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10| Funding mechanisms
Potential funding mechanisms were examined on their ability to address key business risks and meet specific policy aims in order to identify the most appropriate funding method. Each funding mechanism was identified and flagged according to its ability to meet the criteria in Table 15 below.
Table 15
Comparison of funding mechanisms and merits of CCS in Scotland.
Green - Positive criteria indicator
Orange - Neutral/Average/uncertain criteria indicator
Red - Negative criteria indicator
Black - Very Negative criteria indicator - Potential 'show-stopper' that could make mechanism untenable.
In practice each option has both advantages and disadvantages and there are no clear preferences.
Of the 'high-level' mechanisms examined, a phased approach to funding of CCS in Scotland appears to have merit:
Phase1, short term Direct funding of CCS Research and Development and pilot projects will enable cost discovery and allow access to initial learning effects. It will lower uncertainty regarding capital costs and directly stimulate Scottish CCS expertise. One possible route is to co-finance the capital of R&D and smaller scale demonstration projects with public/private funding partnerships (highlighted in Table 15).
Phase 2, medium term The aim of the favoured medium term funding mechanism is to offset the potential short-run cost disadvantages of CCS. On balance, the preferred solution for the medium term support of CCS is fixed income support (highlighted in Table 15). Depending on the aim of the funding mechanism, the most appropriate form of subsidy will differ:
A subsidy per MWh of CCS electricity generated will encourage CCS generation but may not minimise the cost of carbon abatement.
A subsidy per tonne of CO 2 abated (versus a benchmark on a project to project basis) would minimise the overall cost of reducing CO 2 emissions, but may not be technology neutral (as it favours projects that will 'offset' coal generation) and may not minimise the overall cost of electricity generated from CCS.
If the subsidies are required to bring the returns on CCS projects to a level comparable with their non- CCS equivalents, each of the schemes listed in Table 13 would require support in the region of £100M/year. European funds are available to support such projects, but access to these sources is limited and open to competition from all European countries.
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