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1. Finkenrath, 2011.

While incentive mechanisms for renewable energy technologies have often been propelled by government interest in ensuring supply security, directing energy production and transformation away from fossil fuels or building a new industrial sector, the future incentives awarded for CCS will only be driven by the goal of reducing CO2 emissions. Various mechanisms could be envisaged, coming from either a "market-pull" or a "technology-push" angle. Implementing a robust CO2 price is a mechanism already in use in a number of regions and countries (Hood, 2010). While CO 2 markets may provide an efficient mechanism from the medium to long term, they have not been effective in the short term in attracting investment in CCS, due to the low and uncertain resulting CO2 price. This does not necessarily indicate that CO2 markets do not work: the real problem is over-allocation of CO2 rights, resulting in low prices, and lack of long-term visibility on reductions. Another option is the imposition of a CO2 tax to create a reductions incentive by setting a price on carbon emissions, provided the tax is high enough.

Various subsidy schemes could also provide incentives for CCS, at least in the short to medium term. Capital grants and guaranteed loans could be used, as for the first segment of projects (large-scale demonstration), as well as feed-in tariff schemes such as those in use for various renewable energies. Governments would have a range of ways to generate the funds, from direct budget funding to dedicated levies.

Paying subsidies to CCS, or to any CO2 emissions-mitigation technology, should only be seen as a midterm solution until CCS technologies become competitive with other low-carbon technologies. Ultimately, installing a mechanism to provide a long-term CO2 price would be the best way of ensuring that CO2 reductions in the power sector are achieved at the lowest possible cost.

CCS will eventually have to be a competitive technology, surviving alongside other low-carbon technologies within a market framework.

To facilitate discussion and assist governments with policy choices, the IEA is currently launching a study of the various incentive mechanisms that could be used to support CCS. Results will be available in 2011.

In addition to crucial incentive mechanisms, other prerequisite policies are also needed for any deployment of CCS. Legal and regulatory frameworks must be established to ensure the safe employment of CCS and its integrity as an emissions-mitigation technology. Many OECD countries have made significant progress to this end in the past two to three years, with the European Union, the United States, Canada and Australia all well advanced in establishing comprehensive legal and regulatory systems. Progress is now needed in key non-OECD countries that have significant CCS potential, such as China, Indonesia, India and South Africa.

Moving forward

At their 2008 meeting in Japan, G8 leaders recommended that 20 large-scale demonstration projects be launched globally by 2010, with a view to begin "broad deployment" by 2020. While the 2010 goal of 20 projects was clearly not met, the goal of broad deployment by 2020 is still achievable with significant effort from all involved, including government and industry. The IEA CCS Roadmap suggests that such broad deployment should consist of 100 large-scale projects by 2020 if we want CCS to reach its projected emissions reduction potential by the middle of this century (IEA, 2009). The next ten years are crucial to meet this challenge.

References

Azar, C., K. Lindgren, M. Obersteiner, K. Riahi, D.P. van Vuuren, K. Michel, G.J. den Elzen, K. Möllersten and E.D. Larson (2010), "The Feasibility of Low CO2 Concentration Targets and the Role of Bio-Energy Carbon-Capture and Storage", Climatic Change, Vol. 100, No. 1, pp. 195-202.

Edenhofer, O., B. Knopf, T. Barker, L. Baumstark, E.Bellevrat, B. Chateau, P.Criqui, M. Isaac, A. Kitous, S.Kypreos, M.Leimbach, K. Lessmann, B. Magné, S. Scrieciu, H.Turton and D.P. van Vuuren (2010), "The Economics of Low Stabilization: Model Comparison of Mitigation Strategies and Costs", The Energy Journal, Vol. 31, Special Issue 1, pp. 11 -48. Finkenrath, M. (2011), "Cost and Performance of Carbon Dioxide Capture from Power Generation", Working Paper, OECD/IEA, Paris, www.iea.org/papers/2011/costperf_ccs_powergen.pdf.

GCCSI (2001), The Global Status of CCS 2010, Global CCS Institute, www.globalccsinstitute.com/sites/default/files/ publication_20110419_global-status-ccs.pdf. Hood, C. (2010),"Reviewing Existing and Proposed Emissions Trading Systems", IEA Information Paper, IEA/OECD, Paris. IEA (2009), Technology Roadmap: Carbon capture and storage, IEA/OECD, Paris, www.iea.org/papers/2009/CCS_Roadmap.pdf IEA (International Energy Agency) (2010), Energy Technology Perspectives: Scenarios and Strategies to 2050, IEA/OECD, Paris. UNFCCC (2010): Decision -/CMP.6, "Carbon dioxide capture and storage in geological formations as clean development mechanism project activities" of the sixth Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol, Cancun, 2010.

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