Thank you very much for giving me the opportunity to talk to you today. It's really a pleasure.
I'm going to start by giving you some general background on CO2 capture and storage. I'll give you a sense of what's changed, what's happened, and why people are talking about this seriously.
First of all, at the very top level, I see CO2 capture and storage not as a means to enhance oil recovery, although that is a perfectly useful thing to do, but principally as a way to manage the CO2 emissions from fossil energy, as part of a global climate strategy. The fact is that we have to essentially eliminate global CO2 emissions over the lifetime of my children if we're to avoid really dramatic climate change. It is simply not plausible that we can switch away from fossil energy at the pace we would need to, so the ability to manage the CO2 emissions from fossil energy systems while we also build non-fossil energy systems is a crucial component of our ability to cut emissions very quickly in the face of the climate challenge. That's the top-level view.
Fifteen, or now almost twenty, years ago, when I first encountered this topic in my days as a grad student at MIT, there were just a handful of papers and a few academics interested, and nobody took it seriously. Now we have a large amount of R and D and many serious projects. We have the IPCC “Special Report on Carbon dioxide Capture and Storage”—for which I was the most senior Canadian lead author—and a whole series of other reports.
But more than all that talk, we have two major projects that operate today that are putting CO2 underground beyond the business as usual. These have nothing to do with enhanced recovery. In both these projects, money was spent for the sole purpose of avoiding atmospheric emissions. There will be one more such project on line by the end of this calendar year, and there are a host of serious projects starting up around the world. In a meeting in the next month, it looks like the European leaders will commit to something like six of them. These are power-plant scale projects.
So a lot is happening on this topic. Why has it moved so fast? The answer is not innovation. We did not get from where we were fifteen years ago on this topic to where we are today by innovation. The reason we moved so quickly is that we realized that in fact CO2 capture and storage consists of an assemblage out of a toolbox of pre-existing technologies that already exist at the billion-dollar commercial scale. It's a new way to do the plumbing, a new way to think about fossil energy.
Let me tell you about some of the pieces that already exist in that toolbox. They existed fifteen years ago and they exist today, and they are the underlying reason why we can say with some confidence that we are ready to deploy this technology. It's not that we know everything, it's not that there are no risks, and it's not that the costs won't be big; it's that we're ready to go.
The reasons are the following. These are a list of the component technologies that already exist.
Gasification is not an experimental technology. There are 60 gigawatts—the equivalent of 60 king-sized coal-fired power plants—of gasification technology worldwide. A significant fraction of that is coal, and the rest is asphaltenes, petroleum coke, and other things.
There is hydrogen production from natural gas. It's roughly more than 1% of the global primary energy use, and the technology for capturing from modern plants is well understood and costed at the industrial scale. I'm not saying it's cheap, but the point is that you can build these things with industrial performance guarantees today.
The long-range transport of carbon dioxide over thousand-kilometre distances and its injection kilometres underground are things that already exist courtesy of the enhanced oil recovery world. This means you can go to many well-developed petroleum provinces in the world and get contractors to actually build you pipelines, build you injection systems, and deliver them at a cost that's well understood. This isn't theory.
What is theory is connecting all those components up in a new configuration, to enable use of fossil energy with minimal CO2 emissions. That's new, and there certainly are uncertainties, but the reason to take it seriously is that we're assembling this out of a toolbox of things that already exist at full and proven commercial scale.
The conclusion is that CCS in broad terms around the world is ready for large-scale deployment. There's certainly more R and D to do. R and D could reduce costs and reduce risks, but the best way to make progress in understanding this technology at this point is to cut some metal, to actually build some projects.
That's not to say there aren't real uncertainties. For example, while I say gasification is widely deployed, issues about gasifying the particular coals we have in Canada that have some particularities of, say, high sodium content mean there really are challenges—challenges like the folks at EPCOR would have to face—and uncertainties about how to manage projects. That said, this still is not fundamentally an R and D venture at this point. This is a venture of actually building real hardware.
That's the very top-level overview. What does it cost? In the electric sector in the centre of the big economies, based on costs of about five years ago and for large plants, a very rough answer is that if you compare a new coal-fired power plant with CCS to a new power plant without, you are looking at a cost differential of something like 2¢ U.S. per kilowatt hour. Those were the costs of five years ago, and they amount to about a 20% cost increase for consumers buying the electricity. That's quite a statement. That's saying that for the electric power sector, which, after all, is more than 40% of global CO2 emissions—it's the same number in the U.S., although less in Canada because we have so much hydro and nuclear—you could take a major bite out of emissions, going a long way to matching the climate problem for costs of that order. Those, as costs, we can really afford to pay as a society. In the U.S., that comes out to 0.75% of the GDP. That's a good news story.
The bad news story about these costs is that the costs of building large industrial have increased everywhere in the world, driven most of all by Chinese growth and growth elsewhere. Both the costs for steel and concrete and the cost for what we call EPC, or “ensuring procurement contracts”, have all gone up. I gather that the costs of EPCOR's new plant, which is basically a copy of their old plant that you heard about, are almost double what the previous costs were. The costs of CCS will similarly be higher if executed right now.
On the other hand, nobody knows what costs will do in the future. My guess is that we're not going to see that doubling go on forever. The Chinese economy will stumble, and we'll see those costs go down again or more EPC companies will enter the market.
One thing you have to distinguish here—and it's a challenge for policy-makers—is that you're going to get one answer from academics and another from industry guys, when the answer is that they're both right. The industry guys are telling you the correct numbers right now in Alberta, and they're very high. I'm telling you some longer-term, average numbers for larger plants in the U.S. Those are also pretty reasonable, and they're different for reasons that we understand.
It's important to say that the cost increases for things like this apply to a bunch of the competing technologies that we would install to reduce CO2 emissions as well. The costs of wind power installations, the costs of nuclear power plants, and the costs of a bunch of other large capital technologies that would have low CO2 emissions, have all increased in ways that are roughly proportional. That is a challenge for regulators who wish to move forward, but we must move forward if we're going to deal with the climate problem in a serious way.
I can say a little bit about risks and capacity. I think I'll just say the following things, and then I'm happy to take more questions.
Capacity for CO2 storage is not the issue. We have tons of capacity. There are legitimate and serious concerns about costs and risks, but I do not think they're legitimate concerns about capacity.
On local risk, the IPCC report said that with appropriate site selection, blah, blah, blah, the local health, safety, and environmental risks of geological storage would be comparable to the risks of current activities, such as natural gas storage—which is widely used around the world and has been for about a hundred years—enhanced oil recovery, deep underground disposal of acid gas, etc. The point is that this is a lot like other industrial things—and there's more to that statement than you might think. The risks of those activities are very small in well-regulated countries where there are effective environmental intervenors and the effective rule of law, like Canada.
It's quite surprising when you look at the actual fatality rates in this industry. The numbers are actually low compared to many other industries. The risks of those things in Russia or Nigeria are very big. What that tells you is that the risks are not directly related to the hardware but are related to the management systems around the hardware. That's an important lesson.
So if you ask me, as an academic, what the risks of CO2 storage are, my only honest answer is that it's up to you, the regulators, and it's up to us, the society. There's no closed open-and-shut academic answer. It depends on how and where you do it.
Let me make a few last comments on CCS in Canada. Canada had an early lead in the science and some of the technology around CO2 capture and storage. In my judgment, we have lost that lead. Without decisive government action, we will soon lose any chance to regain it. Around the world, I travel to visit companies and occasionally am asked to consult for companies and governments around the world. I see people getting ready to cut metal. In Canada, I don't, and that really is depressing. We've had a lot of talk. In some ways, I think the Kyoto process has stood in the way of Canadians thinking clearly about what to do.
In the U.S., there is a real sense that we are moving toward regulating CO2 emissions in a serious way. There is a real chance the bill will get through this session of Congress and be signed. In Canada, we're stuck with this bipolar argument. On the one hand, there seem to be people who really think we could meet something like Kyoto, which would need a 35% cut that would have to be executed in three years, because it's only three years until the 2010 midpoint. That would be essentially impossible in the modern developed economy. And then there are other people, like some of my neighbours in Calgary, who deny that we have a problem at all and don't believe the science. With that level of polarization, it's very hard to make sensible policy. Meanwhile, in some cases, the rest of the world is actually moving closer to doing it.
A few last comments. On policy mechanisms, my view is that the central policy mechanism must be something that leaves people free to innovate, and that means a strong price signal. I personally favour a carbon tax, but cap and trade mechanisms and many other mechanisms are appropriate things to do. That has to be the number one thing to do.
Fundamentally, individuals in their homes and companies know better how to cut emissions than you folks around the table do. The role of government is to set the targets in the form of cap and trade, or taxes, not to tell people precisely how to do it. Nevertheless, for large, lumpy capital cost technologies like this, you will need specific incentives. They may not be specific monetary incentives, but some combination of monetary and regulatory incentives to make them happen.
Finally, I have one comment in thinking about the people on my right and left here, in thinking about the Alberta carbon dioxide capture and storage story. The overwhelming political focus right now is on oil sands. Nevertheless, most of the emissions from Alberta's electricity sector are still much bigger than the emissions from the oil sands. The cost of squeezing those emissions out by CCS is lower for electric power companies in the Edmonton area than it is for oil sands companies, and that's a real challenge for policy-makers.