Regional: Carbon Dioxide Capture and Storage Demonstration in Developing Countries - Analysis of Key Policy Issues and Barriers

Sovereign Project | 43116-012

Summary

Climate change is emerging as a key development challenge in the region. A growing body of scientific evidence indicates that increases in greenhouse gases (GHGs) caused by human activities are predominantly responsible for rapid ongoing climate change. In its fourth assessment report in 2007, the Intergovernmental Panel on Climate Change (IPCC) highlighted the need to halve energy-related carbon dioxide (CO2) emissions by 2050, if global temperature increases are to be kept below 2 to 3 degrees Celsius; such increases correspond to stabilization scenarios that limit atmospheric CO2 to concentrations of 450 and 550 parts per million (ppm), respectively. A global-scale assessment by the International Energy Agency (IEA) has found that CCS technologies have the potential to reduce overall climate change mitigation costs and increase flexibility in reducing GHG emissions. CCS is an integral part of all GHG emission reduction strategies proposed by IPCC and IEA.

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Project Name Carbon Dioxide Capture and Storage Demonstration in Developing Countries - Analysis of Key Policy Issues and Barriers
Project Number 43116-012
Country Regional
Project Status Closed
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 7278-REG: Carbon Dioxide Capture and Storage Demonstration in Developing Countries - Analysis of Key Policy Issues and Barriers
Carbon Capture and Storage Fund US$ 350,000.00
Strategic Agendas Environmentally sustainable growth
Inclusive economic growth
Regional integration
Drivers of Change Governance and capacity development
Partnerships
Sector / Subsector Energy - Energy sector development and institutional reform
Gender Equity and Mainstreaming No gender elements
Description
Project Rationale and Linkage to Country/Regional Strategy

Climate change is emerging as a key development challenge in the region. A growing body of scientific evidence indicates that increases in greenhouse gases (GHGs) caused by human activities are predominantly responsible for rapid ongoing climate change. In its fourth assessment report in 2007, the Intergovernmental Panel on Climate Change (IPCC) highlighted the need to halve energy-related carbon dioxide (CO2) emissions by 2050, if global temperature increases are to be kept below 2 to 3 degrees Celsius; such increases correspond to stabilization scenarios that limit atmospheric CO2 to concentrations of 450 and 550 parts per million (ppm), respectively. A global-scale assessment by the International Energy Agency (IEA) has found that CCS technologies have the potential to reduce overall climate change mitigation costs and increase flexibility in reducing GHG emissions. CCS is an integral part of all GHG emission reduction strategies proposed by IPCC and IEA.

Globally, electricity generation accounts for 29% of CO2 emissions. CCS provides the second-largest potential for CO2 emission reductions (after energy efficiency). However, CCS is in the early stages of development and urgent actions are required to undertake demonstration projects. IEA, in its report to the Group of 8 summit in Hokkaido, Japan in July 2008, recommended that at least 20 fully integrated industrial-scale demonstration power plants with CCS be committed and new generation stock be prepared for future CCS retrofit. The Group of 8 summit strongly supported the launching of 20 large-scale CCS demonstration projects globally by 2010, taking into account various national circumstances, with a view to beginning broad deployment of CCS by 2020. At the moment, there is no industrial-scale coal-based power plant with CCS. Based on IEA's World Energy Outlook 2008, a total of about 1,000 gigawatts of new coal-based capacity will be added in the People?s Republic of China (PRC) and India over the next 20?25 years. In general, Asia is expected to continue to be the largest user of coal.

The CSLF seeks to make CCS commercially competitive and environmentally safe. It is an international effort largely supported by ADB member countries and is expected to result in technology transfer and rapid diffusion of CCS in developing member countries. CSLF members are national governmental entities that are significant producers or users of fossil fuels and have committed to the investment of resources in CCS technology research, development and demonstration activities. Among ADB?s developing member countries, the PRC and India are CSLF member countries. The activities of the CSLF are conducted by a policy group, which governs the overall framework and policies, and a technical group, which reviews the progress of collaborative projects and makes recommendations to the policy group on any needed actions. The United States Department of Energy is the secretariat for the CSLF. India is the vice chair of the CSLF technical group.

CCS is particularly relevant to future decoupling of the growing energy needs of large, coal-based economies (such as those of the PRC and India) from rising CO2 emissions. Both the PRC and India have taken a keen interest in CCS development. The CSLF is one of the few forums that brings together large fossil fuel-based developing and developed economies to discuss and collaboratively work on the early development of this key technology. Participation by both the PRC and India in CSLF also strengthens regional cooperation in this area. Financing of CCS is proving to be a challenge in both developed and developing countries, due to the high costs and risks associated with CCS. The challenge is more pronounced in developing countries due to the absence of regulatory requirements and economic incentives. The task force (para. 1) was set up under the CSLF policy group to formulate policy recommendations to overcome costs and associated barriers in the early stages of demonstration projects in developing countries. The task force recognizes that multilateral development banks (MDBs) have a crucial role to play in identifying appropriate policy recommendations and formulating low-cost funding mechanisms, due to the MDB?s (i) perceived balance and neutral approach on the critical issue of transfer of technology, and (ii) long-term engagement with developing countries. The task force aims to analyze key policy issues and barriers and help accelerate formulation of creative policy recommendations, which can then be submitted to the policy group for further consideration and possible inclusion in the CSLF ministerial meeting in October 2009.

Recognizing the direct relevance of CCS, both in coal-based power plants in the PRC and India and more generally in Asia and the Pacific, ADB is already ahead of other MDBs in formulating suitable interventions in the region, particularly in the PRC. India has shown strong interest in CCS-related activities, as illustrated by its active and prominent role in CSLF. The proposed TA strongly supports the energy sector policies and climate change agenda of ADB.

The timing of CCS deployment is critical, and demonstration of CCS in major coal-consuming developing countries such as the PRC and India will need to be brought forward so that the time lag between proving CCS in developed countries and its uptake in developing countries can be minimized. The global CCS community recognizes that appropriate low-cost financing and rapid transfer of technology to developing countries are critical issues in moving forward with CCS. In particular, there is an urgent need to strengthen the analysis of CCS-related global issues such as (i) intellectual property rights (IPRs)-related policies and incentive mechanisms to bring CCS technologies to market in developing countries; (ii) the rationale for additional investments in new capture-ready power plants to avoid carbon lock out, and assessment of elements of additional capture-ready costs and their estimation in developing countries; (iii) estimates of the need for financing concessions, (and their level and makeup, if needed) for with-CCS and capture-ready projects, and assessment of existing and emerging MDB clean energy funds and their direct relevance in providing low-cost funding and risk sharing for CCS demonstration; (iv) assessment of ways to reduce trade barriers surrounding CCS technology in international trade negotiations, and to assess possibilities and ways of classifying CCS in the World Trade Organization in order to benefit from the proposed reduction in tariffs for environmental products; (v) an assessment of the interest by MDBs in investments in CCS demonstrations; and (vi) evaluation of policies needed to seek private investments in CCS projects.

While suitable in-country interventions are being designed to address capacity issues and country-specific barriers (para. 6; footnote 10), there is an urgent need to address the global issues in parallel to keep the CCS agenda on target. The proposed regional policy and advisory TA will analyze these issues in greater depth and in the perspectives of developing countries, and make recommendations to an international body such as CSLF. It is expected that lowering these critical barriers may provide opportunities to accelerate CCS deployment in the PRC and India.

Impact Financing road map prepared for CCS demonstration in developing countries. A framework for financing CCS demonstration in developing countries with enabling set of policy and incentive mechanism endorsed by the Task Force.
Project Outcome
Description of Outcome The TA outcome will be to formulate recommendations to overcome key global barriers in financing CCS in developing countries. These recommendations will comprise set of creative policies and incentive mechanisms endorsed by the CSLF Task Force.
Progress Toward Outcome

The individual consultants submitted their draft final report which was compiled together with additional contribution from ADB's team leader to finalize a draft report. This draft report was presented to the CSLF Policy Group meeting at Warsaw in October 2010 and was extensively discussed among members. The key recommendations for a CCS dedicated Fund of $5 billion to support first generation of CCS demonstration projects in developing countries is now included as a key recommendation to the Clean Energy Ministerial Action Group on CCUS (which refers to CCS with utilization of captured CO2). Based on CSLF suggestions, a roundtable was scheduled in April 2011 to discuss the report and its recommendations with broader participants including industries, financial community and key stakeholders. Subsequently, the CSLF secretariat requested ADB to provide a brief report as a key deliverable to the CSLF ministers' meeting scheduled in September 2011 in Beijing.

ADB subsequently was asked to participate in an international working group jointly led by the Australian and the UK governments with representatives from the the Clinton Climate Change Foundation, the Global CCS Institute, the International Energy Agency, the World Bank, and the World Resources Institute to identify and advance appropriate funding mechanisms to support large scale CCS demonstration projects in developing economies. The working group has delivered the report "Funding CCS in Developing Countrieson" to CEM 3 in April 2012 in London. The report makes a number of recommendations. In the short term (to 2015), it recommends, amongst other things, that additional funding of USD 150 200 million be made available for CCS enabling and pre investment activities in developing countries for 5 10 demonstration projects to proceed to final investment decision by around 2015. The report further maintains that in the medium term dedicated CCS funding in the order of USD 5 billion be made available for the extra CCS costs of construction and operation of demonstration projects.

Implementation Progress
Description of Project Outputs The TA will (i) analyze Intellectual Property Rights (IPR) issues from developing countries' perspective, (ii) identify innovative and low-cost financing approaches, (iii) examine appropriate classification of CCS in WTO to reduce trade barriers, and (iv) formulate recommendations on enabling policies for seeking private investment in CCS demonstration and deployment.
Status of Implementation Progress (Outputs, Activities, and Issues)

The TA has recruited the following four consultants (2.5 person-months each): (i) IPRs issues, (ii) trade barriers, (iii) financial modeling and analysis, and (iv) CCS technical analysis. The consultants have provided analysis and recommendations related to their respective areas of expertise and TOR. The overall report was prepared with extensive ADB contribution. The separate chapters on Technical, Financial, Intellectual Property Rights and Trade barriers provide extensive coverage of these relevant areas and analysis. The individual sections of the reports were extensively discussed with relevant stakeholders. Being a new and emerging technologies with limited applications so far, the report was presented in a roundtable discussion to a wider audience to seek their views and improve and refine the reports' analysis and recommendations. The final report took into consideration the comments during the roundtable discussion. The report was presented to the CSLF Secretariat during the International CCS Conference in PRC. The TA extensions have been necessary to seek this broader stakeholders' engagement and to accommodate completion of all TA related activities. This core recommendation of a dedicated CCS Fund of the ADB report was also taken up by the Clean Energy Ministerial Action Group on Carbon Capture Utilization and Storage (AG-CEM CCUS), who requested ADB to join and continue to work on finalizing the recommendation to be submitted to the clean energy ministers' meeting scheduled in end April 2012 in London, UK.

While the TA activities were already completed, the extension of the TA closing date is essential for timely completion of the ongoing directly relevant work with the AG-CEM CCUS. This will take forward the TA recommendation to a possible action thus, enhancing the attainment of the TA outcomes.

The CSLF has also requested another knowledge product or report for its next annual meeting scheduled in October 2012.

The TA was completed on 31 December 2012 and financially closed on 28 February 2013. The TA completion report was approved on 19 March 2013.

Geographical Location PRC and India
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation
Business Opportunities
Consulting Services

ADB will be the Executing Agency. Within ADB, the TA will be implemented by Energy Division, East Asia Department in close coordination with Energy Division, South Asia Department and Sustainable Infrastructure Division, Regional and Sustainable Development Department. The management of the TA will have a three-tiered structure. A study team comprising a team of international consultants will form the core team to carry out TA activities. The study team will be led by a team leader, appointed from among the ADB staff and will be guided by the CSLF secretariat. To optimize resource utilization and strengthen implementation, the same staff member will serve as ADB team leader and lead the complementary TA implementation in the PRC The TA will require 10 person-months of international consulting inputs in the following four critical areas (2.5 person-months each): (i) IPRs issues, (ii) trade barriers, (iii) financial modeling and analysis, and (iv) CCS technical analysis. The individual consultants will be engaged by ADB in accordance with its Guidelines on the Use of Consultants (2007, as amended from time to time). Considering the timeline for delivery of TA outputs, advance contracting will be used to recruit individual international consultants. The outline terms of

reference for the consultants are in Appendix 3. The proceeds of the TA will be disbursed in line with the ADB's TA Disbursement Handbook.

Responsible ADB Officer Annika Seiler
Responsible ADB Department East Asia Department
Responsible ADB Division Energy Division, EARD
Executing Agencies
Asian Development Bank Ashok Bhargavaabhargava@adb.org6 ADB Avenue, Mandaluyong
Metro Manila, Philippines
P.O. Box 789, 1099 Manila,
Philippines
Timetable
Concept Clearance 24 Mar 2009
Fact Finding 11 Mar 2009 to 25 Mar 2009
MRM -
Approval 07 May 2009
Last Review Mission -
PDS Creation Date 05 Oct 2009
Last PDS Update 22 Mar 2013

TA 7278-REG

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
07 May 2009 - 07 May 2009 31 Dec 2009 31 Dec 2012 -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
0.00 350,000.00 0.00 0.00 0.00 0.00 350,000.00 07 May 2009 290,609.20

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Evaluation Documents

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