In recent years, Carbon Capture Utilization and Storage (CCUS) discussions have gained traction in Southeast Asia (SEA). CCUS’ strategic value lies in its ability to retrofit existing assets and hard-to-abate sectors. The young fleet of coal and gas power plants in SEA suggests the region may present the right fit for CCUS applications.
The Institute for Energy Economics and Financial Analysis (IEEFA) released a report titled “Carbon Capture in the Southeast Asian Market Context: Sorting out the Myths and Realities in Cost-Sensitive Markets.” This report is the first of a two-part series covering the CCUS landscape of the South East Asian region. This report focuses on the preconditions of CCUS adoption, the predominance of gas processing CCUS in SEA, and the context of CCUS in power generation.
Which CCUS Drivers Would Be Present in SEA?
With its high associated costs, both in capital investment and ongoing operations, CCUS essentially represents a ‘tax’ to continue emitting carbon. Someone in the value chain will need to internalize the costs. Ultimately, that added cost will fall to either consumers – in the form of higher tariffs or taxpayers – due to the need for government to fund subsidies or credits. Therefore, attaching a high value to the carbon emissions is necessary for CCUS projects to proceed – whether through a carbon tax and credit market, premium low-carbon product prices, or other policy-based incentives. The United States’ CCUS establishments were supported by the availability of CO2 pipeline and CO2 demand for EOR, but most notably, through generous tax credit incentives and government funding.
The Figure above outlines the drivers and challenges for CCUS applications. Each category exhibits vastly different market behaviours and technical/cost characteristics, which will dictate their potential pathways in the region. Some lower-cost CCUS applications with strong drivers will likely take off first, but may not necessarily correlate with the likelihood of other CCUS applications.
Globally, the lack of supporting policy, legal, and regulatory frameworks is often touted as the primary barrier of CCUS applications. Sometimes, what this simply means is that supportive regulations should recognize CCUS. Most of the time, however, this statement alludes to a lack of sufficient price attached to carbon emissions, and more specifically, that substantial public funding support will likely be required for CCUS to take off.
CCUS Leadership in Asia
With the technology-intensive nature of CCUS, several countries could provide reference points for the CCUS potential in Asia: China, Japan, and South Korea. All three countries have a long history of technology leadership and energy investments in the region. Their experiences with CCUS can provide a glimpse into the future path of CCUS in SEA.
China has been slow in in its development and uptake of CCUS. Most of China’s existing CCUS is considered small-scale, with the estimated aggregated capacity ranging from 2 to 4 MTPA CO2, spread over dozens of small-scale facilities. Compare this with the US’ Shute Creek treating plant’s 7 MTPA CO2 capacity (in a single plant). It is clear that China has a lot of catching up to do.
Although most are still in early stages, potential projects are being proposed and prepared. Notable project plans, such as the CNOOC CCUS in the South China Sea (1.5 MTPA CO2) and the recently established Sinopec’s Jiangsu, CCUS (0.2 MTPA CO2) have been primarily led by Chinese oil and gas companies. It is estimated that more than 70% of the national capacity is operated by Sinopec, CNPC and the CNOOC Group. In terms of innovations, it is worth noting that between 2020-21, 81% of patents in CCUS filed with the World Intellectual Property Organization (WIPO) were of Chinese origin.
While the development of CCUS and China remains to be seen, it will likely not escape the basic tenet of the CCUS discussion – that attaching a high price to carbon emissions is necessary. A recent report from Shell China suggested that a carbon price of US$47/tCO2 by 2030, and US$205 by 2060, will likely be required to achieve China’s 2060 carbon-neutral target, which includes the widespread adoption of CCUS.111 With China’s Emission Trading Scheme’s (ETS) carbon price projected to hover around US$10/tCO2 in 2022, there is still some catching up to do.
With Mitsubishi Heavy Industry (MHI) already playing a prominent role in certain CCUS applications, Japan will likely want to pursue a leading role in CCUS development in Asia. This trend has been displayed in Japan’s leadership in a number of CCUS feasibility studies, and in the establishment of the Asia CCUS Network Forum, with member states from Southeast Asia, US, Australia, and India. While Japan has supported many CCUS initiatives, the plan for CCUS is somewhat less ambitious at home. This is potentially due to the conservative approach in assessing storage in the earthquake-prone region. A long-term CCS trial of 0.2 MTPA capacity has been completed between 2016 and 2019, with further demonstrations planned in power generation applications.
Japan’s CCUS goal has likely been spurred by both its significant coal and gas power fleet, as well as an anticipation of the future potential of the hydrogen/ammonia value chain. The country, which will likely leverage its experience in the power and LNG sectors, has also shown particular interest in ‘carbon recycling’. This is the utilisation of captured carbon, with the ambition to secure 30% of the global market by 2050.
South Korea has outlined plans to invest in CCUS, both domestically and overseas.Early plans have been reported that South Korea is exploring a CCUS collaboration with Malaysia, specifically involving its steel giant POSCO and Petronas. In 2021, South Korea’s utility KEPCO and its six subsidiaries announced an exit from coal by 2050. The company announced plans to commercialize CCUS technology for 500MW of coal power and 150MW of gas power by 2030.116 The company’s currentCCUS utilization is largely limited to small-scale pilot installations.
Traditionally, the export of technologies and concessionary financing from these three countries has been vital in promoting various technology applications in SEA. As it stands, all of them are significantly behind in terms of CCUS applications compared to establishments in North America. Despite the growing need to implement CCUS to mitigate emissions, none have yet to develop a commercially viable model for widespread CCUS adoption. It is also notable that these three countries have varying degrees of CCUS drivers, with South Korea exhibiting the most mature carbon pricing system. Meanwhile, Japan has some form of regulatory emissions control, but the country’s carbon pricing remains paltry at best, with a carbon tax of around US3$/tCO2e. This is despite actively promoting CCUS in SEA.
With announced government commitments from all three countries to support net zero targets, the CCUS development in these countries will likely shape the outlook of Asia. This is particularly salient with the US (which is home to most of CCUS’ current fleet) rapidly departing from coal. Along with this, so will their focus on coal power CCUS, a dominant part of SEA power mix.
Stakeholders in SEA should remain cautious of CCUS’ progress in these countries, while also paying attention to specific policies and public financing support that is attached to such developments.
Where Would the Path of CCUS in South East Asia Lead?
The establishment and growth of CCUS in the South East Asian market within the next several decades, will likely be limited around gas processing and some stand-alone industrial applications. This could be supported by concessionary financing or bilateral initiatives. The ongoing CCUS plans are evidence that the region is playing catch up to mature CCUS technologies in the gas sector, potentially anticipating possible changes in market attitudes towards CO2-rich gas in the future. Host countries would be well-served to understand the implications of internal carbon pricing for investing companies in finding a fair share of cost allocations, if and when, CCUS is deployed.
The widespread adoption of CCUS in SEA’s power sector remains highly unlikely within the next several decades. The development of affordable coal power CCUS remains elusive and potentially even more so for gas power. Even at the US$40/tCO2 cost of capture, the effective total cost of US$50 to 60/tCO2, inclusive of transport and storage, will be beyond the reach for most countries in the region.
In assessing the full costs of CCUS in SEA against the alternatives, a multitude of factors will need to be considered, including the predominance of subcritical coal plants, and the costs of flue gas pre-treatment facilities. Further, costs of CO2 avoided should be the main focus to avoid neglecting the emissions resulting from the energy intensive CCUS process.
The establishment of CCUS hubs in locations such as Singapore remains a possibility, given the concentrated industrial base and less cost-sensitive, export- based nature of the market.
CCUS will undoubtedly remain key for some hard-to-abate sectors. It is nevertheless important for stakeholders to note that many of the existing, and upcoming, CCUS projects in the US and EU lean heavily on public funding support, which may not be readily available in SEA countries.
SEA countries can use CCUS as a stepping stone to ‘learn the ropes’ of the technology and to anticipate future developments of carbon-capture based export products and other technologies. However, it should not distract from the adoption of other lower-cost options in renewable energy and grid integrations. This should remain at the centre of SEA’s attention toward decarbonization.
The complete report can be accessed here