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.
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 internalise 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.
Attaching a High Cost to Carbon Emissions
The table below outlines the current state of the carbon pricing mechanism and the ongoing CCUS plans in the SEA region.
In terms of a carbon price as a key driver for CCUS, Singapore is the leader in SEA with a carbon tax of US$ 3.7 set until 2023. The current level still pales in comparison to the carbon price in the EU which hovered more than US$60/tCO2e in recent years, the generous incentives in the US, or even China’s emissions trading scheme price which ranges from US$6.5 to 9.7 since it was launched.
In February 2022, Singapore’s Finance Minister outlined an aggressive carbon tax hike, rising to US$18/tCO2e by 2024, and potentially reaching a value between US$37 and 60/tCO2e by 2030. This meaningful action will further single out Singapore as the leader in SEA carbon pricing, but one which will need to be placed in the context of other SEA countries’ emission scales, carbon pricing, and the GDP per capita.
With carbon pricing virtually non-existent in most SEA countries, a second CCUS driver will likely dominate in the region – the need to monetise CO2-rich gas resources. The dynamics of gas processing CCUS are different from most other CCUS applications, as gas production could be correlated with an urgency to raise state revenue. The value attached to the emission is internalised within the costs – i.e. reduced project revenue – borne by the gas producers and host countries. In the South East Asian market context, this second driver will likely play an important role for earlier CCUS deployment, as we will see in later sections. The table below outlines the existing CCUS plans in the region.
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.