A unique chance to contribute to achieving negative emissions risks becoming a failure

Read the Swedish article here

The new operating support for bio-CCS would enable Swedish industry to accelerate towards a sustainable energy transition. The government's proposal captures only a fraction of the potential, writes Torbjörn Severinsson, energy expert at PA Consulting.

On September 20, the government submitted the 2022 budget bill to parliament. Sweden will be the world's first fossil-fuel free state. Within the framework of “New and expanded investments in the industry's green transition” it announced that an operating grant for bio-CCS will be introduced. It is welcome that the government has now set aside SEK 10 million per year during the period 2022–2025 for the establishment and administration of the system.

Carbon Capture and Storage (CCS) is a proven technology for separating and storing carbon dioxide. Unlike with fossil fuels, carbon dioxide is separated here from the flue gases that arise during the combustion of biogenic fuels.

Storage of biogenic carbon dioxide is seen as a complementary measure in tackling climate change. Sweden has great potential to secure negative emissions that has so far been completely untapped. Sweden's industrial carbon dioxide emissions are dominated by biogenic fuels, 33 million tonnes in 2020, compared with 16 million tonnes of fossil fuel carbon dioxide emissions. This relationship is unique within the EU and Sweden therefore has the opportunity and obligation to contribute a large proportion of negative emissions within the EU. In comparison, when the entire Swedish passenger car fleet is fossil-fuel free, carbon dioxide emissions will decrease by 9 million tonnes compared with today.

Industry players have known for some time about the proposal from the government to introduce an operating support system for bio-CCS, in the form of reverse auctioning, in 2022. The Swedish Energy Agency is expected to publish the details of such a support system by November this year. A reverse auction means that the players who can deliver a service at the lowest cost win the tender. It is an effective method that, for example, has been used extensively in Denmark and the Netherlands for the expansion of offshore wind power.

What is the problem then? Well, on one hand the government has confirmed that the operating support will be introduced when it is initially not ready to provide more than SEK 400 million per year, over the period 2026-2040, for contracts with the winners of the reverse auction. According to experts who have calculated the costs, this financial contribution is at an extremely low level. If the government does not raise its ambitions, PA Consulting believes that Sweden will face serious problems in the auction procedure as it:

• Captures only a fraction of the potential. 400 million per year is probably enough to store 200-300 ktons of biogenic CO2 annually and if the techno-economic potential is 20 million tonnes, the support system only captures 1–1.5 percent of the potential.
• Excludes the largest biogenic emission sources in the paper and pulp industry. Today, 22 paper and pulp mills emit more than 400 kilotons of biogenic carbon dioxide annually, with an average emission per plant of 1 million tonnes.
• Inefficient resource utilization. Aid aimed at smaller emission sources means no economies of scale and inefficient use of resources. The auction price will probably end up at SEK 2,000 per stored tonne of biogenic carbon dioxide instead of SEK 1,000.

Sweden has a unique position within the EU to deliver "negative emissions". Of course, it is not realistic for Swedish taxpayers to bear 100 percent of the cost of realizing their full potential. The cost needs to be shared between all EU countries. Here, the government needs to press the EU for funding.

How should players in the paper and pulp industry in particular respond to this?  There is no  easy answer. In practice, the support system is closed to the larger producers of biogenic emissions. And the possibility of applying for other investment support, for example within the framework of the EU's 'Innovation Fund', is also strictly limited due to fierce competition.

There is also a risk that even the smaller players will not be able to use the support if the government introduces a type of ceiling price for the auction that is based on economies of scale that are incompatible with their activities. The alternative is to raise prices for the end customer, but this is not likely to be a solution. For a district heating supplier, outsourcing the additional costs to customers would probably result in them risking losing them to alternative cheaper heating solutions. For the paper and pulp industry, which operates in a global market, the option of raising prices is not an option.

PA Consulting proposes that the government raises its ambition in the first auction rounds to at least 5 million tonnes of biogenic carbon dioxide annually, starting in 2026 and for the time being omits the estimate of the resulting support level. The focus should then be on working further within the EU to secure funding for Swedish bio-CCS so that the remaining potential, at least, is financed with EU cooperation.

Torbjörn Severinsson, energy expert at PA Consulting