Policy incentives for carbon capture and storage technologies in Europe: A qualitative multi-criteria analysis Christoph von Stechow a, *, Jim Watson b,c , Barbara Praetorius d a Potsdam Institute for Climate Impact Research, Telegrafenberg A31, P.O. Box 60 12 03, 14412 Potsdam, Germany b Director, Sussex Energy Group, SPRU, University of Sussex, Freeman Centre, Falmer, Brighton, East Sussex BN1 9QE, United Kingdom c Co-Leader of the Tyndall Centre’s Climate Change and Energy Programme, Zuckerman Institute for Connective Environmental Research, School of Environmental Sciences, University of East Anglia, Norwich NR4 7TJ, United Kingdom d Research affiliate, DIW Berlin, Mohrenstraße 58, 10117 Berlin, Germany 1. Introduction Despite their damaging effects on the world climate, fossil fuels are likely to account for a major share of global energy needs for the foreseeable future. Carbon capture and storage (CCS) is an option to mitigate carbon dioxide (CO 2 ) emissions from fossil fuels. CCS has attracted increasing attention during the past few years, as it promises to reconcile continued fossil fuel use with ambitious climate protection targets. A number of programmes for the development and demonstration of CCS technologies are under- way (e.g., the European research project CO2SINK and the EU CCS demonstration program). In the UK and Germany, coal power plants account for a significant proportion of electricity generation and have a similar age structure, which will open a window of opportunity to invest in low-carbon power technology in the next 10–15 years. Addition- ally, both countries have set ambitious climate mitigation targets and are experimenting with a number of policies and measures to meet these targets. Not surprisingly, these two countries are also among those most involved in CCS technology development. Two coal power plant CCS demonstration projects supported by the s 1.05 bn European Energy Programme for Recovery are located in these countries: Ja ¨ nschwalde (Oxyfuel) and Hatfield (Integrated Gasifi- cation Combined Cycle, IGCC) (European Commission, 2009a). Within COORETEC, the German government finances and coordi- nates a long-term research and development (R&D) programme on clean coal technologies, including CCS. Vattenfall already operates a 30 MW Oxyfuel pilot power plant in Schwarze Pumpe, Germany. However, a systematic discussion of different incentives to encourage the uptake of CCS is still lacking in the published literature (cf. Groenenberg and de Coninck, 2008). With a share of approximately 40%, coal is the most important fuel for electricity generation worldwide, and it is projected to increase to a share of 44% by 2050 (IEA, 2010). 1 Despite the detrimental effects of coal combustion on climate change, switching to less carbon-intensive fuels, such as natural gas, or Global Environmental Change 21 (2011) 346–357 ARTICLE INFO Article history: Received 1 May 2010 Received in revised form 5 January 2011 Accepted 18 January 2011 Available online 23 February 2011 Keywords: CCS Low-carbon technology Investment uncertainty Financial incentive Support scheme Technology demonstration Multi-criteria analysis Electricity market ABSTRACT In this paper, we compare different policy incentives for overcoming investment uncertainties that are typical for low-carbon technologies prior to their commercialisation, some of which may be attributable to market failures. The paper focuses on the particular case of carbon capture and storage (CCS) technologies and conducts a qualitative multi-criteria analysis of different public policy support schemes for CCS demonstration to evaluate their suitability. The assessed schemes include mandatory CCS, emission performance standards and several different financial incentives (in addition to the European Union Emission Trading Scheme). Based on the available literature and on experience in the UK and Germany with promotion instruments for low-carbon technologies, the results of our analysis suggest that two alternative schemes, a CCS bonus incentive or a carbon dioxide (CO 2 ) price guarantee, perform best in comparison with the other assessed instruments. While they reduce the uncertainty of CCS investments in the face of low European Union Allowance prices, they also avoid significant adverse impacts on operational and investment decisions in electricity markets. ß 2011 Elsevier Ltd. All rights reserved. * Corresponding author. Tel.: +49 3312882455; fax: +49 3312882640. E-mail addresses: christoph.stechow@pik-potsdam.de (C. von Stechow), w.j.watson@sussex.ac.uk (J. Watson), bpraetorius@diw.de (B. Praetorius). 1 For example, the current share of coal in power generation is above 90% in South Africa and Poland, close to 80% in China and Australia, more than two-thirds in India, approximately half in the United States and Germany, and a third in the UK (IEA, 2008). Contents lists available at ScienceDirect Global Environmental Change journal homepage: www.elsevier.com/locate/gloenvcha 0959-3780/$ – see front matter ß 2011 Elsevier Ltd. All rights reserved. doi:10.1016/j.gloenvcha.2011.01.011