Schwarze Pumpe is the first power plant to capture the CO2 it produces. But will cost and legislative difficulties prevent further similar projects? Angus Evers reports

On 9 September, 2008, a new coal-fired power plant at Schwarze Pumpe in northeast Germany was commissioned. The plant is small compared with most commercial power plants, producing only 12 megawatts (MW) of electrical output and 30 MW of thermal power for local heating (a conventional power plant produces 1,600 MW of electrical output). Apart from its size, Schwarze Pumpe is unusual because it is designed to capture the carbon dioxide (CO2) it produces. In a process heralded as a major technological step forward in the fight to reduce global greenhouse gas emissions, the CO2 will then be transported to and injected into a depleted gas field, where it will be stored permanently.

This is the first demonstration of carbon capture and storage (CCS) technology involving electricity generation. Although it is worth noting that there are several existing projects around the world which involve the storage of CO2 produced by industrial processes, some of which have been in operation for a number of years.

CCS is one of the most promising technologies for tackling rising CO2 emissions from the burning of fossil fuels. It involves capturing CO2 produced by the combustion of fossil fuels and injecting it into underground strata to prevent it from being emitted into the atmosphere. It offers the potential for capturing around 90% of CO2 emissions from fossil fuel-fired power stations. However, until the commissioning of the Schwarze Pumpe plant, it was uncertain whether CCS could successfully be applied to electricity generation.

The barriers to the commercial-scale deployment of CCS in the electricity generation sector are both economic and regulatory. Coal is relatively cheap, however, CCS technologies are not. A recent report by McKinsey & Company entitled 'Carbon Capture and Storage: Assessing the Economics' estimates that, even by 2020, fitting a new 900 MW coal-fired power plant with CO2 capture equipment would increase the capital cost by approximately 50%. These figures do not even include the additional costs of operating the CO2 capture equipment and the investment required in transport and storage infrastructure. The McKinsey report also estimates that the cost of abating a tonne of CO2 in early demonstration projects will be between E60 (£47) and E90 (£71). However, it goes on to predict that these costs will fall to between E30 (£23) and E45 (£35) by 2030, at which time the price of carbon is forecast to have risen to between E30 and E48 (£38) per tonne (from the current level of around E23-E25 (£18-£20) per tonne). At these prices, CCS will become economically self-sufficient.

With few power companies prepared to commit the capital required to develop commercial-scale demonstration projects, it is clear that government-funded economic incentives will be needed to stimulate the development of commercial-scale CCS in the power generation sector.

Government action is also required to create the right regulatory environment for CCS projects. The concept of CCS is relatively new, and most current energy and environmental legislation – both at international and domestic level – was not drafted with it in mind. Changes to existing laws and, in some cases, new legislation altogether, will be required to allow CCS projects to be developed.

Internationally, the 1972 London Convention and the 1992 OSPAR Convention restrict the dumping of waste at sea. Although these have now been updated to permit offshore storage in certain circumstances, some of the amendments still need to be implemented in the European Union (EU) and the UK. At EU level, various directives, including the Waste Framework Directive (2006/12/EC), the Integrated Pollution Prevention and Control Directive (96/61/EC) and the Greenhouse Gas Emission Trading Directive (2003/87/EC), also require amendment. In January 2008 the European Commission published a draft directive on CCS as part of its 'Climate Action and Renewable Energy Package'. This includes an aim to have 12 operational projects in the EU by 2020.

The government is keen for the UK to be at the forefront of the development and deployment of CCS technologies. In November 2007 it launched a competition for the development of a commercial-scale CCS project involving electricity generation. The winner is expected to be announced in 2009. It also introduced the Energy Bill into Parliament, in January 2008. This creates a legislative framework for the licensing and decommissioning of offshore CO2 storage sites and is expected to receive Royal Assent later this year. Over the summer the Department for Business, Enterprise and Regulatory Reform conducted a public consultation exercise on the detail of the UK's proposed CCS regulatory framework.

The legal issues involved in shaping and drafting the legislation required to create the right regulatory environment for CCS – and then in actually developing CCS projects – means that there is likely to be plenty of input from lawyers needed. This would cover a wide range of practice areas, including projects, energy, environmental, planning and competition.

One of the most complex and controversial regulatory issues centres around who should bear the long-term liabilities for stored CO2. Given that the aim of CCS is to reduce the amount of CO2 emitted in to the atmosphere as a result of the burning of fossil fuels, it is essential that, once injected underground, CO2 should remain there permanently. If leaks were to occur, this would potentially create both local and global environmental risks. However, no operator of a CO2 storage site is likely to be prepared to accept perpetual liability for future leakage. And governments recognise that no corporate entity can be expected to exist forever.

The solution of the European Commission and the UK Government to this problem is that once a storage site has been closed and shown to pose no further risk to the environment, liability should transfer to the State. However, this raises questions over the criteria for demonstrating that a site poses no further risk to the environment, and on what terms the transfer of liability should be made. For instance, should storage site operators be required to pay into a fund to be used for post-closure monitoring and, if required, remediation?

CCS is no 'silver bullet' for tackling climate change. But there is now a growing consensus that it offers great potential as a means of mitigating CO2 emissions from the burning of fossil fuels, particularly coal. However, unless governments drive through the necessary legislative changes and provide the economic incentives to encourage the power generation sector to invest in CCS, a major opportunity to reduce CO2 emissions will be lost.

Angus Evers is head of environment at SJ Berwin.