Wednesday

24th Jan 2018

Investigation

After 12 years, EU gives up on CO2 storage aid to China

  • Then EU commissioner for trade Peter Mandelson (l) shakes hands with then Chinese minister for trade Bo Xilai at the 2005 China-EU summit. In the background are former EU commission chief Jose Manuel Barroso and former British PM Tony Blair (Photo: European Commission)

The European Union and the Chinese ministry of science and technology have had a private row about an EU promise to help China finance feasibility studies for a carbon capture and storage site.

To remedy the dispute, the EU is proposing that instead of a €7-million grant to fund the studies, the EU would provide funds to support a "policy dialogue".

  • Documents released by the EU commission showed that the EU-China cooperation on carbon capture and storage has suffered significant delays (Photo: Peter Teffer)

The EU has invited China to discuss the issue in Brussels next year.

The dispute is the tentative anti-climax of an EU-China cooperation programme that began 12 years ago.

An investigation by EUobserver, based in part on newly revealed information after an access to documents request, showed that the project has been marred by delays.

Concrete action

At a summit in Beijing in September 2005, the EU and China established a Partnership on Climate Change.

The context was this: China was on its way of becoming the largest emitter in the world - a position it has held ever since - because of its reliance on coal, the fossil fuel with the highest CO2-intensity.

It was four years before the failed climate summit in Copenhagen, and a decade before the first truly global treaty on climate change was signed in Paris.

China was very much reluctant to commit to climate action, arguing that it was still a developing country that was not responsible for the historic (Western) emissions which led to global warming.

According to a European Commission press release, the focus of the partnership would be on "concrete action".

The two sides agreed that they would "develop and demonstrate, in China and the EU, advanced 'zero-emissions' coal technology".

In a memorandum of understanding (MoU) signed a year later, the two sides said they would do this by setting up a carbon capture and storage (CCS) project.

The programme was divided into three phases, and final operation of an EU co-financed CCS installation in China was set for 2020.

Three phases

The first, preparatory, phase was concluded in 2009 at a China-EU conference in Beijing. The first phase was led by the United Kingdom, which spent some £2.8 million (€3.2m) on it.

Also that year, the two sides signed another MoU, describing phase two, during which a feasibility study of a CCS demonstration project should be completed.

The MoU said that commission "considered" to financially support phase-two activities with up to €7 million. The two sides aimed to complete the second phase by 2012.

However, some voices of impatience were beginning to let themselves be heard that year.

The House of Lords in the UK investigated broader EU-China relations, for which they invited John Ashton, the then foreign secretary's special representative on climate change.

On 23 April 2009, he gave a testimony noting that a big challenge will be how to fund the actual construction.

"If you build a carbon capture and storage plant at commercial scale, you are talking about an additional cost at this current demonstration phase of the order of hundreds of millions of euros, and the question is - where is that additional cost going to come from?", he said

He noted that China would say that Europe should pay for it.

"There will be a question that we need to address quite soon about the extent to which European taxpayers in the end will be willing to pay … We have not answered that question yet. If you were to ask me how the implementation stage will be paid for, I do not have an answer to it. It is a question that is bothering me a lot," Ashton said.

In their final report, which came out in March 2010, the Lords said they were "sceptical that the current pace of development, and the lack of committed funding, will lead to a successful and timely outcome".

Only the EU commission had pledged to pay €50 million for the actual construction, with estimates for the final costs between €300 million and €550 million.

Despite this, the then centre-left UK minister of state in charge of climate change, Philip Hunt, wrote that "a significant amount has already been achieved" which should not be downplayed, and that the initiative could serve "as a potential blueprint" for other projects.

He noted that he hoped to see the plant operational by 2015, a target date which the EU commission had also started using.

Hunt expressed his "belief that we are well placed to deliver a demonstration plant in China in parallel to those in the UK and elsewhere in the EU".

Delays

But the second phase of the project was plagued with setbacks, according to an external evaluation submitted to the commission in 2013, and made public after an access to documents request by this website.

"Progress on the project has been difficult right from the start, due to work programme changes, slow correspondence in communication and intermittent periods of project implementation," the report said.

"The project paused for a period of nearly one year before it was resumed during 2012," it added.

The reason for the one-year pause was "the need to resolve some contractual issues between the Chinese and European partners", it said, although another internal commission document had a different explanation.

It said, without going into detail, that the one-year hiatus was due to "political differences" between China and Norway, which had by then become a co-financer of the project.

Other difficulties included logistical issues, such as delayed visa issuances on both sides.

The first evaluation report also included some more mundane reasons for delays, for instance, two European diplomats not being allowed beyond by the reception desk of the ministry of science and technology because of a "delayed communication" about their mission.

In 2015, a commission civil servant wrote in an email that China's ministry of science and technology had confirmed that China was still "much interested" in the CCS cooperation.

Money for momentum

A concept note, dated 21 January 2015, acknowledged that the implementation of the China-EU near-zero emissions coal project "has been slower than expected in the last years, but is still considered a success by all involved parties".

It said that to keep up momentum, a quick decision to finance a feasibility study of one of three CCS sites, to be selected by the Chinese ministry, was "vital". The note also acknowledged that one risk associated with the project was that the third phase "does not find sufficient financing".

However, the note said that risk was "mitigated by China's long-term commitment" to the programme, as well as the climate action promises the country was expected to make in Paris - which it did.

Over the following months, EU civil servants exchanged emails with China to find out which CCS site it would prefer. The EU hired an external expert to evaluate the two Chinese-proposed sites.

Do we accept the risks?

In 2016, the file moved up the commission hierarchy.

The directorate-general Climate Action (DG Clima) wanted to fund the feasibility study with money from the Partnership Instrument, a fund under control of the EU's diplomatic branch - the European External Action Service (EEAS).

Christian Leffler, deputy secretary general at EEAS, and Tung-Lai Margue, director for foreign policy instruments, wrote to Jos Delbeke, director-general of DG Clima, on 9 February 2016.

"We are prepared to consider this funding, despite the significant risks for the EU that are associated with this action, provided that we get commitment and guidance from DG Clima on mitigating measures to address the identified risks in the attached explanatory note," they wrote.

The risks included "non-completion", since there was no legal framework in place in China to force energy and industry operators to adopt the expensive CCS technology.

The note also mentioned a potential funding gap. The EU would fund €7 million, but that was nowhere near enough the €27.2 million needed for one feasibility study, or €51 million for two, wrote Leffler and Margue.

They worried about potential public criticism if the EU were spending public money to help state-owned Chinese companies "at a time when the EU economic growth is slow".

The note also mentioned that CCS was not even being used at a commercial scale in the EU, "due to high investment costs and widespread adversity by public opinion".

On 29 February 2016, Delbeke gave them the go-ahead, saying he was willing to take the risks, or that those risks were not as large.

"If the EU does not go ahead with its long-promised support towards CCS demonstration in China, there is a significant risk that the EU's commitment to CCS as a technology and to climate action will be severely criticised by stakeholders and the public," the highest EU civil servant in charge of climate action wrote.

The Chinese companies 'lost interest'

But it all ended in an anti-climax.

On 24 July 2017, a civil servant from DG Clima wrote an email about his or her trip to Beijing a few days earlier.

Apparently, the two companies that were candidates for the feasibility study had "lost interest" in the near-zero emissions coal project and had decided to fund the studies themselves.

The civil servant described a "confrontational" meeting at the Chinese ministry of science and technology.

"We made it clear that the EU cannot double-finance feasibility studies done by the firms," the civil servant wrote.

But China "demanded" the implementation of the 2009 MoU, which included the phrase that the EU had "considered" spending €7 million.

Some days later the commission sent a formal letter to the Chinese ministry, informing them that the EU was "not in a position to maintain the foreseen financial support", but that the EU would like to "reorient the EU-China CCUS cooperation to a policy and expert dialogue".

The EU would "provide funds" for the dialogue, but did not say how much.

"We would be honoured to receive you and other Chinese stakeholders in Brussels in 2018 for in-depth discussions on Carbon Capture Utilisation and Storage," the letter said.

"I am looking forward to a fruitful cooperation with you during the coming years," it concluded, posing the question of whether the next chapter of the story would end any differently.

Investigation

After spending €587 million, EU has zero CO2 storage plants

The EU has spent at least €587 million so far on carbon capture and storage, and was willing to spend millions more. However, after a decade not a single power plant in the EU is currently using the technology.

Interview

Ex-MEP pushes CCS projects, despite 'wasted money'

Chris Davies admitted that the amendment he wrote to set up a fund to finance carbon capture and storage projects failed because it had design flaws and no one expected the carbon price to plummet.

Europe holds off on storing CO2

Most reports looking at long-term climate scenarios agree that some form of carbon capture and storage is needed. However, its deployment has been stalled in the EU.

Analysis

Macron's Chinese 'game of influence'

On his recent visit to China, the French president tried to take advantage of Beijing's 'divide and rule' EU approach and become the country's main interlocutor with Europe - while also calling for more EU coordination.

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