【Report】IEEFA report: Can CCS really save the power sector?

The Japanese government has high hopes for CCS (carbon dioxide capture and storage), a technology that captures and stores carbon dioxide emitted from thermal power plants, and as such is heavily promoting its implementation in Japan’s decarbonization strategy. However, a report published by the Institute for Energy Economics and Financial Analysis (IEEFA), a US energy policy think tank, reveals that adding CCS to fossil-fired power plants will have implications on the sustainability of electricity prices, with the public, businesses and governments likely to suffer from the immense costs.

High costs of thermal power generation utilizing CCS

IEEFA’s comparison of the levelized cost of electricity (LCOE)* for conventional thermal power generation, thermal power utilizing CCS, and renewables shows that coal- and gas-fired power with CCS are significantly more expensive than offshore wind and solar generation with storage. Although coal is considered the cheaper of fossil fuels, its costs relative to renewable energy are still substantially higher even when CCS is added to coal-fired power.

Source: IEEFA webpage “Carbon capture and storage in the power sector will worsen energy inflation”

CCS’s high LCOE can best be understood as poor economics of the technology. IEEFA researchers point out that, despite the low economic viability of thermal power generation with CCS, considering the financial resources required to bring CCS projects to fruition, the uncertainty of the technology, the operating costs of capturing, transporting, and storing CO2, and the fact that renewable energy-related technologies are rapidly improving and growing, policy makers are still investing in and providing financial incentives for CCS as a method to decarbonize.

*LCOE (levelized costs of electricity) is a common measure of the breakeven price that electricity must sell at to recover costs and service obligations. It is calculated by adding all costs required for power generation, including construction, fuel, operation, maintenance, and management costs, as well as dismantling and disposal costs, and dividing by the estimated amount of power generation during the operation period. It represents the cost per unit of electricity generation and is widely used as an indicator for evaluating the economic efficiency when making comparisons between different power sources.

Impact on electricity prices if CCS costs are passed down to consumers 

Following is a summary of the main conclusions of the report:

  • No commercial-scale new builds of these types are known to have been completed and operated, so the reality of this technology at commercial scale is untested. The Kemper CCS facility in the United States is an example of a failed attempt at deploying the technology from a new build. While two major retrofit power projects have been implemented, one has since suspended operation and both projects have performed well below target capture rates of 90%.
  • Optimism bias is also rampant. Proponents of CCS provide low-cost forecasts that are a long way from the estimates of prominent organizations and significantly more hopeful than the likely reality. Additionally, estimates generally do not include a range of other costs including transport, storage, monitoring and possible remediation or penalties, which have a high degree of variability, and so they only paint part of the picture of carbon capture expenses.
  • How the expenses would be recovered is an ambiguity. If all CCS costs are passed on to electricity prices, it will further inflate already rising prices and increase the burden on consumers, particularly those on low incomes. IEEFA’s analysis shows that if CCS is applied in the Australia’s National Electricity Market (NEM) regions, where thermal resources provide around 70% of power generation, to decarbonize, it is expected an annual volume weighted average wholesale prices will be increased. Also, if funded through electricity prices, applying CCS could be expected to increase these prices by A$100 to A$130 per MWh higher than the average price of $75-95/MWh over the past decade.
  • The levelized costs of electricity (LCOEs) for thermal power generation with CCS are at least 1.5-2 times above current alternatives, which include renewable energy plus storage. Battery storage system prices and the resultant LCOEs will likely improve dramatically as technology is deployed more widely at a much larger scale and displaces gas-fired firming in the longer term.
  • Any significant government spending on or subsidization of less economically efficient technologies, including CCS, would ultimately be borne by the public through, for example, income taxes.
  • Until a viable source of funding is available, who ends up paying for the cost of CCS in power generation is yet another uncertainty adding to the financing risk.


The numerous challenges of CCS 

The IEEFA notes that utilizing CCS in (fossil fuel) thermal power plants will become unsustainable if electricity prices jump and consumers cannot afford to pay for electricity. CCS has numerous challenges not only in terms of cost, but also regarding the process of finding suitable sites, CO2 capture, transport, and CO2 injection technologies, and subsequent monitoring.

The report highlights the following issues caused by utilizing CCS in the power sector:

  • Fossil fuel usage: the continued use and promotion of fossil fuels through association with enhanced oil recovery (EOR) conflicting with the decarbonization agenda.
  • Technology effectiveness: the ability to live up to its claims as an emissions reduction strategy, given the poor performance and low capture rates to date.
  • Storage risk: the uncertainty and risk around the long-term storage and leakage of CO2.
  • Energy efficiency: the consumption of additional energy to capture the CO2 from flue gas. This results in more energy consumed and fossil fuels extracted, transported and burned when CCS is applied to generate the same amount of power.
  • Chemicals used: the need for large quantities of ammonia, hydrogen sulfide and other chemical solvents, which have potential to harm the environment if a spill were to occur.
  • Water usage: Power plants with CCS will require around 50% more water than non-CCS plants per megawatt (MW) of capacity.


The report highlights the poor economic viability of CCS in the power sector, but others have also pointed out that adding CCS to thermal power plants will not even capture all CO2 emissions. IEA’s 2050 Net Zero scenario states that CCS can be one of the solutions in industrial sectors where reducing emissions is most difficult. However, the report’s emphasis on strong renewable energy deployment, storage technologies, and improved grid infrastructure and flexibility in the power sector can be seen in the fact that, in the scenario, renewables will account for 88% of the power mix in 2050, while thermal power with CCS is only 3%. Additionally, the Intergovernmental Panel on Climate Change’s (IPCC) Sixth Assessment Synthesis Report, released in March 2023, positions CCS as the lowest priority mitigation option in terms of additional abatement costs or the potential contribution to net emissions reductions in the energy sector by 2030. Wind and solar power are listed as higher priority solutions.

If Japanese power utilities are overly dependent on technologies such as CCS and are slow to expand renewable energy, our electricity costs could become increasingly expensive.

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Written/Published by: Institute for Energy Economics & Financial Analysis (IEEFA)
Published: March 30, 2023