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Benefit-Cost Analysis

Benefit-Cost Analysis about the introduction and use of Carbon Capture and Storage (CCS) technology in the production process of coal-fired power plant. National Agency for New Technologies, Energy and Sustanaible Economic Development Research Center of Casaccia (Rome).

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Benefit-Cost Analysis

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  1. Benefit-CostAnalysis about the introduction and useofCarbonCapture and Storage (CCS) technology in the production processofcoal-firedpowerplant National Agency for New Technologies, Energy and Sustanaible Economic Development Research Center of Casaccia (Rome) Università degli Studi di Siena Facoltà di Economica “Richard M. Goodwin” Sebastiano Cupertino PhD Student in Business Governance and Administration

  2. Which are possible strategies? • Forcing the CO2 absortion by the ecosystem  The introduction and use ofCarbon Capture and Storage (CCS). IEA, 2009

  3. Should be CCS an importantchoice to stabilize Climate Change? Fonte: IEA, 2010 • CCS technologies Benefits • It is possible to put them on biggest Greenhouse gases emission sourses; • This technology is characterized by simple mechanisms (some of these are technically mature because they are used in the production process of fossil fuels).

  4. Storage potential and costs in relation to use different kind of CCS Fonte: IPCC (2005) • IPCC (2005) has noted that storage world capacity should be up to 2,000 Gt/CO2 (545 GtC). • This ammount it is less than 5,000-6,000 Gt/CO2 of fossil resources available on the global level (IPPC, 2005). •  CCS is a “bridge” technology.

  5. Main problems about the introduction and the diffusion of CCS technology Should be the use of CCS an efficient choice to stabilize Climate Change? High investment costs;High operating costs. Benefit-Cost Analysis (BCA) to choice the best investment solution between Three alternative projects, considering Two Mitigation Regimes of Climate Change.

  6. Analysis Focus The policy maker have to operate an investment choice in power sector continuing to exploite fossil fuel althought there is the Climate Change problem. Three different investment projects. Two mitigation regimes of Climate Change. Tecnlical-engeneering datas and the information about costs are offered thanks to: • the National Agency for New Technology, Energy and Economic Sustainable Development (ENEA) and • the Zero Emission Fossil Fuel Power Plants (ZEFFPP).

  7. Three investment projects • Project 1 Coal-fired power plant without any riduction options of CO2 emissions; • Project 2 Coal-fired power plant with CCS oxycombustion; • Project 3 Coal-fired power plant with CCS post-combustion by the use of ammines.

  8. Two Mitigation Regimes of Climate Change • Carbon tax  Fixing a tax aroud to 24.06€/tCO2per year (IEA, 2010). This tax hits a production activity and likewise a power plant that doesn’t use CCS. • Emission Trading Scheme  System that allocates emission rights to power plants that in theory they relase CO2. Than thanks to thegrandfathering system:power plants that use CCS can exchange their emission rights in the market for a price (around to 15,31 €/tCO2, average value of EUA on may 2010).

  9. FONTE: Calabrò A., 2008. Analisi parametrica dei costi delle tecnologie CCS. ENEA.

  10. Assumptions (1) • Area of costruction nearest to: • the raw materials, • a station transmission power, • a water basin; • Land: low price compared to the real market price (around 25% lower); • Cost of fuel: hard coal 2,89 €/GJ (IEA, 2010); • Price of production of electricity exploiting hard coal (Cost of Electricity): 6,22c €/kWh (ENEA, 2007); • Kind of transport of CO2: 100 km long pipeline offshore;

  11. Assumptions (2) • Cost of trasport of CO2: 2,58 €/tCO2 each 100 km/year; • Tecnique of CO2 storing: the injection in Saline Aquifers; • Cost of CO2 storing: 6,45 €/tCO2; • Discount rate: ρ=5%; • Costruction time: 3 years; • Life Cicle Time: 40 years.

  12. Carbon tax BCA: Financial Analysis Valuating the financial sustainability Emission Trading Scheme

  13. BCA: Economic Analysis The EconomicAnalysisofthreeinvestmentprojectswasdivided in: • Phase 1  Correctionsthrough the integrationof the esternalities. … In thisanalysisbenefitsthankstoCO2capturatedwereconsideredonly. • Phase 2  From market pricesto account values. Thisthanksto the useofConversionFactorsincluding social benefits and costs.

  14. SummaryofEconomicAnalysis Carbon tax Emission Trading Scheme

  15. BCA: Sensitivity Analisys(1) The parameters of analysis were evaluated changing them more or less of 1%. The main parameters, which are most important for the global ammount of investment project, have to: • change the FIRR (or EIRR) around of the 1%; • or change the FNPV (or ENPV) around of the 5%.

  16. BCA: Sensitivity Analysis (2)   

  17. CBA Conclusions • The results of CBA support that the project 2 (coal-fired power plant with CCS oxycombustion) is the best choice because there is a optimal balance between the financial and economic side in carbon tax andEmission Trading Scheme mitigation regimes. • The introduction of CCS (Carbon Capture and Storage) should be right thanks to a political decision that supports economically the use of this technology in order to producing the learning-by-doing effect.

  18. Introducing CCSPolitical Economic assumpitions and implications:a simulation by the DICE model (2007) Dynamic Integrated model on Climate and Economy (DICE) 2007 version (Nordhaus, 1994; Nordhaus and Boyer, 2000). This is a model used to make an integrated evaluation of Climate Change damages and the stabilization strategies. It was analyzed the optimal scenarios to introduce CCS in a time frame thanks to different political and economic strategies. For example in the same time different levels of a carbon tax were compared with the temporal trends of investment/operating costs of altenative energies and the costs of the use of CCS with the consuption of fossil resources.

  19. Resoults by DICE (2007) simulationsModified Version STANDARD SCENARIO Fixing a livel of Carbon Tax at the cost of the use CCS (about $25/t CO2)  CCS should be globally usual in the power sectors since the half of XX century.

  20. Othersresoultsthanksparticularfixedassumptions in the DICE model (2007) ForExample: fixing the discount rate equalto zero, as Stern theory ; or assuming the economicvalueof future damagesofClimateChagetripled (thiscomparedto the actualcalculatedvalue). The choiceto introduce CCS in short perioditwillbeeconomically right. Theselatestassumptions are actually under hard discussionsbetween the economists. Itisnotexlutedthat in the future theseanalysisshouldberesult right. Troughtto the “Transactionage” and the “BackstopTechnology” Fewmonths ago EuropeanCommissionhasdecidedtofinace (4 BILLION euro) proposalsofprojectsthat include the diffusionofrenewebleenergies and the useof CCS.

  21. Thanks for your attention « Sono le azioni che contano. I nostri pensieri, per quanto buoni possano essere, sono perle false fintanto che non vengono trasformati in azioni. Sii tu stesso il cambiamento che vuoi vedere avvenire nel mondo ». M. Gandhi

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