Carbon price crash hits CCS fund

Brussels may have to rethink its scheme to fund carbon capture and storage plants because of the low price of the carbon allowances being sold to fund them.

Carbon prices have fallen from €17 (£14) a tonne in May 2011 to €7 a tonne this week. That means the 300 million credits that the European Commission will sell to fund the projects are worth just €2.1 billion compared with €4.5 billion last February, when firms submitted their bids.
The European Investment Bank sold the first 12 million allowances for an average of €8.15 in December and analysts predict that prices will recover to about €10-€12 this year. However, concerns remain that the money will be spread too thinly.
No single project gets more than 15 per cent of the fund. There are eight CCS projects bidding. That would leave a maximum of €300 million available to any one project.
The UK’s Longannet project recently collapsed because developers did not think that the £1 billion funding available was sufficient.
Utility Week understands that carbon capture and storage firms in the running think the number of projects awarded funding under the European scheme should be cut to four and the 15 per cent rule scrapped.

This article first appeared in Utility Week’s print edition of 20 January 2012.
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