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Background to the Study
This study was undertaken on behalf of IEAGHG by Foresight Transitions Ltd. While a technology may be technically mature, it has become increasingly clear that the technology may not necessarily be considered commercially ‘bankable’ by investors. In this study, the potential for an index or indices to provide that confidence was explored. The findings from the study will be of interest to the broader energy community but, in particular, should benefit technology developers, CCUS end users, investors and policymakers.
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Key Messages
- Analysis and modelling have highlighted the essential role of carbon capture, utilisation and storage (CCUS) in the portfolio of technologies for cost-effectively achieving net zero. However, the window to achieve net-zero and remain within a 1.5°C carbon budget is shrinking rapidly and effective deployment of CCUS must accelerate.
- In its recent ‘Tracking Clean Energy Progress Report 2023’, where the International Energy Agency (IEA) assessed the progress of technologies to fulfil their potential on the path to net zero by 2050, CO2 capture and utilisation was assessed as ‘More efforts needed’ and CO2 transport and storage as ‘Not on track’.
- While CCUS technologies and their associated value chains are already technically mature and extensively deployed in certain industrial contexts, their ‘commercial readiness’ for deployment in a number of other industrial sectors, and the policy and regulatory frameworks required for them to be considered a ‘bankable’ asset by investors, are less well characterised and understood.
- The main barriers identified to CCUS being considered a bankable asset were related to commercial, policy and regulatory risk. Unless these risks were addressed effectively, it was likely that broader deployment at scale would be problematic.
- Means were considered to address these risks and to chart a path to bankability. The value of using an index, in much the same way that the technology readiness level (TRL) index is used for technology development, was explored as the focus of this study, i.e., to examine whether an index to assess the commercial maturity of CCUS technology would be of practical value. Insights were sought regarding the role that commercial readiness indices might play in providing the relevant market signals for CCUS to be considered a bankable asset.
- Indices are already applied in many spheres. Over 45 indices relevant to commercial, policy, regulatory and societal readiness were mapped and, of these, 38 were critically reviewed. Analysis found that the indices reviewed could be adapted to cover all aspects likely to be relevant to the establishment and upscaling of CCUS.
- In addition to reviewing the value of indices online, consultations via interviews and workshops were undertaken with specialists drawn from across the CCUS project developer community – project developers, policymakers, finance specialists, regulators, the environmental NGO community and representatives of civil society. Views were taken on which aspects of commercial readiness were important to the various stakeholders, as well as the stakeholders’ views on their perceived value of a bespoke index.
- Due to the substantial complexity already facing stakeholders in addressing commercial, policy and regulatory risk, consensus from the consultations found the perceived benefits of applying ‘commercial readiness’ indices to CCUS to be limited. CCUS specialists felt the investment in resources that would enable the wide range of audiences to understand new CCUS-relevant indices would be a distraction.
- Consultees also stressed that they viewed metrics1 as more important and more useful than indices to specific stakeholders. Metrics in existence, for example, credit ratings, CO2 capture efficiency and geological pore space were already used extensively. The relevant communities and audiences understood these long-established metrics; they are ubiquitous and have widespread application and acceptance.
- To overcome commercial barriers, views contended that, rather than developing indices, there was a need for a strengthening of relationships between stakeholders integral to the scaling of the sector. This would enhance stakeholder capacity, knowledge transfer, shared awareness of risks, uncertainty and complexity. For effective strengthening of relationships, CCUS projects would need to be constructed and operated via long-term government CCUS implementation plans, i.e., firm and stable policies in place.
- Moreover, the generation of a generic index or generic indices to provide insights to the broader commercial factors which need to be considered for CCUS bankability was considered a distraction by the majority of CCUS specialists. While a generic index such as the Commercial Readiness Index, as created and used by the Australian Renewable Energy Agency (ARENA), was not considered a priority, metrics were seen as having an important role in identifying aspects of CCUS commercial readiness and deployability.
- It was felt that the main drawback of the application of indices in this context was the time and resource that would be expended generating the capacity to understand them across a broad range of audiences.
- Barriers to bankability and widespread deployment of CCUS, as cited by specialists, ranged from affordability, lack of institutional knowledge, lack of policy champions, inadequate knowledge sharing and the need for the appropriate policy design. There was, however, a lack of agreement as to which of these specific barriers were a priority to be addressed.
- A set of important considerations regarding the process of CCUS policy design were raised by stakeholders, notably:
- There was a need for an overarching vision and narrative as to the role of CCUS in addressing net zero;
- Societal engagement mechanisms play an integral role to CCUS policy design processes; and that
- CCUS policy needs to account for the varying levels of risk appetite of industrial stakeholders, sectors and investors that were looking to adopt CCUS.
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