PTQ Q4 2022 Issue

Carbon

Carbon capture

Electrification

Biogenic

Green H 2

minimalisation

feedstocks

Summary

Energy and

Retrofitting carbon capture to units across the refinery technology

Replacing

Substituting fossil fuel carbon with carbon from sustainable

Using green H 2 as a low carbon fuel to replace fossil fuel use across

process efficiency improvements

process heaters and furnaces fossil fuels with electric heaters that rely on

the refinery

biogenic sources

Readiness

Ready now

In development

Ready now

Approaching commercialisation

Complexity

Low

Moderate

High

Moderate

Relative cost

Low

High

Moderate

High

Availability

Possibly already implemented. Quick ‘wins’ harder to find

Technology

Technology not commercial. Reliant on a green grid for reducing carbon intensity

Limited supply

Limited supply, technology not

available today. Infrastructure

at scale yet

limited

Impact on

Low

High

High potential – depends on sustainable biogenic content

High

overall emissions

Table 1 Relative comparison of potential routes for refineries to decarbonise

advanced biofuels, which are currently expensive.³ An alternative path is to reduce existing fossil-based carbon emissions. A refinery could revamp or retrofit an existing process by using carbon capture on existing individual units or attaching carbon capture to a hydrogen plant to produce a low carbon H₂ fuel for use across the refinery. With these, a refinery is relying on access to carbon storage or usage of nearby infrastructure. This path enables significant emissions reductions, but technology and implementation choices impact the cost and complexity of this route. Traditionally capital investments for revamps and retrofits are relatively small, low-risk projects with a short payback time and high return on investment (ROI). Decarbonising existing industrial processes will require a different per- spective. There are unlikely to be many solutions that pro- vide the necessary climate benefit, which can meet all the outlined criteria. Projects need to be considered on climate payback time, and technology solutions, which carry some risk, will need to be included. Clearly, though, without the necessary financial incentives to execute projects, either from government policy, subsidy or market demand, few decarbonisation projects will be executed, and net zero goals will struggle to be met. De-risking decarbonisation Carbon pricing, either through a direct tax or an emissions trading system (ETS), is being deployed more widely as a mechanism to drive decarbonisation.⁴ One frequently dis - cussed, the EU ETS, has seen carbon prices consistently rise above €80/t CO₂ throughout 2022.⁵ Although, so far, the impact of these prices has been softened for industries like refining through free allowances deployed to prevent carbon leakage.

However, the EU is intending to implement a carbon border adjustment mechanism (CBAM) as part of its fit- for-55 proposals set out by the commission.⁶ A CBAM fulfils a key role in enabling free allowances to be reduced in the domestic market by adding a corresponding carbon price to imported products from the same industry. This will increase pressure on refineries, previously protected, to decarbonise as they face a larger carbon burden. At the same time, exporters in other regions may also face pres- sure to decarbonise operations to be competitive. This is not just a policy unique to the EU; other regions and coun- tries, such as Canada, are also considering a carbon border tax or CBAM-type instrument. In the US, tax credits, such as 45Q, will enable decarbonisation projects without apply- ing the same direct pressure on emissions. One of the key issues for creating projects that rely on a market-based carbon price is that prices are typically volatile. As decarbonisation projects are long-term invest- ments, creating price certainty can help de-risk a business case. One mechanism for this is a carbon contract for dif- ference (CCFD) that creates a set price versus an ETS price, building long-term price stability. One example of a CCFD scheme available today is the SDE++ in the Netherlands, which will be used by participants in the Porthos project.⁷ Aggregator projects such as the Porthos project, Northern Lights, and HyNet have all benefited from gov - ernment support and funding. These projects are key to creating the necessary infrastructure, which can be used by nearby industry. It is telling that Porthos and Northern Lights, as storage projects, are oversubscribed, demon- strating that where infrastructure is available and there is an incentive to decarbonise, there is significant demand to do so. 7

PTQ Q4 2022