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China inches forward on CCUS deployment with Sinopec pilot project

06 January 2022 Max Tingyao Lin

China saw another pilot carbon sequestration project commissioned recently, but experts suggest a regulatory framework and more financial incentives are required for large-scale development.

In a statement, state-owned energy major Sinopec said it put a carbon capture, utilization, and storage (CCUS) facility with an annual capacity of 200,000 metric tons (mt) into operation in Jiangsu province 27 December.

The project will capture CO2 from the tail gas of a coal-to-hydrogen plant at Sinopec's Nanjing petrochemical complex for use in enhanced oil recovery at the Huadong and Jiangsu fields.

"This marks the completion of our first demonstration project in the Yangtze River Delta region," Sinopec said.

China, the world's largest GHG emitter, says CCUS will play an important role in its long-term decarbonization pathway in several policy documents.

IHS Markit estimated that 23 projects with a total carbon capture capacity of 4 million mt/year were operational in China as of September. However, 15 of them were small pilot projects with a capacity of less than 400,000 mt/year each.

Paola Perez Pena, a clean energy technology principal research analyst at IHS Markit, said China currently remains focused on research and development (R&D) for carbon sequestration projects rather than commercialization.

"Mainland China has [become] the region with the most operational CCUS pilots globally, however supporting policies for commercial CCUS are still needed to incentivize large-scale projects," Perez Pena told Net-Zero Business Daily.

"China is not prioritizing [the technology] as a solution on emissions abatement, but rather as an economical option that can increase oil production with side benefits like CO2 emissions reduction," she added.

In 2019, the Chinese central government released a roadmap for national CCUS development that targets readying the technology for industrial applications by 2030, with CO2 pipelines of up to 2 million mt/year being made available.

Government officials plan to deploy those projects extensively and envisage several industrial carbon hubs across the country by 2050, according to the roadmap.

But China has yet to enact any specific regulations for carbon sequestration or provide any specific and targeted financial incentives for related projects—and those could be deemed essential by many investors.

In a research report published in September, the International Energy Agency (IEA) said the government will need to introduce a legal and policy framework, and market incentives like CO2 pricing and subsidies to kickstart large-scale CCUS development.

While the country's national emissions market, which was launched last July, is off to a strong start in terms of liquidity, experts said the trading scheme is not yet robust enough to prompt decarbonization investments, with carbon emissions priced at just CNY 44.20/mt ($6.93/mt) as of mid-December.

Sharing a similar view to the IEA, Perez Pena suggested the Chinese government is likely to prepare some policy tools to promote CCUS development in the coming years.

"China has experience in developing policies to incentivize large-scale deployment for other industries like renewables, so we are expecting to see some sort of progress in the policy framework for CCUS in the next 10 years," she said.

Necessary technology

When updating its Nationally Determined Contribution last year, China committed to its CO2 emissions peaking by 2030 and achieving carbon neutrality by 2060.

The government-backed Chinese Academy of Environment Planning, Chinese Academy of Science, and Administrative Center for China's Agenda 21 said in a joint report last July that CCUS would be critical in reducing emissions from the power, steelmaking, and cement sectors.

According to the report, the technology could capture up to 408 million mt of CO2 in China by 2030 and 1.82 billion mt by 2060.

With the country relying on coal for 60% of its power generation, Perez Pena expects CCUS to be one of the key technologies for reducing emissions in China in the short run.

"China will require the technology to meet their targets … The question is if the government will put in place the right incentives and funding for these projects to be quickly deployed," she said.

Project development

So far, Chinese energy majors have been the keenest in developing CCUS projects in the country.

Sinopec, China National Petroleum Corp., and CNOOC Group together operated eight CCUS projects with a total capacity of 2.9 million mt/year as of September, or 72.5% of the national total, according to IHS Markit.

The three are among the state-owned enterprises required to reduce CO2 emissions by 18% per CNY 10,000 worth of output from 2020 levels by 2025.

Looking forward, Sinopec plans to commission a 1 million mt/year CCUS project to capture CO2 from a coal-based hydrogen plant at its Qilu facility in Shandong, which will be the largest in China.

The project was scheduled to come onstream by the end of 2021, but the company confirmed the start-up date had been pushed back to this year as it struggled to complete construction during the winter and the COVID-19 pandemic.

The Global CCS Institute estimates seven Chinese carbon sequestration projects are under construction or being planned, and that they could begin operating in the 2020s. Of this group, five are designed to reduce emissions from coal-fired power plants, the thinktank said.

Cost calculation

But the Asia Investor Group on Climate Change (AIGCC)—which represents asset owners and managers with $26 trillion under management—suggests that Chinese utilities need stronger financial incentives to embrace CCUS as a decarbonization option en masse.

In analysis published last month, the AIGCC said the levelized cost of electricity for coal power with carbon capture technology reached nearly $110/MWh, far above that for solar or wind power.

Still, the analysis concluded that carbon sequestration will play a key role in limiting global warming later this century. "Decarbonization targets cannot be achieved with renewables alone … High renewables penetration reduces grid reliability and increases total system costs," according to the analysis.

Valerie Kwan, director for engagements with the AIGCC, suggested the government could use a carbon tax, subsidies, or emission caps to accelerate the adoption of CCUS technology.

"In the power sector, achieving the required [carbon capture] capacity will be more challenging … It requires incentivization," Kwan said.

The Chinese government estimated CO2 capture costs at somewhere between CNY 250-430/mt pre combustion, CNY 300-450/mt post-combustion, and CNY 300-400/mt for oxyfuel combustion in 2019.

Beijing is aiming to reduce the cost by 30%-40% by 2030 and 60%-70% by 2050 following further R&D.

According to accountancy group BDO, 164 of the 203 carbon capture or storage patents filed with the World Intellectual Property Organization in the year to 31 March, 2021 were Chinese in origin, mostly from energy companies and universities in China.

"I don't think cost will fall in the next year, but in the long term—in the next 10 years—we do expect to see some cost reduction, mainly from new technologies and learning rates," Perez Pena said.

Posted 06 January 2022 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability

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