “CCS is incredibly expensive. Australian governments have already spent hundreds of millions of dollars on this technology and have very little to show for it. CCS is not a climate solution, but an attempt to prolong the role of fossil fuels in the energy system,” said Climate Councillor and energy expert Greg Bourne.

Unsurprisingly, the plan to include CCS in the emissions reduction fund has been warmly welcomed by the fossil fuel industry. Andrew McConville, the head of the Australian Petroleum Production and Exploration Association, an industry lobby group, said the review had proposed sensible opportunities to drive investment in emissions reduction. “Importantly, the report underlines the key role the oil and gas industry can play in cutting emissions,” he said.

Santos Managing Director and CEO Kevin Gallagher said the review makes ‘sensible, job-creating’ recommendations that will cut through red and green tape to accelerate investment in real emissions reduction opportunities in Australia. “Just as private investment in renewable energy deployment was accelerated through public policy and funding over the last two decades, we now need to focus on accelerating CCS in similar ways,” Gallagher said.

However, the fact that the technology which has been around for decades has failed to demonstrate its viability at scale is obvious from the low number of projects developed to date. Globally, there are now 19 large-scale CCS facilities capturing an estimated 40 million tonnes of CO2 every year, according to data from the Global CCS Institute. An additional 32 facilities are at various stages of planning and development.

Australia is the home to the world’s largest geological storage facility – Chevron’s Gorgon project at its LNG plant in the Pilbara, which is also the only notable CSS development in the country to date. The project, which is estimated to cost in excess of US$55 billion (AU$83.5 billion), started operation in August after years of delay.