Legal Framework for CCS in China: What will the future hold?

This is the second part of a two-part post on the state of CCS in China

According to a white paper from the Center for Climate Change Law, the National Development Reform Commission in China published a “Circular on Promoting the Trials of Carbon Capture, Use, and Storage.” The document puts emphasis on the NDRC’s efforts to promote CCS projects throughout China. It formally established the “Technology Innovation Union of Carbon Capture, Use, and Storage,” that incorporates 40 distinct organizations ranging from businesses to universities.  While this is a significant step towards strengthening the policy environment surrounding CCS in China, many reforms are needed to encourage CCS investment over the near-term.

The National 12th Five Year Specialized Plan on CCS development (March 11, 2013). The plan projected that CCS will provide a significant aid to China’s road towards a less carbon-intense economy.  It cited the challenges associated with CCS, including the elevated costs of the technology, but the plan also identified detailed approaches that had not been addressed in previous policy documents on both technology development and the establishment of relevant policy and law. This regulatory ambiguity hinders the level and thus the speed of CCS development in China.

There are seventeen national departments coordinating China’s national climate change policies, so this level of policy fragmentation is not a new phenomenon. Despite the efforts to better coordinate policies relating to CCS at the national level, gaps still remain in China’s regulatory framework with respect to the codifying of CO2 as formally regulated air pollution, the laws regarding the regulation of utility pricing in China for plants deploying CCS technology, and the environmental and land-use regulations needed for transport and eventual storage or usage of captured CO2.

Existing national regulations concerning the environment and air quality do not specifically list greenhouse gases as air pollutants that yield climate change. While air pollution regulations limit sulfur dioxide (SO2) emissions in power plants, they do not limit emissions of CO2. This law, however, if amended to include CO2, could provide the regulatory conditions for limiting CO2 and thus spurring additional development of CCS technology. CCS’s state of technological immaturity, however, poses problems for leaders to carry out this regulatory step. Without commercially feasible options for limiting CO2, there is little appetite for adding it to the list of regulated air pollutants. A preemptive law at the national level to better regulate CO2 without a commercially feasible technology to do so could prompt entrenchment and resistance at the provincial level and thus undermine the national policy.

The regulations across the coal and electric power industries also provide a vehicle for further incorporating CCS into China’s legal framework. While these regulations do not reference the technology specifically, they deal with many issues related to CCS. From pricing structures for electric power to the environmental standards of production and construction of power plants, specific amendments to these laws could allow a CCS power plant operator, for example, to charge a higher price to reflect its increased production costs. Without allowing a plant to cover the increased costs associated with CCS, there is little incentive for the additional investment required to implement the technology.

The lack of adequate regulation in China hinders the potential wide scale adoption of CCS projects in China. Additional regulations should outline requirements for CO2 pipeline construction, land management for potential storage sites, standards for monitoring sites after injection, and the liability provisions for the underground storage of CO2. Site selection also requires further clarification. Given that CCS requires substantial geological work to determine potential sites for effective storing the captured carbon, the environmental regulations, site monitoring, land management regulations require revision to clarify standards for further CCS development. Setting a firmer regulatory environment around CCS in place will remove a level of uncertainty that could hinder future investment in CCS.

CCS projects require investment decisions over a long time horizon, and firm make investments based on their projections of the regulatory and market environment upon completion of the project. Further reforms must set clear standards, to establish the legal liability for investors, and to allow producers to set a higher price for CCS-generated electricity in order to spur further investment and development of CCS in China.

Spencer Jones is a second year student at the LBJ School of Public Affairs. His career in business process consulting and risk management led him to pursue a career in international economic policy and particularly the intersection of national security and economics.

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