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Policy Instrument Options for Commercialising Carbon Capture and Storage (CCS) in Japan

Kenichiro Yanagi*1

Akihiro Nakamura*2

Eiji Komatsu*3

AbstractIn Nov 2016, Japan accepted the ‘Paris Agreement’ with the proposed target. There is an urgent need for Japan to act on taking a responsibility for such global activities as a highly economically developed country in the world. The future commercilised CCS deployment associated with an appropriate policy and legal framework will allow us to make potential benefits and meet Japan’s climate policy goals. This paper specifically aims at addressing a number of policy instrument options for Carbon Capture and Storage (CCS) by addressing the relevant theories and learning from other countries (i.e. the EU, the U.S., the UK, Australia, Norway and Canada), which could be applicable to the future policy and legal framework in Japan. Our study has proposed a potential analytical framework for selecting the most relevant policy instruments associated with two major instrument groups, which are ‘self-regulatory instruments for the industry’ and ‘regulatory instruments associated with market-based instruments’. The analysis model also includes a number of selected criteria, including ‘effectiveness’, ‘cost-efficiency’, ‘social acceptability’, ‘political acceptability’, ‘flexibility’, ‘equity’ and ‘compatibility’ to determine the instrument selections. This study is not only valuable to the Japanese CO2 mitigation activities but also to other countries, where are particularly relying on fossil fuel energy sources including both developed and developing countries.

Key words: Carbon Capture and Storage, Climate Change Law & Policy, Policy Instruments

1. Introduction

Carbon Capture and Storage (CCS) technology deployment has been widely considered as a crucial tool to contribute to reducing the large amount of the global carbon dioxide emissions created by human society. In terms of facilitating the technology, preparing a legal framework is unequivocal in a country. It is also important to prepare for the most appropriate policy and regulative tools applicable to their own circumstances. This paper aims at addressing a number of policy instrument options for CCS and introducing our analytical framework to optimise the

*1 Professor, School of Law, Meiji University*2 Researcher, Centre for Environmental Law, Law School, Meiji University*3 Researcher, Centre for Environmental Law, Law School, Meiji University

18 MEIJI LAW JOURNAL Vol. 26 （2019）

selection of policy instruments, which could be applicable to the future legal framework in Japan. First, the background of Japan, the importance of the policy instruments for CCS and their options will be addressed. A comparative analysis will also be conducted across a number of the selected regions and countries including the European Union (the EU), the United States (the US), the United Kingdom (the UK), Australia, Norway and Canada, addressing the policy instruments which they have adopted for CCS policy. Second, it will examine which existing and potential instruments in Japan are potentially valuable to the future CCS deployment. It will then introduce our proposed method for optimising the most relevant policy instrument choices for Japan. Lastly, this paper will conclude.

2. Background: CCS in Japan

The Japanese government has the intention of preparing for establishing a domestic legal framework for CCS, which will potentially enable them to reduce the large amount of CO2 emissions domestically. Since the 2011 Great East Japan Earthquake (Great Earthquake), the country has been relying more on fossil fuels for energy, which is a problem, given that 90% of greenhouse gas (GHG) emissions are now energy related1. It is also problematic for Japan’s energy security that the country currently relies on overseas supply for 80% of its energy consumption. The climate challenges facing Japan, such as the need to reduce emissions and transition to alternative energy, are now much more complicated following the Great Earthquake2. Japan is currently operating the lowest number of nuclear power sources because of the Tohoku earthquakes and less social acceptance of re-commissioning the existing nuclear power plants as the base energy load of this country. This has resulted in making energy reliance in 2030 most likely to be based on nuclear energy, and fossil fuel based energy3. In 2015, Japan’s government announced a report for Japan’s Intended Nationally Determined Contribution (INDC) for COP21 in late 2015. This report includes an emissions reduction target of 26% below 2013 emission levels by 2030, equivalent to 18% below 1990 levels by 2030, by ensuring consistency with its energy mix, set as a feasible reduction target by bottom-up calculation, with concrete policies, measures and individual technologies4. In Dec 2015 Japan also accepted the ‘Paris Agreement’ with the proposed target. Thus, there is an urgent need for Japan to act on taking a responsibility for such global activities as a highly economically developed country in the world5. In term of Japan’s consideration of CCS, the government announced an amendment of ‘the

1 MoFAoJ (Ministry of Foreign Affairs of Japan) 2015. Japan Submits its Intended Nationally Determined Contribution (INDC): Fiscal Year 2030 Greenhouse Gas Emission Reduction Target. Government of Ja-pan. Available at http://www.mofa.go.jp/files/000090898.pdf

2 Kuramochi, T. 2014. GHG Mitigation in Japan: An Overview of the Current Policy Landscape. Working Paper. Washington, DC: World Resources Institute. Available at wri.org/publication/ ghg-mitigation-policy-japan

3 Vivoda, V. 2014. Energy Security in Japan: Challenges After Fukushima. Ashgate Publishing Limited. England.

4 MoFAoJ (Ministry of Foreign Affairs of Japan) 2015. Japan Submits its Intended Nationally Determined Contribution (INDC): Fiscal Year 2030 Greenhouse Gas Emission Reduction Target. Government of Ja-pan. Available at http://www.mofa.go.jp/files/000090898.pdf

5 Climate Action Tracker 2015. Tacking INDCs: Assessment of Mitigation Contributions to the Paris Agreement. Available at http://climateactiontracker.org/indcs.html

Policy Instrument Options for Commercialising Carbon Capture and Storage (CCS) in Japan 19

Innovation Plan for Environmental Energy Technology’ in September 2013, which highlighted the technological road map addressing the quality of technologies based on the most recent knowledge and information. This plan emphasised achievement in the reduction of approximately 80% of global CO2 emissions 2050 by introducing innovative technologies including CCS, innovative structural material, and artificial photosynthesis. It is expected that CCS can potentially contribute to reducing 71 million tonnes of CO2 by 2050, out of total contributions of 336 million tonnes, which will result in approximately 21% of potential contribution to reducing CO26. The Ministry of the Environment also mentioned in the meeting of ‘The Summary of Middle and Long-term Consideration of GHG mitigation’, that CCS technology is one of the most important technological instruments to meet the government goal of 80% reduction to the target in 20507. On the other hand, there are still a number of issues which need to be overcome, including setting the most appropriate legal framework, risks for investments, new energy infrastructure, cost efficiency and effectiveness of industrial facilities. Given this, Japan’s CCS deployment is not only expected to contribute to the global GHGs mitigation activities, but also to fulfilling the energy security and meeting the targets, both at the domestic and international levels.

3. Legislative & Regulatory Developments for CCS

In terms of a CCS policy, it is essential to analyse the social, environmental and economic aspects, which enable us to contribute to reducing the Greenhouse Gas (GHG) emissions at the national level. The policy also needs to achieve a low carbon society with middle and long-term vision8. These will reduce the GHG emissions by promoting/implementing CCS, but also the technology will create a cleaner coal-fired power system, and/or bioenergy with CCS9. IEA-GHG (2007) acknowledged that CCS deployment would potentially create: direct and/or indirect impacts on environmental, economic and social aspects in conjunction with short, middle, long term and permanent influences; and cumulative impact, secondary effect and/or incidental impact.

4. Dentitions: Policy Instruments for CCS

In order to encourage large-scale deployment and/or commercial uses of CCS, it is essential to consider a mix of policy instruments and the best selections can make greater cost efficiency, scaling up the further facilities for CCS deployment. The need for CCS is also varied depending on country and region. Selecting best match of policy instruments can enable the creation of sufficient incentives to make business cases for CCS viable and trigger investments in deployment and innovation. Especially for industry to embark on large-scale investments, a

6 The Government of Japan 2013. “The Innovation Plan for Environmental Energy Technology” (in Sep 2013) http://www8.cao.go.jp/cstp/sonota/kankyoene/keikaku.pdf

7 MoEoJ 2015. “The Summary of Middle and Long-term Consideration of GHG mitigation”. http://www.env.go.jp/policy/kikouhendou/kondankai04/02siryou1-1.pdf

8 IEA: International Energy Agency, 2012. A Policy Strategy for Carbon Capture and Storage. Paris; OECD/IEA.

9 IRENA: International Renewable Energy Agency. 2016. Roadmap for a renewable energy future. 2016 Edition. Abu Dhabi, www.irena.org/remap


long- term predictable framework is highly required10. Policy instruments can also add potential value to new CCS technology such as successful policy for renewable energy. Successful renewable energy promotion policies add value to the electricity provided by renewable energy facilities via feed-in tariffs or green certificate obligations. There is a particular imperative for policy instruments to provide stability and predictability for power generators and energy consumers in order to encourage their incentive support for post-demonstration and early commercial deployment. In this regard, initiatives, high upfront costs and long development lead times are unavoidable. Moreover, understanding of characteristics and available options of policy instruments will be necessary to make the best selection; policy selections may create more or less social and cost efficiencies. Thus, it is important to know the instrument options and their characteristics before applying a policy11. Given this, policy instruments for CCS are to support CCS deployment: by offering a number of options to make a better and efficient framework for CCS deployment; and being available under specific country/region’s circumstance. Furthermore, it is essential to address available options and characteristics of policy instruments before considering application of a policy.

5. Policy Instruments for Conmmercialising CCS Deployment

In terms of the policy instruments for CCS, a number of different instruments have been available and have continuously been discussed globally to date (see e.g. OECD/IEA 2012; Finon 2012; and Zero Emissions Resource Organisation (ZERO) 2013). However, the right selection of the instruments will depend on the national circumstances and the right mixed policy and/or policy instrument for different purposes such as encouraging and expanding demonstration projects and commercial deployment in countries. Furthermore, it is important for us to consider what instruments could be useful and suitable with operational stages, especially for the early stage of CCS deployment and policy design12. The Netherlands government addressed two groups of instruments that may be used which are ‘financial’ and ‘regulatory instruments’. The different characteristics of the instruments may enable us to achieve multiple objectives13. Policy instruments for CCS’s investment ‘during the learning phase’ raise specific barriers to investment in learning during early commercial deployment. Issues for carbon price setting and potential market failures for CCS deployment suggest a need for support during the learning investment phase. The author suggested three different categories, which are a command and control instrument (CCS mandate), investment support (grant, tax credit, loan guarantee, subsidy by trust fund) and production subsidies (guaranteed carbon price, feed-in price, etc.)14. Despite the fact that there are many existing discussions about best selection of policy instruments in general, to date there has been little discussion on CCS specifically due to lack of experience in the field of industry. In this regard, we see at least three different groups: regulatory instruments, economic instruments for investment support,

10 Zero Emissions Resource Organisation (ZERO) 2013. “Policy instruments for large-scale CCS”. Norway. http://www.zero.no/publikasjoner/policy-instruments-for-large-scale-ccs.pdf

11 Finon, D., 2012. Efficiency of policy instruments for CCS deployment, Climate Policy, 12(2): pp. 237-254.12 Finon, D., 2012. Efficiency of policy instruments for CCS deployment, Climate Policy, 12(2): pp. 237-254.13 ECN (Energy research Centre of the Netherlands) 2010. “Policy instruments for advancing CCS in Dutch

power generation”. Netherlands.14 Finon, D., 2012. Efficiency of policy instruments for CCS deployment, Climate Policy, 12(2): pp. 237-254.


and market-based economic instruments (incentives via market mechanism), which are especially eligible for the early stage of CCS deployment. Here, we attempt to address a number of different instruments under the three groups.

5.1. Economic Instruments: Fiscal Instruments

Economic Instruments: Fiscal instruments-i.e. government funding, investments and loan guarantees: This is to assist in CO2 infrastructure establishing incentive support, and encouraging the initial development of CCS, facing the barriers such as increased costs, and size of infrastructure provision. Thus governments and/or investors assist in funding for the early commercial development of CCS to reduce costs and investment risks15. At the early stage of CCS development, opportunities for sufficient financial support need to be created by the taxpayer as well as the private sector firms. This allows governments to help to provide learning opportunities, preparing information for their countries and supporting firms to achieve the social benefits and efficient development of energy infrastructure. Such public support is also valuable where firms not only lead the CCS technology domestically but also internationally16.

Investment, sub-subsidies, and financial support mechanism: Investment and subsidies via market mechanisms have been used as one of the economic instruments for CCS in the EU (i.e. the New Entrants Reserve Scheme, more widely known as NER300), with no success so far. The NER300 competition has shown that few companies could receive financial opportunities to cover the cost of project development without burdening themselves to fulfil the project. Reduced cost for allowances for a potential CCS operator, which has reduced the fund substantially and lost the confidence of the future investors. Large projects and uncertain financial support can result in a long and complex planning process17.

Government’s support for risk sharing with operators (i.e. indemnification arrangement): CCS will be will be commercially attractive to the private sector. From a legal perspective, most of the liabilities in connection with storage have been linked to the storage operator. In practice, where the storage operator is a distinct entity from those capturing and transporting CO2, detailed commercial arrangements between the parties involved are likely seek to share liability and risk in various ways. Unless CCS operation is associated with the oil and gas industry, it is not easy to predict in any detail the complex contractual arrangements for risk sharing that would possibly be arranged. This issue is likely to be an important element of the process for ensuring confidence in financing and investment, in considering liability as realistic, simple and clear as possible18. A 2012 report from a global insurance leadership group advised that conventional ‘off the shelf’ insurance solutions to address this type of liability do not

15 Scottish Carbon Capture and Storage (SCCS) 2014. “Carbon Capture and Storage in the EU’s 2030 cli-mate and energy framework”. 19th Feb 2014. www.sccs.org.uk

16 OECD/IEA 2012. “A Policy Strategy for Carbon Capture and Storage”. Information paper. France. www.iea.org


18 Havercroft, I and R. Macrory. 2014a. Regulating the operational and long-term liabilities associated with Carbon Capture and Storage (CCS): Approaches and lessons from Europe, Australia and Canada. Energy Procedia. 63: 6694 – 6704


currently exist. A policy such as Zurich’s Carbon Capture and Sequestration Insurance Policy19 can encompass third party civil liability claims; however, there are no allowances supported by governments. Thus, it is important for policy makers and governments consider what liability and responsibility will be the most relevant to insurers and storage operators, by concerning future price of carbon allowances and size of leakage risk. In the case of the insurers and storage operators being unable to bear unlimited liabilities and cost burden, it is necessary to consider how governments take into account the risk sharing with them20.

5.2. Economic Instruments: Market-based Economic Instruments (Incentives via Market Mechanisms)

Market-based economic instruments (incentives via market mechanisms): pricing on Greenhouse Gas (GHG) emissions by introducing an emissions trading system or carbon tax that could be valuable to create an incentive for CCS deployment by making CCS competitive amongst other climate change mitigation technologies21. Carbon tax is a tax on CO2 emissions or on fossil fuels. Firms may use CCS to reduce their tax liability. A combination of tax incentives and penalties targeted at fossil fuel producers at a commercialised CCS technology help to achieve a new low carbon society energy transitioning from oil production to carbon storage (SCCS 2014)22. An Emission Trading Scheme caps the total quantity of CO2 emissions from regulated sectors and provides an equivalent number of emissions allowances. Firms surrender an allowance for each tonne of CO2 they emit. They may choose to buy these allowances from the government for a price or by auction, or may be provided with a proportion of them free of charge. This scheme places a cost on emissions, which firms can avoid by the use of CCS. For example; the EU Emissions Trading Scheme (EU ETS) is the world’s largest system23. Carbon price floor is intended potentially to encourage investment in low-carbon technologies, including CCS, by imposing a tax to underpin the carbon price in ETS such as the Carbon price floor in UK associated with the EU-ETS24. There are also ‘targeted deployment incentives’ – i.e. feed-in-tariffs or certificates (i.e.portfolio standards), or contracts for differences: which are to accelerate full-scale CCS project deployment, in reducing cost down, developing technical performance and considering

19 In January 2009 Zurich launched two new specialized insurance products, the Carbon Capture and Se-questration (CCS) Liability Insurance (covering pollution event liability and other operational risks) and the Geological Sequestration Financial Assurance (covering specified closure and post closure activities). Havercroft, I., and R. Macrory. 2014b. “Legal Liability and Carbon Capture and Storage: A comparative perspective”. The GCCSI.

20 In January 2009 Zurich launched two new specialized insurance products, the Carbon Capture and Se-questration (CCS) Liability Insurance (covering pollution event liability and other operational risks) and the Geological Sequestration Financial Assurance (covering specified closure and post closure activities). Havercroft, I., and R. Macrory. 2014b. “Legal Liability and Carbon Capture and Storage: A comparative perspective”. The GCCSI.

21 OECD/IEA 2014. “Carbon Capture and Storage: Legal and Regulatory Review”. Edition 4. France. www.iea.org

22 Scottish Carbon Capture and Storage (SCCS) 2014. “Carbon Capture and Storage in the EU’s 2030 cli-mate and energy framework”. 19th Feb 2014. www.sccs.org.uk




other market and non-market barriers25. Feed-in tariff (FIT) is another popular mechanism and has become widely used to stimulate the introduction of electricity from renewable sources (i.e. solar power), and could also be useful to CCS. In the scheme, a fixed fee would be guaranteed per unit of CCS-based electricity produced, to compensate for the higher costs of the project through conventional generation26. Feed-in tariff has been used in a number of jurisdictions to encourage the generation of electricity from renewable sources. The tariff ordinarily places an obligation upon regional or national electricity utilities to buy renewable electricity at above-market rates set by the government. This provides an incentive for renewable energy generation by reducing the high costs associated with new energy infrastructure and innovation. Thus, a similar tariff applying to CCS could create opportunities for providing incentives in order to accelerate the deployment of CCS27. Contract for Differences (CfD) was planned to use with large scale clean energy projects including CCS, nuclear and renewable projects in the UK, designed to establish efficient and cost-effective price stabilisation for new energy generation, by reducing exposure to the volatile wholesale electricity price, although the plan was postponed due to the current status of government funding availability28. A CfD is a long-term contract that pays the generator the difference between the market price for electricity and an estimate of the long-term price needed to invest in a technology (the “strike price”) if the market price is below the strike price. If the market price is above the strike price, the generator pays the government the difference29. Thus, it could be useful to encourage CCS deployment.

5.3. Command-and Control (Regulatory Instruments)

Emissions Performance Standard (EPS) is a regulatory instrument, which can be used not only for new investment but also to all emitters in a sector. It limits private companies or installations to no more than a set emission level at per unit of production. This could provide opportunities for either mandatory compliance with the standard by all installations, or for tradable obligation. This may result in improving the average technological levels across the sector30. In case of government setting without a carbon pricing mechanism applied to all installations in an energy sector, EPC could be a useful tool for creating non-price based regulatory mechanisms31. Certificate (portfolio standards): a low-carbon portfolio standard with tradable certificates is a requirement for consumers or their retail suppliers (or, alternatively,


26 ECN (Energy research Centre of the Netherlands) 2010. “Policy instruments for advancing CCS in Dutch power generation”. Netherlands.

27 The Global CCS Institute (GCCSI). 2009. “Strategic Analysis of Global Status of Carbon Capture and Storage”.https://www.globalccsinstitute.com/sites/www.globalccsinstitute.com/files/publications/5751/report-2-economic-assessment-carbon-capture-and-storage-technologies.pdf

28 House of Commons Energy and Climate Change Committee (HoCECCC) 2016. “Future of carbon cap-ture and storage in the UK”. Second Report of Session 2015-2016. February 2016. UK. http://www.publi-cations.parliament.uk/pa/cm201516/cmselect/cmenergy/692/692.pdf

29 The Department of Energy and Climate Change (DECC) 2014. “Next steps in CCS: Policy Scoping Doc-ument” August 2014.UK.




electricity generators) to set a minimum standard for their electricity from a specific kind of energy or fuel. It has been successfully applied in the field of renewable electricity in various EU countries and the U.S.32. Portfolio energy standards also require that electricity generators utilise CCS technology in the proportion of electricity they generate or sell33. Such a standard could be an effective tool to stimulate the introduction of CCS by giving a strict standard to producers and providing more opportunities for equipment suppliers to reduce further costs and innovation. The system may also guarantee that environmental targets will be achieved if regulations are well designed and enforced34. CO2 Capture Ready: The concept of a CCS Ready is that a CCS Ready plant needs to be Capture Ready, Transport Ready, and Storage Ready. All three phases are required for successful deployment of CCS. Relevant laws or regulations require CCS Ready plants, which encourage it through incentives such as grants, loan guarantees, and other measures. Regulations such as Emission Standards and EPS could also assist and/or force the existing and new energy plants to become CCS Ready. It is essential that relevant industry and private companies will need to be involved in a process of determining the appropriate mechanisms and criteria for demonstrating CCS Ready plants for a CCS Ready policy, although whether CCS Ready should be mandated or not has yet to be clarified due to the cost and location35. Requested evidence or certificates for financial security (i.e. financial contribution) for operators Regulations require that CCS operators have sufficient interest and funding for operations, as following appropriate regulatory conditions and financial opportunities associated with industrial stakeholders36. It is often acknowledged that there is a need to ensure that the long-term risks under storage operations should be separately considered from governmental responsibility. This is because a government may need to take over the heavy cost burden, which is potentially caused by the inability of an operator to meet their obligations, particularly in the post-closure period or in the case of any environmental damages such as CO2 leakage. Havercroft and Macrory (2014) defined two major types of financial security, which could be addressed in the existing legal frameworks. The first type is “precedent and experience” in which the approaches by different states are varied in terms of designing financial security. However, a national legislation is most likely dependent on the existing models designed to address the oil and gas, and landfill waste disposal sectors. The second type is “long-term monitoring and verification costs”. This approach is to manage payment and management of long-term monitoring and verification costs, which can be identified in each of


33 The Global CCS Institute (GCCSI). 2009. “Strategic Analysis of Global Status of Carbon Capture and Storage”.https://www.globalccsinstitute.com/sites/www.globalccsinstitute.com/files/publications/5751/report-2-economic-assessment-carbon-capture-and-storage-technologies.pdf


35 ICF International. 2010. “CCS Ready Policy: Considerations and Recommended Practices for Policy Makers”. 17th Feb 2010. Available at: https://hub.globalccsinstitute.com/sites/default/files/publica-tions/16042/ccs-ready-policy-considerations-and-recommended-practices-policymakers.pdf

36 Baker and McKenzie, Electric Power Research Institute, Schlumberger, Worley Parsons. 2009. “Strategic Analysis of the Global Status of Carbon Capture and Storage – Report Three Country Studies: The Eu-ropean Union”. Global CCS Institute, 2009.


the individual regimes37. In the EU and UK, their regulations require an operator to make a financial contribution just prior to the transfer of responsibility, where liability is assigned to the competent authority. It will cover ‘at least the anticipated cost of monitoring for a period of 30 years’ which is to be used by the competent authority to ensure that the stored CO2 is ‘completely and permanently contained in geological storage sites after the transfer of responsibility’. In the case of Alberta, Canada, the ‘Post-closure Stewardship Fund’ is administered by the relevant Minister. This fund provides a mechanism for monitoring injected CO2 in the post-closure period. Storage lease-holders will be imposed on to pay into the Fund, based upon a fee-per-tonne of CO2 injected. The fee to be levied has yet to be decided by the relevant Minister38. Given this, it is important to see if there is a legal requirement for ensuring financial security and contribution from operators, in order to cover the financial risk for government for CCS operations.

6. Implemented Policy Instruments Associated with Key Regulations for CCS in Various Countries

6.1. EU

In the EU, as government funding for CCS, the European Energy Programme for Recovery and the Norway EEA Grants can be identified. The EU’s Energy and Climate Package in 2009 particularly aimed at achieving commercial deployment of CCS by 2020 by implementing demonstration projects with 10-12 CCS plants by 2015. As a main financial mechanism in the EU, the NER 300 was adopted in 2010 to assist in demonstration projects. Under the NER 300, 300 million carbon allowances from the ETS New Entry Reserve are used to co-finance demonstration projects, both CCS and innovative renewable energy technologies. A maximum 50% of the additional cost is covered by the EU. Member states can contribute with up to 50% in addition to the NER 300. The European Investment Bank authorises the sale of ETS allowances on the carbon market to provide financial assistance. The reduced price has resulted in only €1.2b which was available from the scale of 200 million allowances in the first round. 13 CCS projects submitted applications in the first round, but no CCS project was awarded funding. The European Commission has stressed its commitment to funding CCS. Only one country has applied for funding for a CCS project (White Rose, UK) in the second round39. Now, EU ETS has entered its third phase (2013-2020). The price was decreased by 1.74% p.a. and the allowance price is now below €5/tonne, due to the economic downturn in the EU40. This has resulted in a lack of financial support for CCS developments. From the legal perspective,




40 Skar, C., Doorman. G., Guidatic. G., Soothillc. C., and Tomasgard. A. (2016). “Modeling transitional measures to drive CCS deployment in the European power section”. CenSES working paper 1/2016. https://www.ntnu.no/documents/7414984/202064323/2_skar_ferdig.pdf/230b6b30-57b7-42ce-ab58-

6d8cf9d2102e


the EU CCS Directive requires EPS, CCS certificates for the storage permits, and CCS Ready. The Directive also requires financial security and assurance for operators before the permits are issued to cover the liability until the transfer of responsibility is completed. After the transfer of responsibility, the government assures the liability, although operators are still required for financial contributions before the transfer of responsibility for corrective measures and CO2 leakage issues41.

6.2. The U.S

As a part of government support and loans, the U.S. government has introduced co-funded demonstrations by public-private partnership programs, including the Clean Coal Power Initiative, Industrial CCS projects, FutureGen, and Regional Carbon Sequestration Partnership Program. As a loan guarantee for CCS, a part of the Energy Policy Act of 2005 (EPACT) considered CCS and provided financial support that guarantees could cover up to 80% of the projects, which changed to 100% in the 2009 regulation and the loan was funded by the Treasury Department’s Federal Financing Bank. In 2008, USD 8 billions of loan guarantees for CCS and other CO2 mitigation technologies were announced. President Obama’s Climate Action Plan in 2013 funded up to USD 8 billion to advanced fossil energy and efficiency projects to support investments in innovative technologies. The Rural Utilities Service (RUS) also has direct loans and loan guarantees to power plants, including at least one CCS project. As a tax credit for CCS, the internal Revenue Code considered a 20% tax credit for qualified research expenses, Investment tax credit for IGCC or other advanced coal-based electricity generation technologies, tax credit for CO2 EOR and storage, USD 20/tonne for geological storage and USD 10/ tonne for EOR operations for up to a maximum of 75 million tonnes of CO2 per year. At the state level, use of tax credits for CCS has been varied. Colorado: Project demonstration CCS on coal get full cost recovery methodologies for a project (2006). In Kansas: the Kansas Carbon Dioxide Reduction Act (2007) includes property and income tax reductions for CCS. In Mississippi, reduced rate of income tax on the use of CO2 for EOR or CCS (2009). In Texas, tax incentives for CCS are available. In Utah, incentives for producing hydrogen power with CCS are available42. In terms of EPS, the Environmental Protection Agency (EPA) in 2011 required large stationary sources to obtain permits under the Clean Air Act to also tackle GHG emissions. The EPA released a final rule to limit greenhouse gas emissions from new power plants on August 3, 2015. The final “Carbon Pollution Standard for New Power Plants” replaces earlier proposals from September 2013 and March 2012. It would establish New Source Performance Standards (NSPS) under the Clean Air Act to limit emissions of carbon dioxide (CO2) from coal- and natural gas-fired power plants. The final rule sets separate standards for new power plants fuelled by natural gas and coal. New natural gas power plants can emit no more than 1,000 pounds of carbon dioxide per megawatt hour (Ib CO2/MWh) of electricity produced, which is achievable with the latest combined cycle technology. New coal power plants can emit no more

41 European Parliament and the Council of the European Union. (2009). Directive 2009/31/EC of the Euro-pean Parliament and of the Council of the European Union. Official Journal of the European Union, 140. http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:140:0114:0135:EN:PDF



than 1,400 lb CO2/MWh, which almost certainly requires the use of carbon capture and storage (CCS) technology43 44. At the state level, California set into law (2006) an EPS for new base load power plants. Montana: standards that require CCS for all new coal plants, and special tax rates for CCS equipment. New York and Washington: EPS for new base load power plants of the emission level of combined cycle gas plants. Maine and Idaho: A temporary moratorium on coal until CCS is developed. There is no portfolio standard at the federal level, only at the state level. Illinois’s Clean Coal Portfolio Standard Law was approved in 2009, and Pennsylvania’s 2009 Act amending for CCS to the Alternative Energy Portfolio Standards in 2004.The alternative Energy Portfolio standard requires demand for 10% in 2012, up to 20% in 202645. From the legal perspective, the EPA requires EPS and CCS certificates for the storage permits. The EPA also requires financial security and assurance for operators before the permits to cover the liability until the transfer of responsibility is completed. However, the financial security from the government is not mentioned in the current legislation at the federal level.

6.3. The United Kingdom

A Carbon Price Floor was introduced from April 2013, to secure a minimum price for emissions from fossil fuel electricity production. A “carbon price support” is charged on top of the ETS carbon price, decided two years ahead by the Treasury. The rates were £4.94 in 2013, £9.55 in 2014, and £18.08 in 2015. Indicative rates for 2016-17 and 2017-18 are £21.20 and £24.62 CO2/tonne. The goal is £30 per tonne by the end of the decade, and £70 per tonne in 2030. UK government announced the first CCS competition in 2007, however, the financial deal with the finalist, Longannet, which was about £1 billion grant on offer, failed. The government also proposed a tax credit levy on electricity (The Energy Act 2010) to assist CCS projects. However, in 2011 the government announced the cancellation of the credits used for demonstration projects; it rather decided to provide funding from general taxation. The Government announced a new £1 billion CCS Commercialisation Programme in April 2012, and in March 2013 Peterhead (gas) and White Rose (coal) were chosen to proceed, while the two others projects were nominated as “reserve bidders”. DECC expected the projects to proceed on to financial investment decisions by early 2015. The UK government established a framework for the Development of Clean Coal and implemented EPS for power station. Any new coal-fired power station and existing power stations upgrading to supercritical technicality have been required to demonstrate CCS for at least 300MV. Furthermore, the EPS is also proposed with a limit for fossil fuel power plants of 450g CO2/kWh, to prevent coal-fired power

43 Environmental Protection Agency (EPA). 2015. “Greenhouse Gas Mitigation Measures”. Technical Sup-port Document (TSD) for Carbon Pollution Guidelines for Existing Power Plants: Emission Guidelines for Greenhouse Gas Emissions from Existing Stationary Sources: Electric Utility Generating Units. Docket ID No. EPA-HQ-OAR-2013-0602. Office of Air and Radiation. August 3, 2015. https://www.epa.gov/sites/production/files/2015-11/documents/tsd-cpp-ghg-mitigation-measures.pdf

44 Electric Power Research Institute (EPRI). 2015. “Can Future Coal Power Plants Meet CO2 Emission Standards Without Carbon Capture & Storage?”. Low-Carbon Coal Technology Assessment. October 2015. http://www.canadiancleanpowercoalition.com/files/1914/4772/2422/EPRI_White_Paper_on_Coal.pdf



stations being built unless they are equipped with CCS. The climate change envoy for the Labour Party introduced an amendment to the standard to 200g/kWh, also including gas power plants46. The UK government introduced a Contract for Difference (CfD), The Electricity Market Reform Bill (2012) features a Contract for Difference, a form of Feed-in Tariff mechanism for low-carbon electricity projects (renewables, new nuclear power and CCS). Draft Contracts for Difference were published in Aug 2013. The Government’s intention is that future CfD allocation for CCS projects takes place through competitive project selection processes47. A comprehensive approach to Carbon Capture and Storage Ready (CCSR) and transposition of the EU regulations is demonstrated by the UK where CCSR requirements apply to all newly built power plants with CCS from the outset, rather than as CCSR, but a number of CCSR natural gas combined cycle projects have been permitted or are being considered. The UK also operates a CCS Commercialisation Program with up to £1 billion in capital funding and support through a Feed-in Tariff with a Contract for Difference under the Electricity Market Reform arrangements which is being provided to support CCS low carbon electricity projects. An important feature in the UK CCSR regulations is that the Government takes into account the current level of development in CCS technology and national infrastructure by considering applicants’ assessments with a “no barriers” approach. Applicants are asked to demonstrate that there are no known technical or economic barriers which would prevent the installation and operation of their chosen CCS technologies48. Emissions Performance Standard (EPS) under Energy Act 2013 limits carbon emissions from new fossil fuel power stations. EPS level is set at 450g CO2 / kWh ‘base-load’-around half that of unabated coal. Any new coal power station must be built with at least 300 Megawatt electric (MWe) of full chain CCS. All new thermal power stations (including gas) must be constructed as ‘carbon capture ready’ (CCR); Carbon Price Floor (CPF): currently £10 per tonne/ CO2, rising to £18 in April 2015; frozen at £18 to 2020, then projected to rise to £70 by 2030 (DECC 2015)49. From the legal perspective, the UK government requires EPS and CCS certificates for granting the storage permits. The EPA also requires financial security and assurance for operators before issuing permit, to cover the liability until the transfer of responsibility is completed. However, the financial security from the government is not mentioned under the Act.

6.4. Australia

Australia’s main government funding is CCS’s Flagship of AUD1.68 billion to achieve the development of 2-4 commercial-scale projects. At the state level, the state of New South Wales has a Clean Coal Fund of AUD 100 million introduced in 2008. As a part of private funding,



48 Economic Commission for Europe. 2015. “Status on Global Carbon Capture and Storage Readiness (CCSR) Discussion” , Prepared by a task force of experts in response to paragraph 16(d) of the report of the Expert Group on Cleaner Electricity Production from Fossil Fuels Tenth Session https://www.unece.org/fileadmin/DAM/energy/se/pdfs/clep/ge11/CEP.11.2015.INF.2.e.pdf

49 The Department of Energy and Climate Change (DECC). 2015 “CCS Enabling Policy in the UK”. 11, May, 2015. London. UK. http://conference.co2geonet.com/media/1142/open-forum-day-1-5_ripley.pdf


the COAL21 fund, which is fed by a voluntary levy on coal production, is expected to collect AUD1 billion over 10 years from 2006 for assisting in a CCS demonstration program50. The “Carbon Pricing Mechanism” was repealed in June 2014, thus Carbon Tax and Emission Trading Schemes are currently not available in this country51. From the legal perspective, the Australian government requires CCS certificates for the storage permits. The government also requires financial security and assurance from operators before issuing permits to cover the liability until the transfer of responsibility is completed. After the transfer of responsibility, the government assures the liability, although operators must ensure their financial contributions to any corrective measures and CO2 leakage issues at the point of transfer of responsibility 52.

6.5. Norway

The role of a Carbon Tax is important in Norway. In 1991, a tax on CO2 emissions became effective for petroleum activities on the Norwegian continental shelf. In 2005, Norway established a national Emission Trading Scheme (ETS), and since 2008 Norway has been part of the EU emissions trading system (EU ETS). In Norway, more than 80 percent of greenhouse gas emissions are priced via taxes or the EU ETS, or both. The CO2 tax was one of the main drivers for the first two commercial CCS projects in Norway: Sleipner and Snøhvit. Both projects were permitted under existing petroleum legislation by the Ministry of Petroleum and Energy and under existing pollution control legislation by the Ministry of Environment. In addition to ETS, part of the funding from the CO2 tax is used in a new technology fund for support to emission cuts in the industry. In terms of direct government funding, in total the Government has spent €1.5 billion (2006-2013) for planning and building CCS projects, mainly for building TCM and planning full scale CCS at Mongstad and storage. In terms of EPS, in 2005, the government declaration promised no new gas fired power plants to be built in Norway without CCS. In 2009 the government gave permission for a new gas fired plant at Eldnesvågen mandating CCS from day one. The project has so far not been built53. This may also be recognised as CCS READY. From the legal perspective, the Norwegian government requires CCS certificates for the storage permits. The CCS regulation for this country has yet to become clear in terms of liability. The government requires financial security and assurance from operators before issuing permits to cover the liability until the transfer of responsibility is completed with a waiting period of a minimum 10 years after the closure, which is currently based on the Petroleum Act in Norway. The current regulation does not mention the obligation for the government to assure the liability after the transfer of responsibility, however, the government takes liability if operations are ceased or no longer exist.


51 Crowley, K. (2017). Up and down with climate politics 2013-2016: the repeal of carbon pricing in Austra-lia, Wiley Interdisciplinary Reviews: Climate Change pp. 1-12. ISSN 1757-7799 (2017) http://onlineli-brary.wiley.com/doi/10.1002/wcc.458/epdf

52 Dixon, T., S.T.McCoy., I. Havercroft. (2015). Legal and Regulatory Developments on CCS. International Journal of Greenhouse Gas Control. 40: 431-448.



6.6. Canada

In terms of CO2 tax, Alberta has introduced a carbon tax of CAD15/tonne for large emitters. The emitters can either buy credits from other emitters with lower emissions than the standard, or pay the tax to a technology fund. The fund gives support to mitigation projects managed by Alberta’s Climate Change and Emissions Management Corporation (CCEMC). In terms of regulated electricity prices, the provinces have jurisdiction over electricity production (like in the U.S). Each state has a utility board, and many of the power companies are owned by the government and have a cost recovery based business model. The utility board in each state must then approve the project. If this is approved, the cost for the project is included in the electricity price on a cost recovery basis. The price for electricity to customers is based on the cost for the portfolio for the power company. This gives a lower investment risk than in a market based system with price competition. This can be seen as a kind of a FIT system where the price is set to the cost level for the project and financed by the electricity consumers if approved by the utility board. For the Boundary Dam CCS project in Saskatchewan, it is important to mention that Saskpower promised that the new capture unit would not add to the base rate. The goal is to sell CO2 to EOR on a break-even basis. In terms of direct government support for CCS, Canada’s federal and provincial governments have committed a total of approximately CAD3 billion in funding for CCS, provided through a number of federal and provincial programs. The federal government funding has been up to CAD1 billion as well as CAD240 million to Boundary Dam, but not all has been spent because the Pioneer project was cancelled. At the state level, the government of Alberta has allocated CAD2 billion towards CCS projects, to reduce CO2 emissions by up to 5 million tonnes per year by 2015 through the development of three to five commercial-scale CCS projects. Projects are eligible to receive up to a maximum of 75% of the total cost of capturing, transporting and storing CO2. Two projects are going ahead, but two other projects selected for support were cancelled, and the funding has not been reallocated to new CCS projects due to the budget situation, so the total funding can be substantially lower if the rest of this money is not reallocated later. Saskatchewan has royalty relief on CCS for CO2 EOR54. In terms of EPS, Canadian regulations issued for new coal plants in 2012 include a temporary exemption to 2025 from meeting an EPS of 420tCO2/GWh if it can be shown that the plant will be in operation by that time. Because of the relatively short time period and fixed cut-off date this approach might be regarded as staged CCS implementation rather than CCS readiness. In the latter case, time to retrofit is typically uncertain and plants would be designed and built with the objective of being able to use the best CCS system that will be available for the base plant technology at the time, bearing in mind that it is very likely that the capture system that will eventually be fitted is not known in detail when a new capture ready plant is designed. There is a regulatory requirement for a temporary exemption from the EPS which requires that “(a) in the case of a new unit, the units designed to permit its integration with a carbon capture and storage system. (b) in the case of an old unit, the unit may be retrofitted to permit its integration with a CCS system55”. This is a weakness in the climate-effectiveness of


55 Economic Commission for Europe. 2015. “Status on Global Carbon Capture and Storage Readiness


the EPS, as it will allow new coal-fired power stations with no CCS. But it may be effective for CCS development. If these new power stations are not retrofitted with CCS before 2025, they will have to be closed down. Power companies are unlikely to build a coal-fired station, which will only operate for ten years. So, they will only build new plants if they are serious, and optimistic, about CCS56. This paper summarised a comparative analysis of policy instruments for CCS implemented in various regions and countries, as described below (Table 1).

Table 1　Comparative Analysis: Policy Instruments for CCS in Various Regions and Countries

7. Critical Aspects for Optimising Policy Instrument Choice for CCS in Japan

In order to optimise the most relevant policy instrument framework for CCS in Japan, we

(CCSR) Discussion” , Prepared by a task force of experts in response to paragraph 16(d) of the report of the Expert Group on Cleaner Electricity Production from Fossil Fuels Tenth Session https://www.unece.org/fileadmin/DAM/energy/se/pdfs/clep/ge11/CEP.11.2015.INF.2.e.pdf

56 Tindale, S. 2013. “Europe should regulate to promote carbon capture and storage”. Centre for European Reform. http://www.cer.eu/sites/default/files/publications/attachments/pdf/2013/pb_sct_ccs_30oct13-80 32.pdf


must consider a number of key aspects including: the existing and potential instrument options in Japan applicable to CCS; operational phases (i.e. capture, transport, injection and storage); development stages; environmental, social and economic aspects; incentivising financial support for CCS; and long-term liability issues. These will be described below.

7.1. Existing and Potential Instrument Options for CCS

Again, it is essential to consider a mix of policy instruments and the best selections can make greater cost efficiency, scaling up the further facilities for CCS deployment. Selecting best match of policy instruments can enable the creation of sufficient incentives to make business cases for CCS viable and trigger investments in deployment and innovation, although the need for CCS is also varied depending on country and region57. Moreover, understanding of characteristics and available options of policy instruments will be necessary to make the best selection; policy selections may create more or less social and cost efficiencies. Thus, it is important to know the instrument options and their characteristics before applying a policy58. Thus, we need to address what existing and potential instrument options are available for policy and legal framework for CCS in Japan.

7.2. Operational Phases (i.e. capture, transport, injection and storage)

There are a number of different operational phases, which are essentially required for policy makers to select the right policy framework, including capture, transport, injection, and post closure. For example, the Ministerial Council on Mineral and Petroleum Resource (MCMPR) in Australia introduced a model for Carbon Dioxide Capture and Storage Project Life Cycle59, which is described in Figure 1. Policy makers must ensure the specific elements of each phase for which process and how policy instruments influence an efficient CCS deployment.

Figure 1　Carbon Dioxide Capture and Storage Operational Phases

　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　(Source: MCMPR 2005)59


58 Finon, D., 2012. Efficiency of policy instruments for CCS deployment, Climate Policy, 12(2): pp. 237-254.59 The Ministerial Council on Mineral and Petroleum Resources (MCMPR). (2005). “Australian Regulatory

Guiding Principles”. Canberra, ACT, Australia


7.3. Development Stages

Initially, incentive policy will focus on trials of CCS at a commercial scale, seeking information and cost reductions to make it possible to implement CCS at reasonable scale and cost. The policy goal at this point is not for operators to contribute for their own sake to reducing CO2, but rather to introduce CCS technology and establish commercial arrangements across capture, transport and storage. Some of the good examples can be found in the European Union (EU), North America and Australia. Over time, such a development phase will bring CCS technology to maturity, and investors will become more confident in the deployment. As emission reduction targets become more focused, companies will then understand better about potential sites for the best opportunities. Policy makers may either focus on direct emissions cuts by creating the most cost-effective ways or may simply let the market select where to invest. The policy choice will start a broad focus and the policy approach is then likely to shift over time. This should be associated with a number of the key aspects, including funding support for capital deployment or for operations; understanding costs and risks raised by the public sector or the private sector; providing subsidising abatement or penalising emissions; and supporting technology by targeting CCS specific incentives or technology neutral incentives60.

Figure 2　Development Phases for CCS Associated with Policy Instruments

　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　 (Source: IEA 2012)60

7.4. Environmental, Social and Economic Aspects

The full life-cycle cost of CCS must be considered in the context of the overall social, environmental and economic benefits, which ensure the costs associated with environmental and social risks at present. It needs to be considered as one of the crucial elements to optimise an efficient, sustainable and economic mitigation plan. The clear understanding of energy systems and climate change can play an important role in improving efficient use of energy and implementation of emerging energy technologies, which consequently bring policies on



greenhouse gas reduction. The most suitable solutions for a sustainable energy future will depend on the integrated analytical framework, and to the extent of it, the further studies for estimating other low-carbon technology options should also be considered, in order to draw fully comprehensive conclusions toward low carbon society. Furthermore, alternative methods of carbon sequestration should also be considered, including Carbon Capture Utilisation and Storage (CCUS) production, such as biofuels from biomass as well as charcoal sequestration, in considering associated direct costs and post operation liabilities. The longer the estimated cost of CCS exceeds the market price of carbon allowances such as ETS may create an issue, and may leave uncertainty over public acceptance of CCS61.

7.5. Incentivising Financial Support for CCS

Many countries are anticipated to require widespread deployment of CCS after 2030 to achieve longer term (2050 and beyond) emissions reduction targets. However, in most instances globally, CCS applications have yet to be commercially viable. The forward price on emissions in most markets has not been high enough to mobilise private sector investment in CCS. In practice, many projects have been planned and implemented globally. However, the current low emissions price leaves a question of longer-term uncertainty around price change and limited government financial support. However, this support is the main driver to mobilise a corporate objective to demonstrate CCS for long-term policy, business strategy or CCS operation interests. Despite the fact that there is a significant gap between the incremental capital and operating costs associated with CCS and the revenue for abatement of CO2 or penalty on the GHG emissions, success could be achieved by CCS deployment. EOR appears limited in various countries without the opportunity to generate revenue through the sale of captured CO2. Therefore, policy makers in those countries may deal with reducing emissions or another form of CO2 price penalty. There are potentially two major types of penalising CCS operations, including: imposing the CO2 price and, where possible applying it to areas (business as usual); and/ or removing emissions intensive operations. Depending on technological progress and decent guaranteed financial support, CCS may become one of the lowest-cost options to achieve the large emission reductions of CO2, while creating a net-zero emissions position in the second half of the century62.

7.6. Long-term Liability Issues (i.e. financial security and contribution; and who should be responsible for what)

Long-term liability, especially for financial security and mechanism is one of the key aspects of designing an effective policy, specifically applied to CCS. Uncertainties of the long-term liability and financial security have become a critical obstacle for the development of CCS projects. In Europe, project developers in various member states have reported difficulties in understanding the extent and provisions of transfer of responsibility of CO2 storage sites as defined in the EU Directive63. The up-scaling of CCS to the demonstration level, however, does

61 Karayannis, V.G., Charalampides, G., Lakioti, E., (2014). Socio-economic Aspects of CCS Technologies. Procedia Economics and Finance. 14: 295-302.

62 Greig, C., Baird, J. and Zervos, T. (2016) Financial Incentives for the Acceleration of CCS Projects, The University of Queensland, Brisbane.

63 Lupion, M., Javedan, H., and Herzog, H., (2015). Challenges to Commercial Scale Carbon Capture and


not only depend on sufficient interest and funding support (from EU-level and UK governments), but also on relevant regulatory conditions and options for additional private financing by appropriate stakeholders (Baker and McKenzie 2009)64. This will result in a need to address the most appropriate responsibility and obligations for government, industry and operators. It is also important to examine how it can be well balanced for a framework associated with cost efficiency and support for financial assurances and compensations for CCS operations (i.e. during the operations, closure and post-closure, monitoring and corrective measures for CO2 leakage). Every storage project must ensure the estimated financial basis to cover environmental liability during both the operational and post-closure periods (part of the financial security requirement under the CCS Directive). Although there has yet to be a clear answer for the best

Storage: Regulatory Framework. Massachusetts Institute of Technology, Cambridge. https://sequestra-tion.mit.edu/pdf/2015_WorkingPaper_CCS_Regulations_Lupion.pdf

64 Baker and McKenzie, Electric Power Research Institute, Schlumberger, Worley Parsons. 2009. “Strategic Analysis of the Global Status of Carbon Capture and Storage – Report Three Country Studies: The Eu-ropean Union” . Global CCS Institute, 2009.

Table 2　Comparative Analysis for Long-term Liability for CCS

(Yanagi., Nakamura, Komatsu 2017)67


framework for liability in the world, a range of solutions could be considered: creating a mechanism for underwriting the cash flow for a storage operator; establishing a liability sharing/underwriting mechanism to reduce individual project risk insurance; and examining the possibility of reducing the magnitude and duration of the liability65. Currently, in the case of Japan, the amendment in 2007 of The Act on Prevention of Marine Pollution and Maritime Disaster only considers the future CCS. Our study examined a comparative analysis for a number of selected countries by using four selected criteria relevant to long-term liability based on the IEA’s CCS regulatory model (See IEA 2010)66. These are: ‘long-term security’, ‘financial assurance and mechanisms’, ‘corrective measures for an incidental irregularity and/or leakage’, and ‘clearance level’. Table 2 describes the results of the analysis. The results clearly show that consideration has not yet been given to the key elements of long-term liability in the current context of Japan67. These above aspects will be considered in order to conceptualise our analytical method for optimising policy instrument selections for CCS in Japan. The following section will describe our proposed method.

8. A Proposed Method for Optimising Policy Instrument Selections for CCS in Japan

8.1. Proposing Different Scenarios associated with Two Instrument Models In terms of the Japanese context, there are a number of existing and potential policy instrument options, which could be applicable to the Japanese CCS deployment policy. There are two types of policy instrument categories: Regulatory instruments and economic (i.e. fiscal and market-based instruments). In each category, a number of different instruments have been identified. Here, the general characteristics of policy instruments for CCS have been described previously in this paper; thus, we only describe some of the instruments, which may need more detail to make it clear enough, in describing policy instruments applicable to the case in Japan. Regulatory instruments are: ‘CCS mandatory standard’, ‘GHG (CO2) emission standard’, ‘standards of performance for GHGs known as EPS’, and ‘specified hazardous waste’. CCS mandatory standard means that energy plants are obligated to incorporate a CCS facility. Specified hazardous waste means that disposal of hazardous wastes is lawfully regulated, in this case the waste means CO2.Economic instruments are: non-compliance fee/ carbon tax, deposit, subsidy, emission trading scheme, long-term debt guarantee, and feed-in tariff. Non-compliance fee/ carbon tax defines a levy imposing a ‘global warming tax’ and/or fees on CO2 emissions from emitters. Long-term debt guarantee means a legal agreement in which the government promises to pay

65 Zero emissions platform (Zep). (2014). Business models for commercial CO2 transport and storage: De-livering large-scale CCS in Europe by 2030. https://www.thecrownestate.co.uk/media/389780/ei-busi-ness-models-for-commercial-co2-transport-and-storage-zep.pdf

66 IEA 2010. Carbon Capture and Storage: Model Regulatory Framework. IEA Energy Papers 2010/12, OECD Publishing.

67 Yanagi, K., Komatsu, E., and Nakamura, A 2017. “Toward Strategic Environmental Assessment for Car-bon Capture and Storage in Japan”. Proceedings.pp.20. the 1st Vietnam-Japan-Korea -China EIA Confer-ence (6th Korea- Japan-China tripartite EIA Conference and the 6TH Korea-Vietnam EIA Conference) on Aug 9-12, 2017.


a loan or other debt if the CCS operator which borrowed the money fails to pay. The identified FIT could also be considered as one of the useful tools, however, the FIT could only be applied for the electric power sector. Our study is proposing two major instrument groups, which are “Regulatory model for enterprises” and “Public works model for the relevant authorities”. These two models examine different scenarios for optimising the most relevant policy mix based on a range of identified instruments. In Table 3, the details of instrument options are described.68

Table 3　Proposed Optimising Policy Instrument Framework for CCS in Japan

　　　　　　　　　　　　　　　　　　　　　　　　　　　　(Yanagi, Komatsu and Nakamura 2017)68

8.2. Key Criteria of Instrument Choice for CCS

Here, in terms of analysing the best instrument sections, we have addressed a range of key analytical criteria, including, effectiveness, cost-efficiency, social acceptability, political feasibility, equity and compatibility, as described below.

Effectiveness (Environmental aspect)-The primary aim of this criterion is to achieve the reduction of the GHG (CO2) by introducing CCS deployment for this country. How policy instruments are designed in a policy framework is challenging for a country. As a result, the policy can apply across different sectors and assets, while creating funding opportunities and financial support to encourage operators and industry to avoid releasing CO2 emissions into the atmosphere. Increasing the price of products, regulating emission performance for energy plants, and implementing CCS technology incorporated with traditional energy plants will thus potentially reduce demand for emissions intensive products and achieve CO2 mitigation69.

Environmental Impact, Benefits and Risks (Environmental aspect)- The environmental impact of CCS is not only to reduce the negative impact of anthropogenic greenhouse gas

68 Yanagi, K., Komatsu, E., and Nakamura, A 2017. “The Need for Strategic Environmental Assessment for Carbon, Capture and Storage in Japan,” IAIA17 Conference Proceedings, IA’ the Association for Impact Assessment,4-7 April 2017, Montréal, Canada, www.iaia.org<http://www.iaia.org/>



emissions on the environment, but also to determine the environmental benefits of CCS by addressing potential environmental risks. The environmental risks incorporated with CCS reflects the long-term storage of the captured CO2 leakage or gradual impacts of the leakage risks. This could result in creating harmful effects on human health. On the contrary, CCS could bring potential benefits to develop a better energy supply by reducing the amount of CO2 emitted into the atmosphere. Therefore, the potential risks should be compared against the potential benefits, and possible consequences of inactivity should also be estimated70.

Cost-Efficiency (Economic aspect)-This is one of the important criteria, which encourages the least cost abatement options and assists to reduce costs of the individual options. It is important to make a balance of estimating: the historical, current and future energy demands; scenarios for different policy goals and targets; the relevant costs across the technology development; full-chain for CCS operations (i.e. capture, transport and storage); and all the relevant operational phases (i.e. commercialised CCS, Closure and Post-Closure). Without addressing the level of cost-efficiency, policy decision and implementation may not be accomplished in policy outcome71.

Social Acceptability (Social aspect)-Societal acceptance should be one of the critical factors in introducing and accepting successful development of new technologies. Providing a better understanding of potential societal responses to CCS deployment is ideal for designing policy framework for this technology. Societal acceptance of CCS specifically deals with response of both the public and stakeholders. A number of stakeholders and/or agents with a professional interest in CCS should be carefully considered. These could be industry, non-governmental organisations (NGOs), governments and research institutions. However, it is also important for different stakeholders responding to CCS to be varied such as the public and stakeholders. Without understanding social acceptance clearly, it will be harder to implement CCS deployments under a policy72.

Political Feasibility (Political aspect)-This is critical to consider and inspire political direction, acceptance and priority for CCS deployment. Policies could be more or less favoured to political acceptability and decision, which depend on government’s confidence in their political outcome, impacts on particular interest groups and stakeholders, and/or balance of cost burden and impacts among government, companies, end-users and taxpayers73.

Equity (Environmental, economic and social aspects)-It is another important aspect for optimising the policy mix approach to CCS deployment. Equity is defined as making balance of a policy, in considering ‘fairness’, ‘justice’ and ‘respect’ for the rights of the people who

70 Damen, K., Faaij, A., Tukenberg,W., 2006. Health, safety and environmental risks of underground CO2 storage: overview of mechanisms and current knowledge. Climatic Change, 74, 289-318.


72 Alphen, K. V., et al. 2007. Societal acceptance of carbon capture and storage technologies. Energy Policy 35: 4368–4380



might be influenced by a new policy and legal framework for a particular purpose. It is important to determine whether policies are equally designed, for emitters and operators allowing acceptance of a tax levy and the costs might be imposed for achieving social needs and policy goals in a nation74. It is also important to consider liability and responsibility both government and operators, third-parties, and insurance companies, especially for the issues of financial security and contribution, which have been widely discussed for the best framework. However, no country has yet been determined and recognised for the best approach.

Compatibility (Optimal Policy Instrument Mix)-Effective policy instruments tend to be incorporated with other instruments. Mixed-instruments allow policy makers to tackle complex issues for energy policy development and flexible policy approach (Rosenow et al. 2016)75. This should be well considered for CCS policy, where there are many complexities and uncertainties such as scaling-up a potential market and building a long-term liability mechanism for CCS by funding and incentivising economic instruments as well as regulating emission performance76.

9. Conclusion

This paper aimed at addressing a number of policy instrument options for CCS, which could be applicable to the future legal framework in Japan. A number of countries have been considered and have implemented various types of policy instruments, which they believe to be the most effective tools to scale up their CCS projects into a potentially commercial deployment. However, those countries have also been struggling with selecting the best policy approaches. For example, the ETS in the EU becomes a problematic tool although it has been recognised as one of the best instruments especially for providing financial support and stimulating the CCS market across the countries. However, it has failed in a way due to the economic downturn in the EU region, so that the expected funding expenses have become uncertain. This paper has thus sought to examine how Japan could learn from other countries in order to establish the best framework for instrument choices for CCS for this country. We have addressed a number of key aspects (e.g. liability and incentivising options), which must be considered to optimise a policy approach to Japan’s CCS. This paper has also proposed an analytical framework for optimising the policy instrument options with a number of existing and potential instruments relevant to the future commerciealised CCS in Japan. This paper will take further action to make more specific details under the analytical framework, especially for what indicators must be considered in terms of environmental, economic and social aspects. However, our proposed method provided in this paper should be the basis for our practical approach to establishing a comprehensive policy and legal framework for the CCS in Japan.

74 Mitchell, C., et al. (2011). «Chapter 11: Policy, Financing and Implementation», in IPCC Special Report on Renewable Energy Sources and Climate Change Mitigation, Cambridge University Press, Cambridge and New York, pp. 865-950.

75 Rosenow, J., Fawcett, T., Eyre, N., and V. Oikonomou. 2016. Energy efficiency and the policy mix. Build-ing Research & Information. DOI 10.1080/09613218.2016.1138803

76 Duscha, V., and Rio, P.P. (2017). An economic analysis of the interactions between renewable support and other climate and energy policies. Energy & Environment. 28(1-2): 11-33.

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