The Kapuni Gas Treatment Plant. Photo: Google Maps
A critical part of the government's plan for cutting greenhouse gas emissions over the next five years appears to have fallen over.
A huge chunk of the government's climate success rests on a single project, which the owner now says probably won't happen because it doesn't stack up commercially.
Fully a third of the carbon savings needed to meet the government's legal obligations to cut emissions from 2025-2030 was supposed to come from carbon dioxide being stashed permanently under the ground of Taranaki, at the Kapuni gas field.
Kapuni's owner Todd Energy says the project's future is uncertain unless it gets some kind of extra incentive or subsidy from the government - something the government currently shows no signs of offering.
Carbon capture and storage (CCS) condenses carbon dioxide and stores it underground in reservoirs - hopefully forever.
Despite controversy over subsidies being handed to fossil fuel companies for CCS, and accusations of under-delivering, several muti-billion-dollar projects are underway overseas, with mixed success.
Chevron's huge Gorgon facility in Australia badly underdelivered on what was promised, but other projects such as the smaller Moomba project got off to more promising starts.
Kāpuni was expected to be New Zealand's first CCS project, starting around 2027.
Todd Energy hoped to capture carbon dioxide right at the point where it was released as part of the process of extracting gas from the field, condense it and stash it, permanently, in the empty fossil fuel reservoirs that previously held the gas. There was also space at the field to store emissions from other polluters, Todd said, if it could be transported cost-effectively.
Like Moomba, the project would involved reinjecting CO2 back into the same depleted reservoir long used for gas production, which Todd describes as low risk.
Todd Energy told the government that with a January 2027 start-up date, up to 2.7 million tonnes of CO2 could be captured from the Kapuni field over the life of the project.
Government officials were sufficiently convinced that CCS would start at Kapuni around 2027 that they included the project in their calculations underlying the government's Emissions Reduction Plan.
That plan showed the government would just manage to meet its 2025-30 carbon budget, despite having slashed other carbon-saving policies such as clean energy subsidies and stronger emissions standards on car imports.
Targets in place
Officials agreed Kapuni could be expected to store a million tonnes of CO2 between 2027 and 2030, and a further almost million tonnes over the five years after that.
That was estimated by taking what Todd said was feasible, and reducing it by five percent for contingencies, the Ministry for Business Innovation and Employment told to RNZ.
But getting any carbon capture at all in the next few years now looks doubtful.
Government documents show Kapuni was the only project of its kind expected to be able to start operating before 2030, the government's next, big deadline for slashing emissions.
Payback too small
Currently the government proposes CCS projects would generate carbon credits, the same way forestry owners do for planting trees.
But Todd Energy says carbon prices of around $50 a tonne aren't enough to make the project stack up commercially, particularly now that gas yields from its fossil fuel fields are falling.
It says its studies show the Kapuni field can offer long-term carbon sequestration.
"However, the additional facilities required to capture the CO2 and compress it for injection are very expensive, which makes the commerciality of the project challenging," it says.
"Unfortunately, this is likely to mean that by the time the necessary regulations are in place, the project may not be feasible without additional incentives.
"Had a regulatory framework been in place five years ago, the commercial viability of the project would look quite different to where we are today or will be in three years' time," a spokesperson said by email.
"While CCS is technically feasible and represents an option for reducing New Zealand's greenhouse gas emissions, the Kapuni project is not viable under the proposed legislative and regulatory framework."
Simon Watts holds the Energy and Climate Change portfolios. Photo: RNZ / Samuel Rillstone
RNZ asked Energy and Climate Change Minister Simon Watts where that left the government's emissions-cutting plans.
Like Todd Energy, Watts declined to give an interview but answered questions by email.
He said the government remained committed to meeting the next emissions budget but did not answer what else might fill the gap if carbon capture and storage fails.
"Work on developing the Carbon Capture Storage regime is ongoing, and we expect to introduce legislation this year," Watts said.
"In February this year, we confirmed our intention to reward businesses through the ETS. We are also developing ways for a CCS regime to enable the storage of third-party carbon dioxide. This would allow those storing CO2 to source carbon dioxide from other emitting activities and inject it alongside their own carbon dioxide into the storage site. This could allow and incentivise more carbon dioxide to be stored than the operators can currently," he said.
"The second emissions reduction plan outlines an adaptive management approach. This means closely monitoring progress, so we can adjust if necessary to ensure we stay on track to meet our second emissions budget."
Why CCS?
Critics says CCS is a fossil fuel industry distraction from urgent efforts to stop emissions from being produced in the first place.
Such projects are not expected to replace the need to radically cut emissions, but some experts say they could be helpful - even critical - to offset some emissions, particularly the final, most stubborn sources of carbon dioxide that needed to be neutralised to meet the planet's climate goals.
David Dempsey has been conducting research on the issue. Photo: Supplied
The University of Canterbury's David Dempsey is researching a similar but different process of capturing carbon dioxide directly from the air and storing it. He says trialling CCS could come in handy for that kind of project in future.
"In an ideal world you wouldn't have to have a situation where you pulled CO2 out of the atmosphere and put it underground, but it's been clear over the past several decades that efforts to shift emissions have been quite stubborn," he said.
"And there may be certain industries where it makes sense to offset certain emissions with storage.
"You don't want to look at this stuff as a silver bullet for all emissions, rather to exist as part of a portfolio of approaches. It's very important for maybe a few niche applications but it's not going to solve all of your problems," he said.
"One of the reasons I think carbon capture is worth doing is if we're doing to do a lot of carbon dioxide removal in the future, you need some experience with the concept of capturing CO2 and of storing it underground for long periods of time.
"Some good candidates are depleted gas fields because we know these are good at containing fossil fuels for thousands of years."
The government's proposed regime for allowing CCS would let companies such as Todd get paid in carbon credits under the Emissions Trading Scheme, just as forestry owners can earn carbon credits for storing carbon in trees. The credits can currently be sold for around $50 a tonne.
But carbon prices are low by international standards.
Todd Energy says that isn't enough, and capturing and storing the carbon is not economically feasible at today's carbon prices. Not helping matters is dwindling gas yields from fields such as Kapuni.
"The current ETS carbon price is not high enough to justify a CCS project based on CO2 capture from the processing of natural gas at Kapuni," said the company.
"The large capital investment required for CCS is relatively fixed, so the amount of gas processed though the facility will dictate the $/tonne needed to cover the initial investment. As gas reserves decline and there is less and less gas to process, the $/tonne price required is progressively increasing."
Todd and other fossil fuel companies are interested in doing CCS also despite the liability regime for leaks after the project has ended.
Regimes overseas typically make companies liable for any leaks for an initial period, with the government picking up the risk after that.
Dempsey says a crucial element is having a plan so everyone knows who is responsible, when.
"But we do need a plan for failure and any leaks that may occur."
As for offering some other form of incentives, the government discussion documents show no hint of considering any kind of sweetener.
"Overseas you've seen some situations where governments have chosen to invest in CCS projects...because they have seen and recognised that it is unlikely for companies to carry those costs themselves," Dempsey said.
"I haven't seen anything in what the government has indicated here to say it is keen to offer that kind of incentive."
