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Combustion Industry News
Date posted: 12th Nov 2017
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  Patrick Lavery
  
  Combustion Industry News Editor

EU agrees to reform ETS while China may launch its own national carbon market

As UN climate talks were taking place earlier this month in Bonn, Germany, the member states of the European Union struck a deal on reforms to the EU’s Emissions Trading System, to begin after 2020. The system is renowned for both its pioneering ambitiousness and its failure to properly incentivise the deployment of clean technology, especially since the global financial crisis of 2007-8 led to reduced industrial activity and a glut of emissions allowances. The current reforms will reduce the number of permits in the system at twice the previous rate (a linear reduction of 2.2% per year from a baseline) and deliver a ‘Modernisation Fund’ which will be used to finance clean power projects (those that produce less than 450g CO₂/kWh, except for sustainable district heating projects in Bulgaria and Romania, which are to be allowed more). The deal, according to Reuters, attempts to strike a balance between incentivising clean energy and protecting energy-intensive industry within the trading bloc. Meanwhile, there are reports that China may announce a nation-wide carbon trading system of its own, as it has previously pledged to do during 2017. Such a scheme would become the largest of its kind in the world.

Mike Marsh, the CEO of SaskPower, the company behind Boundary Dam Unit 4, the world’s first coal-fired power plant equipped with carbon capture and storage, has said that it is highly unlikely that SaskPower will recommend to the Canadian government that it pursues further carbon capture and storage projects at this stage. The reason is the availability of plentiful and cheap natural gas, the price of which has dropped markedly since the 2010 decision to invest in CCS astBoundary Dam. Producing electricity from gas would cost around half what it would from CCS-equipped coal firing, according to Mr Marsh. The sentiment carries particular weight because of SaskPower’s globally recognised pioneering role in CSS.

Argentina is continuing to pursue a shale gas industry, with YPF, the state-controlled oil company, announcing plans to invest US$30 billion (€25.7 billion) in further developing the enormous Vaca Muerta (“dead cow”) basin in Patagonia, which has the second-largest reserves in the world. Both the current and previous Argentinian governments have pursued the strategy, hoping to emulate the economic boon that the shale revolution has been to North America. Production of shale gas has begun in the basin, but the new investment aims to increase it by 150% over the next five years, at which stage production would be at half of the envisaged maximum.

The International Energy Agency has published a commentary on the environmental performance of gas firing, especially in comparison to coal firing. Acknowledging that the future role of gas depends on emissions, the commentary notes that its combustion is around 40% less carbon intensive than coal (and 20% less than oil) per unit of energy produced, and also much cleaner in terms of SOx and particulates, though gas firing does produce significant NOx. While this information is uncontroversial, the emission of methane during the harvesting of natural gas has been the subject of debate, and needs to be included in the overall analysis. The IEA commentary reports on the organisation’s own analysis which finds that around 1.7% of methane is lost to the atmosphere during harvesting and further processing before being fired. Under any timeframe for analysis (from 0-120 years), the 1.7% loss rate means that gas firing is the less carbon-equivalent intensive means of power generation. The comparison would begin to change, as a graph in the commentary shows, if loss rates were ~4% or above, a substantially higher rate than the IEA believes to be the global average. The commentary goes further, however, arguing that gas needs to do more than simply be better than coal, and that reducing fugitive emissions and other losses is anyway the preservation of a valuable resource. Using a new technique, the IEA has calculated that around 40-50% of current methane emissions could be avoided at no net cost (or a financial benefit). It concludes that an overlooking of the possibility of the financial benefit of abatement of these emissions may be the reason why more is not done.

A late-October conference hosted in the Netherlands by the Global Carbon Capture and Storage Institute has heard of two rival projects to create a European network to transport captured carbon dioxide from industrial sites to storage locations. One, a Norwegian initiative due to come online in 2022, has previously been covered in the Combustion Industry News, but has recently suffered a setback, with the Norwegian government cutting the budget for the project by 90%, though stakeholders believe that a new budget next year will improve the situation. (Total has recently also joined the Norwegian venture.) The other project is a Dutch initiative, and would initially focus on capturing industrial emissions around the port city of Rotterdam, and storing the CO₂ in the North Sea. This Dutch project, which is due to come online in 2020, might expand to also service Antwerp and the German Ruhr further in the future. Both initiatives revolve around the idea that carbon capture and storage as a whole will advance if transport and storage is performed by a separate utility (operating across industries) to those companies performing capture processes. It is certainly a concept that has many practical advantages, and both projects will be of high interest to the combustion industry.

German chemicals manufacturer Covestro (formerly Bayer Material Science) has teamed together with ArcelorMittal and a range of other partners (including RWTH Aachen University, TU Berlin, Dechema, Imperial College London, and the universities of Gent and Leiden) to develop a means of producing chemical products using waste gases from the steelmaking industry. The research project, known as Carbon4PUR, is being sponsored to the tune of around €8 million (US$9.3 million) by the European Union, and hinges on the carbon in waste gases – in the form of carbon monoxide and carbon dioxide – being the essential feedstock to produce polyols, key components of polyurethane-based insulating materials and coatings. Polyols are usually produced from crude oil, meaning the substitution of feedstocks would have a twofold environmental benefit – preserving natural resources while reducing the emissions of greenhouse gases. It is estimated that the carbon footprint of producing polyurethanes would be reduced by 20-60%. The research is being carried out in the southern French town of Fos-sur-Mer, where an ArcelorMittal steelmaking plant and a Covestro chemicals plant are near neighbours.

US industrial gas company Air Products and Chinese coal mining company Yankuang Group are planning to work together to build a coal gasification plant in Yulin, in the Chinese province of Shaanxi. The syngas plant will not feed a power station, but instead a chemicals plant to which Air Products already supplies oxygen. While the project is not yet agreed, the two companies expect that, should it proceed, the plant would come online in 2021. The move is interesting in light of South African company Sasol’s recent assertion that coal gasification is unlikely to be economic in the future, though Sasol did mark China as the one region in which coal gasification may continue to develop.

South Africa’s state-owned power utility Eskom has announced that the first unit of its gigantic 4.8 GW coal-fired Kusile power plant has come online almost a year earlier than scheduled. Kusile 1 is an 800 MW unit and is the first major one in the country to be equipped with flue gas desulphurisation technology. Along with its sister plant Medupi (also 4.8 GW), Kusile is due to be fully complete by 2022, and will go a long way to giving South Africans a reliable supply of electricity after years of blackouts.

The UK’s SSE and npower (Innogy’s UK branch) have announced they are planning to merge to become what would be Britain’s second largest power utility. Competition from smaller competitors, low wholesale prices, and the potential of price caps has put financial pressure on the six large power utilities in the UK, sparking this particular possible merger (which is subject to assessment by the competition authority). It appears that all of the ‘big six’ are experiencing the pressures of the market, as exampled by E.ON, which has said its profit margin in the UK is now only 2.8%, down from 4.9% last year. Analysts expect more mergers across Europe, and possibly one more in the UK. One related business move has been Total’s purchase of Engie’s LNG business for around US$1.5 billion (€1.3 billion), which is to be complete by mid-2018.

The project known as the Paradise Papers, undertaken by the International Consortium of Investigative Journalists to uncover the workings and use of off-shore tax havens, has revealed some of the complex dealings in regards to the Australian lignite-fired Loy Yang B power station. International Power, the company which then owned the plant, transferred AUD$1 billion (US$768 million /€663 million) in dividends through four countries – Netherlands, Guernsey, Cyprus and the Cayman Islands – piror to reaching the UK shortly before Australia’s short-lived carbon ‘tax’ took effect. At the time, International Power was majority owned by GDF Suez, which later became outright owners, lsubsequently rebranding as Engie. The transfer of the money left Loy Yang B financially vulnerable, and the Australian subsidiary owning the station warned (after the end of the carbon tax scheme) that it was in danger of breaching its loan repayment obligations. As the Australian Broadcasting Corporation reports, there appears to have been multiple drives for the dealings – one, that a UK tax loophole was due to close, and two, the uncertainty that the coming carbon tax produced for the financial wellbeing of Loy Yang B. Engie has provided a statement to the ABC to the effect that its dealings were legal and that it sought the advice of the Australian Taxation Office prior to making them.

In rather striking news, it has been estimated that the running of the “proof-of-work” mechanism that ensures the integrity of the digital Bitcoin currency now consumes more electricity per year than is consumed by Nigeria, and by the time this is published, probably also Ireland. It points to the huge amount of processing power required to administer the system as it presently stands.

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