Foreword

Fu Jun, Professor and Rotating Chairperson

Coordination Committee of PKU-BHP Billiton Project on CCUS

Fight against climate change calls for concerted efforts by governments, firms, universities, and other social forces, both domestically and globally. Similarly, as reflected in our on-going research in this field, cross-disciplinary approach is not only necessary but also desirable. Presented here is an interim report on the joint efforts by scholars and experts organized through what is strategically envisioned as a triple helix of National School of Development, Guanghua School of Management and College of Engineering at Peking University -- with financial support from BPH Billiton.

A principal focus of the report is on carbon capture, utilization and storage (CCUS) technologies, and their related -- albeit still evolving -- policy and legal frameworks in China. Where relevant, we’ve tried to make international comparisons on both legal/policy and technology fronts. The sectoral cut is China’s iron/steel industry, as this sector has huge implications for adaptation and mitigation efforts. It contributes significantly (about 15%) to China’s total carbon emissions, and approximately 51% of the global total from the iron/steel sector.

Organizationally, our interim report is made of four main chapters.

Chapter 1 sets an institutional background that is market-oriented and still evolving, and would presumably have long-term commercial implications for industrial firms in their decisions as to whether or not to invest, develop and deploy technologies (e.g., CCUS) for carbon emission reductions. Notably, as part of China’s low-carbon strategies to fulfill its commitments to the Paris Agreement, since 2014, China has rolled out seven pilot projects on carbon permit trading markets (i.e., in Beijing, Tianjin, Shanghai, Chongqing, Hubei, Guangdong and Shenzhen), and, if successful, they are expected to scale up to the national level in 2017.

This chapter represents an independent study of the efficacy of these pilot projects -- including their institutional designs, horny issues of measurement and monitoring, and comparative performances on carbon emission reductions. Using econometric methods, our scholars (from National School of Development and School of Environmental Science and Engineering at Peking University) find that carbon emission reductions are positively correlated with the volumes of trading on these pilot markets. Success, however, is limited and uneven across the pilot projects, partly because of the lack of liquidity on these experimental markets. They suggest caution against rapid expansion of the pilot projects before gaining a deeper understanding of their underlying causes.

Chapter 2 is collective research work by a dedicated team from China’s National Center for Climate Strategy and International Cooperation (NCSC). The chapter begins with a brief overview of the general trends of China’s industrialization and urbanization process and their short- and long-term implications for the iron/steel industry. In particular, the study includes simulated scenarios on the prospects or challenges of carbon emissions in China, and the necessary adaptation and mitigation efforts for China to fulfill its commitments to the Paris Agreement. Systematic comparisons – including innovation-oriented subsidies, incentives, tax breaks -- are also made between international and Chinese low-carbon legal and policy frameworks, and with a special attention to CCUS demonstration projects. 

According to their findings, internationally, large scale CCUS projects have been concentrated mostly in natural gas fields and coal-fired power plants; few are in cement, iron/steel and biotransformation industries. Similarly, in China, there are about 12 CCUS pilot projects targeted either at coal-fired power plants or at coal chemical projects; none of them has captured CO₂ from the iron/steel sector. They argue that Chinese CCUS-related R&D and demonstrations are in infancy, and that large potential exists in China for an expansion of CCUS projects in the next 10-20 years.

To facilitate that happening, they propose that better alignments of existing Chinese legal and policy frameworks, as well as better administrative co-ordinations, are needed, such that CCUS projects become an integral part of the country’s long-term efforts for a low-carbon economy. Deserves special mention here is the fact that legal provisions are lacking in China regarding the ownership of underground space for, and possible cross-border subterranean movements of sequestrated carbon. As is true elsewhere, institutional or legal uncertainties would deter long-term financing and investment.

Chapter 3 is intended for a deeper understanding of the technical complexity of CCUS technologies at the firm level in the iron/steel sector. One overarching consideration of our interdisciplinary research is that policy studies need to interact with and be supported by technical expertise. To better understand the behavior of the iron/steel sector, cost/benefit analyses with respect to CCUS technologies, must therefore descend from macro to micro levels to take account of the heterogeneity of the different techniques, methods, and processes involved in iron/steel making.

Here, our scholars and experts – representing a good fix of business perspectives and industrial knowhow – have attempted a systematic techno-economic analysis of the efficacies of different CO₂ capture technologies (e.g., absorption, membrane, and cryogenic distillation) for different sources in the iron/steel making processes (e.g., lime kiln, coke oven, converter, hot blast furnace, and power generation unit).

Their findings are tabulated schematically for easy reading and cross checking in this chapter. The conclusion is that one size does not fit all. In a typical iron/steel making process, as emission sources have diverse characteristics, CCUS technologies have diverse technical applicability and economic performance as well. Accordingly, they suggest that technical applicability and cost/benefit analysis of different CCUS technologies -- individually or combined -- have to be calibrated at the firm level to take account of firm-specific conditions.

Chapter 4, penned by the Dean of College of Engineering at Peking University, can be regarded as reinforcing Chapter 3, insofar as our efforts to understand and look for a “fit” between the iron/steel making processes and most appropriate carbon capture technologies are concerned. That said, this chapter also includes a systematic review of various ways of carbon utilization. Pointedly, and reflecting policy impact on business behavior, the author argues that the commercial viability of CCUS technologies depend partly on the prices of carbon emissions which is set by government policy.    

Adding further contribution to our understanding of CCUS technologies, the chapter also contains analyses of the costs and risks associated with different ways or options of CO₂ transport and geological storage, and, in particular, has emphasized the importance of proximity studies from sources (e.g., power plants, steel mills, cement factories) to sinks (e.g., oil reservoirs, deep saline aquifers, coal beds and the ocean) to enhance the integrity of CCS system. Here, research in China is glaringly in shortfalls.

The chapter ends with a warning: while the Paris Agreement sets a goal of limiting global temperature rise below 2 Celsius degrees by 2050; and CCUS technologies have an important role to play, yet the overall trend of CCUS is not very encouraging. Currently and globally, CCUS projects that have failed to reach an investment decision outnumber successful ones by a factor of 2 to 1 -- a sign that does not indicate rapid progress. To reverse the trend would require more policy support, finance and investments, advanced technologies and international cooperation.

An Interim Report.pdf