Objective and Scope: In order for CO2 (transport and) storage (’T&S’) to be employed at a scale sufficient to meet its intended goal of removing past, current and future emissions to meet even the 2.5^oC warming target, the ‘value’ of that storage will need to be explicitly recognised through a “market price” per unit of stored CO₂ such that industry in general can adopt a business-driven approach to developing and utilising global capacity. The Southeast Asia region has significant potential to be a global CCS hub, potentially providing storage options for other countries that do not have the same geological advantages for effective long-term storage of CO₂. In addition to the ambition of ‘decarbonising’ industry in the region in general, for existing and future hydrocarbon discoveries to be monetized safely within the increasing need for national ‘carbon budgets’, very significant concentrations of ‘associated’ CO₂ will need to be separated and re-injected in order to facilitate the production of the target hydrocarbons. Several regional governments have mandated this be done to varying degrees and have allowed certain tax benefits against business statutory income tax based on qualifying capital expenditure for periods of 5 to 10 years variously, but only on projects commencing before the end of 2027 (in the case of Malaysia for instance). However, given the very long-term operating (including post-closure monitoring) nature of CCS projects, will this be enough to encourage the effective “roll-out” phase of large scale, regional CCS?

This paper aims to set out the potential for and possible timing of an evolution from Government/State funded investment in geologic carbon stores to a self-sustaining carbon storage commodity market and the factors that will control both.

Process Drivers: At its simplest, the fully built-up cost structure for capturing and delivering molecules of CO₂ to a T&S company and paying their fees needs to be more attractive to an emitter than the cost of emitting the CO₂.

Government policy and fiscal control will be the key driver behind the emergence of a commodity market for storage. This will be achieved by steadily increasing the carbon price (cost to emit) that emitters must pay in order to maintain their ‘business product’ operations. Several mechanisms are already in use in different jurisdictions to achieve that goal. However, Governments must tread a delicate path between i) applying fiscal pressure to rapidly reduce and remove emissions, and ii) “killing” or driving away the very industries on which their tax revenues significantly depend.

Socio-economic benefits may also drive emitters to capture their CO₂, leading to more demand for storage and strengthening market creation. Corporate environmental and ethical policies driven by shareholders and governmental regulation demanding low carbon products by providing the framework for voluntary or controlled markets.

Observations: Carbon credits can only be claimed once for any given unit of emission reduction/removal. These will usually be claimed at the point of capture not by the T&S companies. Minus any other means, the T&S industry will therefore need a “market price” for the movement and permanent storage of CO₂ in order to justify investment. It is envisioned that the “market price” will eventually be driven by competition between emitters to access the available storage capacity at any given point in time, the conundrum being that, in order to create that competition, the stores need to be built, which requires upfront investment (with no market-driven means of making a return on that investment at this present time). This will require a “leap of faith” on the part of the investors in those early stores that a market will emerge and an acceptance that, even if it does, the rates of return will necessarily be significantly less than the traditional oil & gas projects that such investors will be used to.

To address this issue, a number of early-mover nations have set in place a variety of “bridging mechanisms” which vary from “carrot” incentives promising quick, if time-limited, returns via a tax-credit mechanism (such as the 45Q in the US) through to “safety-net” guarantees of return on capital at relatively low rates (such as the CCS business model set out in the UK) that will allow time for a true storage market to evolve. While a number of these early-mover nations and institutions such as the European Union are ramping up efforts to address the issues, several countries are only now in the initial stages of developing their policy response to support storage investment and accelerate CCS deployment.

Results and Conclusions: This paper will look at how these mechanisms (and others) are being deployed globally and the other factors that will influence the pace and quantum of a self-sustaining CO₂ storage commodity market in Southeast Asia. This will depend heavily on the future interplay between carbon-credits, carbon price, emission avoidance credits, tax-credits, low carbon product sales credits, voluntary & controlled market-places and international variations in all of the above and leads to a wide range of uncertainty on how, when and how strongly a carbon storage commodity market will emerge. The question of how developing nations might be able to set in place the conditions necessary to encourage CCS will also be addressed.

Significance: Without such an evolution it seems likely that the encouraging momentum we have seen in the last two years could easily stall. Whilst Governments, as reflectors of the will of their people, must provide the bridging mechanisms to “kick start” the building of geologic stores, the scale of development that is needed can only be supported by a self-sustaining market-price for the storage of CO₂. However, in order for that to happen, T&S Companies and their potential investors must accept that the rates of return that can be sustained from such a market will almost certainly be significantly less than they are used to in oil & gas.