Open access peer-reviewed chapter

# Economics of Carbon Capture and Storage

By John C. Bergstrom and Dyna Ty

Submitted: April 25th 2016Reviewed: November 21st 2016Published: March 8th 2017

DOI: 10.5772/67000

## Abstract

Human-engineered capture of CO2 emissions at the point source and subsequent long-term storage of this CO2 underground represent a potential mitigation strategy for global warming. The so-called carbon capture and storage (CCS) projects are technically feasible but have not been well established from an economic efficiency perspective. This chapter uses economic theory to describe the costs, benefits, and economically efficient level of CCS provision. Achieving the economically efficient level of CCS provision requires consideration of both the private and public costs and benefits of CCS and will also likely require some degree of government intervention in the form of economic incentives and/or direct regulation.

• CO2
• emissions
• point source
• capture
• storage
• economics
• costs
• benefits

## 1. Introduction

Since the late twentieth century, a newly developed technology has become one of the tools that can help mitigate the negative impacts on climate change from rising levels of greenhouse gases, especially CO2. This technology is commonly known as the carbon capture and storage (CCS). CCS technology involves “capturing” CO2 emissions, say from a coal-fired power plant, and then depositing the captured CO2 gas in a storage site, such as an underground geological formation, where it will not enter the atmosphere. CCS projects are currently being tested and implemented throughout the world. However, economic feasibility of human-engineered CCS is not well established [14]. The purpose of this chapter is to discuss the economic benefits and costs of CCS projects from both private and public perspectives in order to shed light and provide insight on the potential for CCS technology to provide a viable mitigation strategy for helping to meet twenty-first century global CO2 emission reduction goals, such as set forth in the 2015 United Nations Climate Change Conference in Paris, France.

## 2. Carbon and oxygen cycles1

Carbon (C) is the basic building block for plant, animal and human life—all are “carbon-based” organisms. Plants, animals, and humans also depend on oxygen (O2) for survival. The cycling of carbon and oxygen in ecosystems is ultimately powered by solar energy. In photosynthesis, plants combine carbon dioxide (CO2), water (H2O), and solar energy to produce sugars, oxygen, and energy. In cellular respiration, animals and humans combine sugars and oxygen to produce carbon dioxide, water, and energy. Carbon-oxygen-hydrogen compounds (e.g., sugars) pass through the food chain or web in ecosystems via herbivores, carnivores, and omnivores. In the food chain, some of the carbon and oxygen stored in organic compounds are returned to the environment in the form of CO2 and H2O via cellular respiration. When a large organism such as a plant or an animal dies and is decomposed by microorganisms, more of the CO2 and H2O stored within the plant or animal is returned to the environment where it can be taken up again by plants to produce more carbon-oxygen-hydrogen compounds which can then be taken up again by animals and humans.

Not all carbon and oxygen are recycled in the relatively short-term cycle described above. Some carbon and oxygen from decomposing plants and animals are converted by relatively long-term geologic processes into rocks (e.g., carbonate rock formations such as limestone) and minerals (e.g., coal, oil, and natural gas) stored in the earth’s crust. When coal, oil, and natural gas enter economic systems, they are termed fossil fuels. The “fossil” part of this term derives from the fact that they come from fossilized remains of plants and animals. The “fuel” part is derived from the fact that coal, oil and natural gas, and their processed derivatives (e.g., gasoline) are burned as fuel in engines and other machinery found throughout our economic system (e.g., planes, trains, automobiles, electricity power plants, and home furnaces). When fossil fuels are burned, CO2 (and other emission gases—CH4, N2O) stored in these minerals is released back into the environment. The release of CO2 from burning fossil fuels is the focus of recent concern and debate over global climate change.

As indicated in the discussion above, human activities affect global climate change through impacts on the carbon and oxygen cycle. Burning of fossil fuels is a major contributor to releasing more CO2 into the atmosphere, primarily from terrestrial sources of stored carbon (e.g., coal deposits, oil deposits, and trees). Human activities can also help to remove CO2 from the atmosphere, with one of the primary means being increasing the storage of carbon in terrestrial plants. For example, taking actions to protect “green space” including farmland from development (and managing forests in a sustainable manner following an optimal harvest and replanting schedule) helps to remove CO2 in the atmosphere through carbon sequestration in plants via photosynthesis. Farms, forests, and other green space areas thus act as “carbon sinks” helping to counteract the greenhouse effect. Another means for storing carbon is through human-engineered carbon capture and storage projects.

## 5. Optimal CCS provision

### 5.1. Concept of economically efficient level of CSS size

According to economic efficiency, the optimal level of carbon capture and storage is where the marginal benefits and marginal costs of CO2 captured and stored are equal. In Figure 1, we show the marginal benefit curve for CCS (MBCCS), and the marginal cost curve for CCS (MCCCS). The marginal benefit curve is downward sloping because, following the law of diminishing returns, each additional unit of CO2 captured and stored provides less private and social benefits. The marginal cost curve is upward sloping because both the private and social costs of CCS go up with each additional unit of CO2 captured and stored. The upward-sloping nature of the marginal cost curve indicates that it would be very expensive (and likely cost prohibitive) to capture and store 100% of all CO2 found in emissions from a point source such as a coal-fired power plant or industrial factory.

The economically efficient level of CCS (Q*) is shown graphically in Figure 1 where the marginal benefit curve and marginal cost curve for CCS cross; at this point,

MCCCS =TCCCSQCO2=MBCCS =TBCCSQCO2 E5

If all private and social benefits and costs of CCS could be “internalized” into economic markets, transactions between buyers and sellers could lead automatically to an economically efficient level of CCS, given certain conditions (e.g., perfect competition). It is notoriously difficult, however, to “internalize” all social benefits and costs because of the public good (or “bad”) characteristics of these benefits and costs such as nonexclusiveness and nonrivalry. Thus, achieving an economically efficient level of CCS would most likely require some degree of government intervention into markets such as economic incentives (e.g., taxes and subsidies) and/or direct regulation ([5], Chapter 10).

### 5.2. Estimates of CSS optimal level

As previously described in this chapter, under the condition where marginal benefits and marginal costs of CO2 captured and stored are equal, there exists a relationship between the optimal carbon price and the optimal level of carbon capture and storage. For a given carbon price range of US $146–$257/tC (or US $40–$70/tCO2), the optimal level of CO2 captured and stored is in the estimated range of 0–8MtC (or 0–29.48MtCO2) per year [29, 30].

## 6. Summary and conclusions

From a public policy perspective, since the general public also benefits from carbon dioxide being captured, stored, and prevented from entering the atmosphere, there is economic justification for public policies targeted at providing economic incentives for private companies to invest in CCS technology, such as direct subsidies or tax breaks. Whether or not CCS technology will prove to be one of the “tools” in the global warming, mitigation “tool box” in the long run is yet to be seen.

In addition to the Petra Nova project in the United States, private companies in Canada, Germany, and China are investing in large-scale CCS projects, with mixed economic feasibility results from a private firm perspective. Scaling-up from the private firm level to the society level where public benefits from global warming mitigation are taken into account, the private and public economic benefits of CCS projects seem likely to outweigh the private costs. Thus, public polices, which help private companies to defray the high costs of large-scale CCS projects, may be justified from an overall benefit-cost analysis perspective.

## Notes

• This section appears also in Ref. ([5], p. 16–18).
• As discussed in Section 2, natural chemical cycles covert carbon to hard rock and mineral deposits which further enhances long-term storage with minimal leakage.
• For consistency, in the chapter the units of MtC and US $/tC are being used to describe economic values for marginal costs and benefits on average, assuming MC ≈ AC in all long-run CCS operations. We will note where the units of MtCO2 and US$/CO2 are applied as alternative measures. All are equivalent: (1) US $27.3/tCO2 (= US$100/tC) [26]; (2) US $10/tCO2 is approximately equivalent to US$37/tC [15].
• Because the atomic weights of carbon are 12 atomic mass units and carbon dioxide is 44 atomic mass units, a ratio factor of 3.67, or 44/12, is used, meaning one ton of carbon equals 3.67 tons of carbon dioxide, which can also approximately equal 1 tC = 3.7 tCO2 (as computed from (US $37/tC)÷(US$10/tCO2), or 3.66 tCO2 = (US $100/tC) ÷ (US$27.3/tCO2)). However, only the factor of 3.67 is applied for computation of all estimates in this chapter.
• These costs can be easily and quickly observed in Anderson and Newell (2004) (please see Table 3 in Ref. [8]).
• The later measures may be slightly higher after having been adjusting for inflation over time. Assuming a gas price of US $3 per million Btu (MBtu), which was the average price over the past decade, transport and storage costs of$37/tC stored were reported in [8]. Moreover, one can apply the following formulas to see how adjusted/expected benefits and costs are affected by inflation rates over time, that is, adjusted benefits in current-year = dollars in base-year × (CPICurrent-year/CPIBase-year), and adjusted costs in current-year = dollars in base-year × (PPICurrent-year/PPIBase-year), where CPI is the consumer price index, and PPI is the producer price index.
• CCU is also called carbon capture and reuse or carbon capture and recycling (CCR) [17].
• Urea, also known as carbamide, is an organic compound with the chemical formula CO(NH2)2 and one of the most common forms of solid nitrogen fertilizer. Urea is produced by the reaction between ammonia and CO2. See ([24], Appendix B).
• Permanent and non-permanent potential performances are referred to permanent and non-permanent storage. According to the Global CCS institute, reuse technologies that permanently store CO2 are considered to be an alternative form of CCS and referred to as "alternative CCS." EOR, ECBM, EGS, carbonate mineralization, concrete curing, bauxite residue carbonation, and potentially algae cultivation (depending on the end product) are considered to be alternative forms of CCS. See ([24] Part I: Section 3.2).
• In recent work [25], it was estimated that EOR storage of CO2 could generate net benefits as high as $335/tC stored, or cost as much as$270/tC stored. In a base-case calculation, EOR generates average net benefits of about $45/tC stored [8]. • Median and 95th percentile estimates reported in [27]. • The estimated social cost of carbon reported by [28] including uncertainty, equity weighting, and risk aversion is$44 per ton of carbon (or $12 per ton CO2) in 2005 US$. Second, including uncertainty increases the expected value of the SCC by approximately 8%. Finally, equity weighting generally tends to reduce the SCC.
• For consistency, we assume there is also a 2.4% per year increase in the PMBCCS reported in [23]. Thus, for 2030 the estimated range for PMBCCS is between US $20/tC and$41/tC.

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John C. Bergstrom and Dyna Ty (March 8th 2017). Economics of Carbon Capture and Storage, Recent Advances in Carbon Capture and Storage, Yongseung Yun, IntechOpen, DOI: 10.5772/67000. Available from:

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