Shell Says Carbon Capture Projects Face Large Risk Premiums

Projects to capture carbon emissions from power plants and store them permanently underground face “large risk premiums” from insurers because the technology is so new, Royal Dutch Shell Plc said.

“Insurance will be able to address only part of the financial risk exposure,” the company said in a document posted Thursday on the website of the U.K. Department of Energy and Climate Change. It cited a range of reasons that “make it difficult for insurers to price the risk, and may thus cause reluctance to underwrite the risk or result in large risk premiums.”

The document outlined Shell’s insurance strategy for its carbon capture and storage project at SSE Plc’s Peterhead gas-fired power plant north of Aberdeen, Scotland. The two companies plan to pump the power station’s emissions for permanent storage into the depleted Goldeneye gas field in the North Sea.

Governments are examining carbon capture and storage, known as CCS, as a technology that could absorb the pollution blamed for global warming before it reaches the atmosphere. CCS is necessary to keep coal, oil and natural gas viable as fuels as stricter environmental rules designed to rein in climate change makes the fossil fuels increasingly costly to use.

Fossil Fuels

The International Energy Agency says more carbon dioxide is locked in known fossil fuel reserves than the world can emit without risking dangerous levels of climate change. The U.K. is funding development of the Peterhead project and another one by Drax Group Plc at a cost of 100 million pounds ($155 million).

CCS has been tested in all its component parts. No single commercial-scale project has yet begun operations in Britain eight years after the government pledged to help pay for a demonstration project.

Shell said reasons insurers may be reluctant to underwrite the projects include “the lack of available underwriting information, including the absence of claims history, limited number of existing CCS projects over which to spread their risk, and undefined liabilities.”

Companies capturing and storing carbon would be entitled to tradeable European Union-issued carbon credits, each representing a ton of carbon dioxide emissions averted. In case of leakage from the storage reservoir, those credits may be lost or have to be repurchased, Shell said.

“As the risk can currently neither be defined nor quantified, no insurance solutions are available,” Shell said.

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