CCS Tax on fossil fuels
According to information presented during an IEA CCS workshop in Sydney, Australia in February 2012, the following approximate cost estimates for planned new Carbon Capture and Storage plants World-wide were provided:
CCS based on coal (a few R&D demo sites) was estimated to cost about 40 USD per ton of CO2, when fully developed.
CCS based on natural gas (a few operational sites) was roughly estimated to cost about 20 USD per ton of CO2.
CCS based on oil (no real experiments apart from a few EOR sites in North America) could be set at a cost somewhere in between (30 USD per ton of CO2).
Coincidentally, these preliminary cost estimates are fairly well aligned with the relative CO2 emissions from the various fuel types. These cost estimates are also roughly equivalent to the sulphur content of these fuels. And to some extent also the environmental burdens attached to these fuels (water and energy used in extraction processes, and air pollution and aerosols during combustion).
Contacts with major shipping companies have made it clear that a global CCS tax on bunker fuel would be preferable to a patchwork of regional Carbon trading schemes. Considering the environmental problems with this type of fuel (sulphur, NOx and particle pollution), the CCS tax should not be set lower than 50 USD per ton of CO2 emitted. As an example, in order to secure a transparent and non-bureaucratic system, the tax should be collected by a limited number of bunker fuel traders world-wide under strict IMO control.
New fuels have become prominent players on the markets in recent years. First of all, the fracking technology has led to methane production and associated emissions, mainly from US sources. It is estimated that CO2-equivalent emissions from producing and burning of this type of gas is approximately twice as high as conventional natural gas (thus a CCS cost around 40 USD per ton CO2 would bring it on par with coal).
In Germany and other European countries, the phase-out of nuclear power plants has led to re-opening of lignite (brown coal) open cast mining. Also Indonesia, Russia, India and China have traditionally exploited this type of fossil fuel. In October 2014 Canada announced the opening of the World’s first commercial CCS plant, which is based on local brown coal resources and local EOR projects. The plant has received CAD 240 million in public support out of a total construction budget of 1.5 billion CAD.
( see http://www.theguardian.com/environment/2014/oct/01/canada-switches-on-worldsfirst-carbon-capture-power-plant
). No production figures have yet been released from this plant. Brown coal is – both from an environmental point of view and regarding greenhouse gas emissions – considered a worse pollutant than traditional coal. Assuming a 50 % higher burden on the atmosphere, the CCS cost (or subsidy) could thus be set at 60 USD per ton of CO2.
Finally, the extraction of liquid petroleum products from tar sands primarily in Canada is generally considered one of the most in-efficient and dirtiest ways of producing liquid fossil fuels. It has recently been estimated that total CO2 emissions from the traded oil products are 3-4 times higher than from conventional oil products. This would imply that the CCS tax on this particular product should be higher than above 100 USD per ton of CO2 emitted.
It is thus suggested to create a level playing field between fossil fuel types, which take into account both environmental and climate change impacts. The CCS Tax system should be transparent and easy to implement. It should set clear targets for the cost of energy in 2020 to help businesses, consumers and governments in their investment planning. The following tentative tax levels are suggested to take effect in 2020. The system could start already in 2016 at a 50 % level, increasing the tax by 10 % points each year until 2020.
Fuel Type CCS Tax Global emissions Estimated revenue
(USD/t CO2) (Gt CO2) (Billion USD)
Tar Sand 100 1 1
Brown coal 60 3 2
Bunker Fuel 50 2 1
Coal & fracked gas 40 12 48
Oil 30 12 36
Natural Gas 20 6 12
Total (annual) 36 100**Which is close to the estimated Green Fund pledges made at COP15 ~ 100 Billion USD annually by 2020.Summary
A gradually implemented global CCS tax along these lines could be negotiated up to and agreed during COP 21 in Paris next year. Not to say that the revenue should be used for CCS projects alone. Other ways of spending the dividend from such a scheme could be negotiated in a parallel negotiation process. But, in order to create a level playing field for competing fossil fuel technologies in a transparent and predictable global system, global policy-makers should design such a scheme to help governments and energy-intensive industries decide on future investments now.
To some extent it is expected, that the revenue will be used to fund time-bound support schemes to implement new renewable energy and energy efficient technologies. These investments will go hand in hand with adaptation measures World-wide. All these measures will make our societies more resilient and contribute to global disaster risk reduction over the next few decades.