Europe

Company

Primer

12 May 2008
Carbon Capture & Storage CCS will be here before you know it
We believe that Carbon Capture and

An Introduction
Global Markets Research

Storage ("CCS") will be an integral

element of any successful programme of
anthropogenic Greenhouse Gas ("GHG")
reduction programme. Investors must
take the time to understand the issues
now.

Maybe not as glamorous in the short term ….

Carbon capture from large stationary emitters of GHG’s does not have the
immediate attractions for investors of renewable energy solutions such as solar or
wind power generation. Furthermore, there are still a number of significant
unknowns in existence regarding the regulatory environment necessary for the
technology (which is proven, albeit on a small scale) to thrive. Investors should be
under no illusions however. CCS is coming and when it does it has the long term
potential to dwarf current spending.
… but the potential is significant
It has been estimated that front end investment for niche applications and
demonstration plants alone could amount to $70billion over the next 20 years. In a
wider context, the International Energy Agency has estimated that $350-440bilion
of investment might be required in CCS technologies over the next 30 years. China
is adding 500MW coal fired power stations at the rate of around two every week,
and ideally these should all be retrofitted for carbon capture.
Europe is in the vanguard
CCS has already played a significant role in the political debate in countries such as
Norway and on 23rd January this year the EU proposed a directive to enable the
capture and storage of CO2 as part of a major legislative package. Whilst not
without its skeptics (especially a number of non government organizations, CCS is
rapidly climbing the political agenda in other EU countries such as the UK and the
Netherlands.

Ross Jobber
Research Analyst
(44) 20 754-59837
ross.jobber@db.com

Deutsche Bank AG/London

All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from
local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies.
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should
be aware that the firm may have a conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment decision.
Independent, third-party research (IR) on certain companies covered by DBSI's research is available to customers of
DBSI in the United States at no cost. Customers can access this IR at http://gm.db.com, or call 1-877-208-6300 to
request that a copy of the IR be sent to them.
DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1
12 May 2008 Carbon Capture & Storage

Table of Contents

Coverage ............................................................................................ 3
Why CCS ?.......................................................................................... 6
CCS – The investment case ...................................................................................................... 6

Fossil Fuels in the Future .................................................................. 7

Hydrocarbons will be here for a long time ................................................................................ 7

The Role of Renewables.................................................................. 11

Limited role in cutting absolute emission levels ..................................................................... 11

Progress to Date .............................................................................. 12

A focused opportunity ............................................................................................................ 12

The costs of CCS.............................................................................. 15

A guide to the future carbon price? ........................................................................................ 15

The problems ................................................................................... 19

Regulation holds the key......................................................................................................... 19

Conclusions...................................................................................... 21
Watch this space .................................................................................................................... 21

Appendix A: CCS Background ........................................................ 22

Carbon capture ....................................................................................................................... 22
Emission control ..................................................................................................................... 23
Carbon storage ....................................................................................................................... 24
Ocean storage......................................................................................................................... 25

Page 2 Deutsche Bank AG/London

12 May 2008 Carbon Capture & Storage

Coverage
Figure 1: Deutsche Bank stocks under coverage
Name Sector Description

Abengoa General Sustainable solutions provider in infrastructure, environment and energy sectors
Acciona General Provider of infrastructure and renewable energy-related solutions
AES Tiete Alternative Fuels A producer of Hydroelectric power
American Superconductor Wind Producer of power converter and high temperature superconductivity solutions
Babcock & Brown Wind Wind Investment Fund owning wind power assets
BKW Power generation Generator of electricity using hydro and nuclear technology
British Energy Power generation Operator of nuclear power stations in the UK
Canadian Solar Solar Supplier of solar modules and specialty products
CESP Power generation Brazil’s second largest power generator with significant hydroelectric generation
China Agri-Industries Alternative Fuels Oilseed and wheat processor, including biofuel production
China Grand Forestry Alternative Fuels Holding company with ecological forestry and garment industry investments
CHSTE Michael Tong Largest Chinese manufacturer of wind turbines
Conergy Solar Solar (and wind) solutions provider
Corning General Advanced materials, including components supplier for emission control systems
Cosan Alternative Fuels Producer of Ethanol
Cree General Manufacturer of high efficiency semiconductors & LEDs
CropEnergies Alternative Fuels Bioethanol plant operator
EDF Power generation Nuclear power provider
Eletrobras Power Generation Power Generator with significant hydroelectric capacity
Endesa Chile Power Generation Chile’s largest power generator with significant hydroelectric generation
Energy Conversion Devices General Provider of energy efficiency and alternative energy production solutions
ErSol Solar Energy Solar Provider of PV solutions and operator of solar power plants
Evergreen Solar Solar Provider of solar power products using string ribbon fabrication technology
First Solar Inc. Solar Provider of thin film solar power products
Fortum Power generation Power producer using mainly hydro, nuclear, and wind technology
Fuel Tech Inc Power generation Provides engineering solutions for the optimisation of combustion systems
Gamesa Wind Wind turbine manufacturer
Iberdrola Renovables Wind Wind farm operator
Itron General Provider of advanced metering solutions
Motech Industries Solar Manufacturer of advanced test and measurement instruments and PV cells
Nordex Wind Construction and maintenance of wind power plants
Phoenix Solar Solar Distributor of PV products
Q-cells Solar Manufacturer of PV cells
RePower Systems Wind Construction and maintenance of wind power plants
Shenhua Energy Alternative Fuels Coal-based energy provider
Solarworld AG Solar Provider of PV solutions and operator of solar power plants
Solon AG Solar Manufacturer of PV modules
Sunpower Corp Solar Manufacturer of high efficiency solar cell and solar panels
Suntech Power Holdings Solar Manufacturer of solar PV modules in China
Tractebel Power generation Brazil’s largest private-sector electricity generator, 80% of which is Hyrdoelectric
Trina Solar (China) Solar Manufacturer of integrated solar products in China
Vestas Wind Supplier of wind power systems
Wacker Chemie Solar Producer of silicon, polymer and fine chemicals for use in PV cell manufacture
Yingli Green Energy (China) Solar Manufacturer of integrated PV products in China
Zhongyu Gas Alternative Fuels Provider of coalbed-methane energy in China
Source: Deutsche Bank. See Figure 4 for prices

Deutsche Bank AG/London Page 3

12 May 2008 Carbon Capture & Storage

Figure 2: Deutsche Bank Climate Change Analysts

USA Europe Asia Pacific
Steve O'Rourke Daniel Gandoy Michael Chou
stephen.orourke@db.com daniel.gandoy@db.com michael.chou@db.com
+1 (212) 250 8670 +34 (91) 782 8445 +88 (62) 2192 2836
Carter Shoop Ross Jobber John Hirjee
carter.shoop@db.com ross.jobber@db.com john.hirjee@db.com
+1 415 617 3043 +44 (20) 7545 9837 +61 (3) 9270 4318
Tim Jones Christine Pu
tim.jones@db.com chirstine.pu@db.com
Latin America +44 (20) 7547 6763 +86 (21) 3896 2831
Marcus Sequeira Alexander Karnick Chuan Tang
marcus.sequeira@db.com alexander.karnick@db.com chuan.tang@db.com
+1 212 250 3255 +49 (69) 910 31945 +85 (22) 203 6166
Bertrand Lecourt Michael Tong
bertrand.lecourt@db.com michael.tong@db.com
Carbon Pricing +44 (20) 7547 6663 +(852) 2203 6167
Mark Lewis Luis Fananas Martinez Su-Yin Teoh
mark-c.lewis@db.com Luis.fananas@db.com su-yin.teoh@db.com
+33 (14) 495 6761 +34 (91) 782 8437 +60 (3) 2053 6770
Isabelle Curien Thomas Rauch
Isabelle.curien@db.com thomas-hans.rauch@db.com
+33 (14) 495 6616 +41 (44) 227 3379
Virginia Sanz De Madrid Grosse
virginia.sanz-de-madrid@db.com
+34 (91) 782 8482
Hermann Spellmann
hermann.spellman@db.com
+49 (69) 910 31904
Iain Turner
iain.turner@db.com
+44 (20) 7547 5392
Jussi Uskola
jussi.uskola@db.com
+35 (89) 252 52551

Source: Deutsche Bank

Figure 3: Forthcoming conferences

Date Conference Location Contact Telephone

28-29 May US Energy & Utilities Miami Beach, FL Michele Tobin +1 (212) 250 7369
24-Jun US Alternative Energy San Francisco, CA Patricia Antogiovanni +1 (2120 250 2924
02-Jul European Wind Energy Seminar London, UK Helena Sutcliffe +44 (20) 7545 2736
9-11 September US Technology San Francisco, CA Jennifer Feldman +1 212 (250) 2289
Source: Deutsche Bank

Page 4 Deutsche Bank AG/London

12 May 2008 Carbon Capture & Storage

Figure 4: Deutsche Bank Renewables Coverage Universe

Mkt Cap EV/Sales EV/EBITDA P/E

Alternative Fuels Analyst Recommendation ($m) FY 2008e FY 2008e FY 2008e 1m 6m 12m

China Agri (HK$ 5.39) Christine Pu Buy 2,518 0.7 10.6 14.2 16.2% 19.0% -14.6%
China Grand Forestry(HK$0.86) Chuan Tang Buy 656 3.5 6.9 10.1 8.2% -16.4% 7.0%
CropEnergies (EUR 2.83) Hermann Spellman Hold 392 1.5 11.6 15.0 1.0% -22.8% -60.6%
IOI Corp (MYR 7.15) Su-Yin Teoh Buy 14,211 4.2 15.9 23.4 2.8% 2.8% 43.4%
Shenhua Energy (HK$ 33.1) Christine Pu Buy 129,844 6.0 11.1 21.5 15.1% -10.5% 83.2%
Zhongyu Gas (HK$ 0.74) Chuan Tang Buy 187 2.8 11.8 25.7 -5.1% -36.4% -37.5%
General Median 3.2 11.3 18.3 6.4% -10.7% 3.5%
Abengoa (EUR 21.59) Luis Fananas Martinez Hold 2,820 0.9 7.3 13.0 -11.9% -5.3% -32.4%
Acciona (EUR 179.7) Daniel Gandoy NR 18,235 n/a n/a n/a 8.3% 8.3% 11.5%
Corning (USD 26.58) Carter Shoop Buy 41,782 5.2 14.5 12.6 10.0% 12.1% 8.7%
Cree (USD 25.48) Carter Shoop Hold 2,426 4.1 18.0 78.7 -0.2% -12.7% 37.7%
Energy Convn Devices ( USD 49.9) Steve O'Rourke Buy 1,299 5.4 267.1 Nm 8.1% 37.9% -10.2%
Itron (USD 93.35) Carter Shoop Buy 3,049 2.3 15.4 182.5 10.1% 22.0% 39.9%
Power generation Median 3.2 15.0 21.6 4.1% 10.4% 9.2%
BKW (CHF124.7) Thomas Rauch Buy 6,533 1.6 10.2 28.3 1.1% -5.7% -0.9%
British Energy Group Plc (695p) Iain Turner Buy 15,602 4.0 12.7 27.9 16.5% 46.6% 46.2%
CESP (BRL 22.75) Marcus Sequeira Hold 5,596 6.2 10.1 53.6 -10.3% -39.5% -14.4%
EDF (EUR 66.51) Bertrand Lecourt Buy 191,218 2.7 10.2 23.4 21.9% -3.3% 4.8%
Endesa Chile (USD 45.43) Marcus Sequeira Hold 12,795 4.8 10.7 20.9 -1.5% 33.5% -4.2%
Eletrobras (BRL 24.55) Marcus Sequeira Hold 16,119 2.0 7.3 37.3 0.4% 4.4% 4.2%
Fortum (EUR 28.12) Jussi Uskola Buy 37,778 5.0 11.0 17.7 5.7% 1.0% 19.3%
Fuel Tech (USD 22.5) Carter Shoop Hold 590 6.7 40.0 76.4 34.4% 37.8% 7.0%
Tractebel Energia (BRL 24.4) Marcus Sequeira Buy 8,576 5.3 8.4 14.2 6.2% 12.0% 26.5%
Solar Median 4.8 10.2 27.9 8.3% 9.6% 9.8%
Canadian Solar (USD 31.5) Steve O'Rourke Hold 684 1.4 14.7 19.1 18.1% 35.8% 117.7%
Conergy AG (EUR 12.3) Alexander Karnick Sell 706 0.8 Nm Nm 0.0% -24.5% -73.6%
ErSol (EUR 66.1) Hermann Spellman Hold 1,137 2.2 7.0 16.4 30.5% 25.7% 16.3%
Evergreen Solar (USD 8.9) Steve O'Rourke Hold 1,025 7.0 Nm Nm -7.2% -32.7% -18.0%
First Solar Inc.(USD 275.8) Steve O'Rourke Buy 22,409 22.9 67.3 109.1 24.6% 48.5% 347.7%
Motech Industries Inc (TWD 279) Michael Chou Buy 1,788 2.4 14.7 23.0 26.4% 38.3% -22.7%
Phoenix Solar AG (EUR 38) Alexander Karnick Hold 418 0.6 10.1 17.5 12.1% 29.2% 99.1%
Q-cells (EUR 71.37) Alexander Karnick Buy 9,278 5.6 22.9 34.0 19.3% 21.1% 40.7%
Solarworld AG (EUR 33.4) Alexander Karnick Buy 6,031 4.2 12.7 25.3 14.6% 17.4% 11.2%
SOLON AG (EUR 47.1) Hermann Spellman Buy 974 0.7 8.4 15.2 11.1% -9.5% 20.2%
SunPower (USD 83.7) Steve O'Rourke Buy 7,381 5.3 28.4 66.3 18.8% 17.2% 46.9%
Suntech Power Hldgs (USD 42.9) Michael Chou Hold 6,779 3.8 23.4 27.2 7.5% -18.4% 16.8%
Trina Solar (USD 41.1) Michael Chou Buy 1,054 1.4 8.3 12.4 27.5% 7.9% -30.5%
Wacker Chemie AG (EUR 157.5) Tim Jones Hold 12,949 2.1 8.1 16.6 22.5% 10.5% 18.6%
Yingli Green Energy (USD 22.8) Michael Chou Hold 2,882 2.8 13.1 21.4 24.8% -4.6% NA
Wind Median 2.4 13.1 21.4 16.7% 11.4% 42.2%
American S’conductor (USD 32.8) Carter Shoop Buy 1,058 6.2 nm Nm 8.3% 32.1% 70.5%
CHSTE (HKD 13.6) Michael Tong Buy 2,189 4.3 22.5 31.4 20.8% -2.1% n/a
Gamesa (EUR 31.8) Daniel Gandoy Buy 11,843 2.0 13.3 21.2 7.9% 23.1% 22.0%
Iberdrola Renovables (EUR 4.43) Virginia Sanz De Madrid Buy 30,673 13.7 18.7 55.4 5.4% -14.2% N/a
Nordex (EUR 28.44) Alexander Karnick Hold 2,884 1.5 16.4 26.0 13.3% 2.6% -5.3%
Repower Systems (EUR 210) Alexander Karnick Hold 2,991 1.9 22.6 41.8 39.8% 55.5% 34.8%
Vestas (DKK 567) Daniel Gandoy Hold 20,317 2.2 14.8 29.3 1.6% 9.9% 46.0%
Median 3.2 16.4 29.3 12.5% 15.2% 25.4%
Source: Deutsche Bank estimates

Deutsche Bank AG/London Page 5

12 May 2008 Carbon Capture & Storage

Why CCS ?
CCS – The investment case
Whilst elements of CCS technology are well established, there is little by way of equity
investment opportunity at present. Why then should equity investors spend time familiarising
themselves with this area? We put forward a number of reasons

„ Fossil Fuels are a necessary part of the immediate future

„ Increased generating efficiency will continue but is not enough
„ CCS will be a highly focused industry
„ Renewables aren’t expected to reduce carbon emissions
„ Current infrastructure supports a CCS solution
„ The investment required, and therefore the market potential is enormous
We will address each of these points in turn.

It is worth reminding ourselves that unlike a number of other green initiatives, the supply of
CO2 that has been captured does not seem at this stage to represent a significant future
revenue opportunity. As such the economic case for CCS must be made by the relationship
between essentially two data points: the investment required to capture and store CO2
versus the cost of not doing so.

As such the development for CCS technology and the evolution of the carbon price are
inextricably linked. For more detailed analysis of carbon pricing please see our commodities
research or contact Mark Lewis at mark-c.lewis@db.com

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12 May 2008 Carbon Capture & Storage

Fossil Fuels in the Future

Hydrocarbons will be here for a long time
In order to put the climate change debate into a more meaningful context, it is important to
remember that fossil fuels will be around for a considerable length of time. There are a
number of reasons for this.

„ There are lots of fossil fuels left (albeit they will tend to get increasingly “dirty”)
„ We continue to lock in our exposure to current technology
„ We have very few alternatives
Coal
Fossil fuels take a number of forms, but the statistics for coal alone illustrate the fact that
energy derived from fossil fuels will be around for quite some time.

The world has around 480 billion tonnes of anthracite and bituminous coal reserves as well as
430 billion tonnes of lower quality sub-bituminous coal and lignite. To put this into context,
the world’s consumption of coal was 5.8 billion tonnes in 2005, implying world reserves that
represent over a century and a half of coal. Of course, coal consumption is growing (at
around 5% per annum) primarily due to increased energy demands in India and China. With
only limited amounts of domestic oil and natural gas reserves, around 55% of all coal in China
goes towards generating electricity. In India the figure is nearer 70%, with the remaining coal
being used in the industrial sector in both countries.

Figure 5: World’s Coal reserves (Gigatonnes of oil equivalent)

North America 170

Former Soviet Union 152

China 76
India 62
Asia & Oceania 60
Europe 40
Africa 34
South America 13
Source: BP, 2007

Oil
In terms of oil, it is sometimes quoted that at current rates of consumption, known reserves
of “conventional oil” will last around 30 more years. The problem is that this data point has
not changed much in recent years.

Deutsche Bank AG/London Page 7

12 May 2008 Carbon Capture & Storage

Figure 6: Availability of Global Oil Resources

80

70 Arctic

60
Oil
Cost 50 Deepwater Shales
($/barrel)
E
40
O
Heavy Oil
R
30 Bitumen
Super-deep
20 Other
conv.
Already
10 produced oil
OPEC, M/E

0 1,000 2,000 3,000 4,000 5,000 6,000

Available oil in billions of barrels

Source: Freund & Kaarstad, from IEA 2006

Gas
In the past 25 years, known gas reserves have more than doubled to around 180 trillion cubic
metres and it is estimated that worldwide resources may stand at 450 trillion cubic metres
(USGS). Interestingly, over half the worlds known gas reserves are located in three countries:
Russia, Iran and Qatar. Current worldwide production amounts to around 2.8 trillion cubic
metres, dominated by Russia (598m3 p.a.), the USA (526m3 p.a.) and Canada (186m3 p.a.). It
is highly likely that known reserves of gas will grow faster than that of oil. Less exploration
dollars have been spent on gas and once discovered, recovery from gas fields is higher than
that of oil at between 70% and 80%.

Figure 7: World’s Gas reserves (Gigatonnes of oil equivalent)

Middle East 66
Fomer Soviet Union 52
Africa 13
Asia & Oceania 10
North America 7
South America 6
Europe 5
China 2
India 1
Source: BP, 2007

In conclusion, hydrocarbon reserves will be with us for a number of years and will continue to
be part of our energy strategy way beyond the current timescales appointed for global GHG
emission targets. We are therefore faced with the unavoidable requirement to de-carbonise
fossil fuels as an integral part of reducing greenhouse gas emissions.

Whilst reserves might be more prevalent than one might have imagined, it is important to
bear in mind that the nature of those hydrocarbons will change, becoming (in the case of oil
and coal at least) progressively more “dirty”. Those fossil fuels that were easiest to extract
and easiest to use (in other words least expensive to clean) are the ones that have been

Page 8 Deutsche Bank AG/London

12 May 2008 Carbon Capture & Storage

exploited to date. The future for fossil fuels thus provides us with a dual challenge - using
hydrocarbons that are more difficult to extract and which then subsequently emit more CO2.

Figure 8: Total World Electricity Generation (% by fuel, 2005)

Hydro Other
16% 2%
Coal
40%

Nuclear
15%

Gas Oil
20% 7%

Source: World Coal Institute

One might expect that with such a challenging outlook, there would be significant efforts to
avoid building an even greater reliance on fossil fuels in the future. It is true to say that efforts
have been made in some developed countries to switch from coal to cleaner burning gas, but
the lead times are extremely long. The recent re-surfacing of the nuclear debate in countries
such as the UK is another example of how governments are trying to manage the future
reliance on fossil fuels. In developing countries, however the investment in fossil-fuel-based
power generation is relatively unabated.

China is currently bringing on stream coal-fired power stations at the rate of two 500MW
plants per week. The amount of capacity brought on line in China last year was not far off the
total generating capacity of the entire UK network.

Figure 9: Global Energy Demand (Mtoe), 1980-2030e

Source: IEA

Deutsche Bank AG/London Page 9

12 May 2008 Carbon Capture & Storage

Given the achievements of modern technology, some might imagine that increased efficiency
would be able to compensate not only for dirtier fuel, but also help reduce the overall GHG
emissions from fossil fuels. It is important to remember that in order to hit targets of around
550 ppm in the medium term, it is estimated that CO2 power plants need to reduce
emissions by at least 80%. One might imagine that changing the type of fuel would help
which it would, however Freund & Kaarstad pointed out recently that, “Even if all the fossil
fuel power stations were converted to natural gas, at the standards of the best modern
stations, it would only be possible to halve … emissions” (Keeping The lights On” 2007).
Assuming that this was a realistic scenario, advances in technology would still not be able to
make up the difference. This can be illustrated by looking at the status of coal fired
technology today.

Figure 10: Efficiency of coal fired technology

Coal-fired Power Plant CO2 emissions

2,000

1,800

1,600
Indian new build
1,400
India Chinese new build
gCO2/kWh

1,200

1,000
China
800
OECD
600

400
State-of-the-art
RD&D
200

0
20 25 30 35 40 45 50 55

Source: IPCC Efficiency (LHV)

Increasing temperature and pressure

Source: IPCC

The fact is that out technology exposure is currently being “locked in”. With a conventional
coal fired power station having a life of around 30 years, and with improvements in efficiency
unable to deliver the level of emission reductions that we require, some form of CCS will be
necessary.

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12 May 2008 Carbon Capture & Storage

The Role of Renewables

Limited role in cutting absolute emission levels
It is widely accepted that, in order to cut emissions, a number of different initiatives will be
required. These include

„ Using less energy through energy conservation

„ Using less energy through energy efficiency
„ Switching to lower carbon fuels (e.g. Coal to Gas))
„ Capturing and storing carbon
„ Renewable energy
Whilst all of these initiatives are clearly important, from an investment perspective the
landscape has been somewhat skewed, in our opinion, by the immediacy of the renewables
opportunity versus the slower evolution of other elements. It is therefore useful to look at
how these different initiatives stack up against each other over a longer timeframe, given that
the renewables opportunity has received a disproportionately high amount of publicity.

Most scenarios for the stabilisation of atmospheric GHG’s call for concentrations in a range
between 450 and 750 ppmv CO2. The figures below show the respective roles played by the
different abatement initiatives under different 550 ppmv scenarios.

Figure 11: CO2 Abatement under IPCC B2-550 MiniCAM (LHS) and B2-550 MESSAGE scenarios (MtCO2 p.a.)

80,000 80,000
70,000 70,000
Conservation & Efficiency
60,000 Conservation & Efficiency 60,000
Renewable Energy
50,000 Renew able Energy 50,000
Nuclear Build Out
40,000 Coal to Gas 40,000
30,000 CCS
Coal to Gas
30,000
20,000 550ppmv target CCS
20,000
10,000 550ppmv target
10,000
0 0
2005 2020 2035 2050 2065 2080 2095 2005 2020 2035 2050 2065 2080 2095

Source: IPCC

The shaded area represents the contribution required from CCS. One way of interpreting this
is to state that all other initiatives are expected to do little more than hold global CO2
emissions stable. Perhaps the phrase “little more” is harsh. We have already shown that
global energy demand and CO2 emissions under “Business As Usual” scenarios are
expected to double from current levels by 2050. Thus all non CCS initiatives, if rolled out as
planned, will ensure that this energy growth is broadly carbon free. If we wish to then reduce
emissions in absolute terms however, CCS will be required. In fact the IPCCV state that “In
most scenarios for stabilization of atmospheric greenhouse gas concentrations between 450
and 750 ppmv CO2 and in a least-cost portfolio of mitigation options, the economic potential
of CCS would amount to 220–2,200 GtCO2 (60–600 GtC) cumulatively, which would mean
that CCS contributes 15–55% to the cumulative mitigation effort worldwide until 2100,
averaged over a range of baseline scenarios.” It might be relatively slow to arrive but CCS
will be a major part of any medium- and long-term carbon abatement initiative.

Deutsche Bank AG/London Page 11

12 May 2008 Carbon Capture & Storage

Progress to Date
A focused opportunity
Even superficial analysis would suggest that the conditions are in place for a meaningful CCS
industry to evolve. The first of these preconditions is being able to identify a relevant end-
market. Capturing carbon is made particularly difficult if (a) the amount of carbon available for
capture is made up of a large number of smaller sources, and/or (b) those sources of carbon
are in any way mobile. For this reason transport is not an obvious candidate for carbon
capture, and instead fuel substitution is a much more likely strategy.

Luckily, there are in existence a number of significant fixed location emitters of CO2. The
figure below illustrates the locations and profile of the worlds 7,500 largest CO2 producers.
Unsurprisingly, they are located in areas of high population and are based around a few key
industries such as power generation, petrochemicals, steel and cement production. Each of
these sources emit more than 100,000 tons of CO2 per annum and represents 98% of the
world’s stationary CO2 sources. Around 78% of these are power plants.

The iron & steel industry is the largest energy-consuming sector, accounting for 10-15% of
total industrial energy consumption. Oxyfuel firing solutions (using pure oxygen to burn fule
rather than air) could capture around 70% of CO2 emissions. Converting the fuel to CO2 and
Hydrogen prior to use could increase capture to 90-95% according to early studies.

Emissions of CO2 from the cement industry account for 6% of the total emissions of CO2
from stationary sources. CO2 concentrations in flue gasses are 15-30% by volume, and this
compares to only 3-15% for gases from power plants [IPCC] which would make capture
somewhat easier.

Ammonia plants produce, it is estimated, around 127megatonnes of CO2 per annum although
this might not represent as large an opportunity for CCS as first thought. Firstly the CO2
produced is relatively pure, making capture cheaper than other sectors. Secondly ammonia
plants are frequently combined with urea plants which use anywhere between 70-90% of the
CO2 produced from ammonia production.

It is therefore in power plants that the opportunity for significant CO2 abatement looks
particularly attractive.

Figure 12: The location (lhs) and number (rhs) of significant stationary CO2 emitters
12,000

10,000

8,000

6,000

4,000

2,000

0
s

s
er

l
en

ee
ie

al
w

er

ic
St
m
Po

m
fin
Ce

&

he
Re

c
Iro

tro
Pe

Installations Emissions (MtCO2/yr)

Source: IPCC

Source: IPCC

Page 12 Deutsche Bank AG/London

12 May 2008 Carbon Capture & Storage

Not only are the producers of carbon dioxide relatively easy to identify, but the geological
formations able to store the gas are also well known. The figure below shows the location of
sedimentary basins with a high likelihood of being able to store CO2.

Figure 13: Prevalence of highly prospective (dark shading) sedimentary basins

Source: Geoscience Australia

It is interesting to note that most regions of the world with a history of significant CO2
emissions have sufficient potential geological storage for some time. The exceptions to this
are certain parts of Asia.

Figure 14: CO2 Emissions 1990-2095e vs. Potential Geological Storage Capacity (%)
Canada
Aus/NZ
USA
Former Soviet Union

Middle East
Eastern Europe
Africa

Latin America
India

S/E Asia
China
Japan
Korea

0 20 40 60 80 100

Source: IPCC, IEA

The proximity of capture to storage is an important issue when anticipating how long it will
take for CCS to become economically viable. If the transport infrastructure requirements are
too onerous then this will clearly act as a further drag on market growth.

We will discuss possible costings later, but there is already around 2,500km of CO2 dedicated
pipeline in existence today – mainly used of oil extraction in North America – and these are
shown in the figure below. Whilst the technology is thus proven (as is the case in many parts
of the CCS value chain) the issue of scale is less easily addressed. Existing pipelines are
considerably smaller than those required to take the CO2 output from one medium sized
power plant, where a steel pipe of around 26 inches in diameter is expected to be required.

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Figure 15: Existing Long Range CO2 pipelines in North America

Source: Deutsche Bank, Oil & Gas Journal

As with many aspects of CCS, the issue of transport and storage is faced with the challenge
of scaling up the activity. By way of an illustration, the current global carbon storage rate is
less than 0.1Gtonnes per annum – around 1.5% of our current emissions.

Finally it is worth noting that the CCS market, despite its name, consists of much more than
merely the capture and storage of carbon. It is already apparent that there will be a wide
range of disciplines connected to this area, as illustrated in the figure below.

Figure 16: Possible CCS Business Models

Avoidance

Carbon Credits ?
Compression Capture
Capture

Measurement

Monitoring Conversion
Pipelines

Transport

Storage
Liability Management Shipping

Source: IPCC, Deutsche Bank

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The costs of CCS

A guide to the future carbon price?
A number of studies have been carried out regarding the likely future cost of carbon capture
and we have summarised these below. It is worth noting, however, that the number of
variables is such that the exercise cannot arrive at a single headline-grabbing figure. Despite
this, the process of attempting to cost CCS is not without merit. For CCS to have relevance,
it must ultimately make sense from an economic as well as from an environmental aspect.
Analysis of costings thus helps to establish a useful benchmark for the appropriate level of
penalty that ultimately needs to be imposed on non compliant operators if CCS is to become
established without the support of mandatory emission limits.

Carbon Capture
The background on carbon capture technology from our recent publication “Green
technology – An introduction” is set out in the Appendix. It has been estimated that a 1,000
megawatt IGCC plant might produce 260m tons of CO2 over its 50 year lifespan. There is no
doubt that the installation and running of capture technology represents the lion’s share of
any future end-to-end CCS cost. As far as the economics of capture are concerned there are
a number of key factors to consider.

„ The cheapest way to fit capture technology is at the time of construction. If done this
way, however, the costs are still significant. A range of studies have shown that CO2
capture adds 44-87% to the capital cost of a reference plant. The wide range of these
findings illustrates just how many variables need to be considered, one of which is the
generation technology being used.
„ Adding capture technology via retrofit is even more expensive than at the new build
stage. For comparable levels of c.85% CO2 reduction per kWh, the average cost of CO2
avoided for retrofits is believed to be about 35% higher than for new plants.
„ Not only are capital costs higher but the costs of generating electricity are higher too as
there is additional energy required to capture and compress the CO2 - sometimes termed
the “Energy penalty”. Depending on the technology, it has been claimed that carbon
capture could require up to 40% more fuel input per MWh of output relative to a
reference plant, although IPCC analysis puts this figure at is slightly less than this.

Figure 17: CCS Capital cost by technology Figure 18: CCS Energy Penalty by technology

900 30

800
25
700

600 20

500
15
400

300 10

200
5
100

0 0
NGCC PC IGCC N GC C PC IGC C

Additional C apital required (U S$/kW) E nergy P enalty (% )

Source: IPCC Source: IPCC

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12 May 2008 Carbon Capture & Storage

The left hand figure shows how the $1,200 cost per kilowatt cost of a new pulverised coal
(PC) plant is increased by 63%, or $810 per kW if capture is included in the build
specification. This would add around $365m to the cost of building a 450MW plant. Similarly
the energy penalty from additional fuel demands is highest for PC. This is because the PC
process not only emits large amounts of CO2 compared to other major technologies, but also
because emits that CO2 in a less pure form. To return to a common theme, the data needs ot
be treated with some caution, as greater efficiency levels can be achieved from PC be using
higher temperatures and pressures, (so called” Super Critical” generation) which reduces the
economic spread significantly. What does not reduce, however, is the significant capital cost
that these solutions represent. Given the current commodity-driven cost environment, it
should be pointed out, finally, that even before considering CCS, like-for-like build costs for
power plants are rising significantly also.

Other technologies such as oxyfuel burning are also able substantially to control emissions.
By burning coal in a mixture of pure oxygen and recycled flue gasses, a purer stream of CO2
can be generated which is somewhat easier to capture. It is estimated that the energy
penalty for Gas oxyfuel is almost 25% - not out of line with other technologies.

Carbon Transport
Whilst capture represents the largest cost element of CCS, transport will not be insignificant.
Given that a number of different storage options have been considered (see below), there is
also a range of transport solutions. Depending on the ultimate destination of the waste CO2,
studies suggest that pipelines are probably the most cost effective although they take
significant time and capital commitment to establish. Around 2,500 km of long-range
commercial CO2 pipelines already exist, primarily for Enhanced Oil Extraction in North
America, and so costs are reasonably well known.

Figure 19: A Comparison of Pipeline Transport Costs

S o u r c e : IP C C

Source: IPCC

The figure above shows how the costs of onshore (the solid lines) and offshore (the dotted
lines) pipelines evolve for each 250km transported, depending on the volume of gas handled.
The Y axis goes up to 6 dollars per tonne of CO2 per quarter of a kilometre. It is estimated
that once sufficient economies of scale exist, pipeline costs can be around 10% of road
transport costs.

Note that other factors such as the relative humidity of the gas are critical to maintenance
costs given its corrosive impact on pipelines. Also the compression pressure at which the
gas is transported has an impact on costs.

As well as ongoing costs, we also have to consider the capital costs associated with
transport. A 26 inch diameter pipe might cost around $1.5m per mile to construct and lay,
depending on the terrain and the proximity to centres of population. Clearly offshore pipelines

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are even more expensive - somewhere in the region of 40%to 70% more costly according to
available data.

Shipping is another transport alternative, although at present there are only a handful small
ships worldwide currently used for this purpose. Certainly during the early stages of CCS,
shipping might well make most sense for smaller quantities until pipelines can be justified. A
broad consensus of $60m-$80m capital cost for a 30,000-50,000 tonne ship currently exists.
Longer term, shipping seems to become at economic parity with pipelines (assuming a
transport rate of 6 megatonnes CO2 per year) at over 1,000 kilometres), although we would
question these figures given recent movements in fuel prices.

Note that adding the cost of a liquefaction facility onto pipeline or shipping infrastructure
could add a further £35m - $50m depending on a number of factors including the pressure of
the CO2 required.

Storage
One might consider that, technology allowing, storage would be a relatively straightforward
area of the entire CCS market. Indeed, there are a number of storage options (see “Green
technology – An Introduction”6 March 08) although depleted oil & gas fields seem to hold
the most promise. Scientists have stated that the storage capacity of these oil and gas fields
could be 675-900 Giga tonnes of CO2 – and this could rise by 25% as “undiscovered”
oilfields were included in the equation. Given that current levels of anthropogenic CO2
emissions are currently in the order of 7 Gigatonnes per annum, then oil & gas fields alone
could represent over a century of storage. When this opportunity is combined with the
possibility of generating modest revenues from using CO2 storage to raise yields from
depleted oil fields (as is current practice), then one can understand why storage might not
necessarily be seen as the major obstacle to the CCS industry.

It in the area of storage, however, a number of highly pertinent legal issues appear, which
could in themselves represent one of the major threats to the evolution of a broad CCS
market. These will be discussed in the next section. Storage costs actually need to include
not only storage but possibly liability insurance and monitoring costs. Experience from
existing storage projects suggests that leakage is not a major issue - a fact helped CO2 not
being either toxic or explosive – although clearly it is capable of causing death by
asphyxiation if released in sufficiently large quantities and sufficiently high degrees of purity.
It is just such concerns that lead to understandable fears regarding certain forms of ocean
storage.

Figure 20: CO2 storage costs estimates (US$/tCO2 stored)

Option Type Onshore or Location Low Mid High
Offshore

Saline Formation Onshore Australia 0.2 0.5 5.1

Saline Formation Onshore Europe 1.9 2.8 6.2
Saline Formation Onshore USA 0.4 0.5 4.5
Saline Formation Offshore Australia 0.5 3.4 30.2
Saline Formation Offshore North.Sea 4.7 7.7 12
Depleted Oil Field Onshore USA 0.5 1.3 4.0
Depleted Gas Field Onshore USA 0.5 2.4 12.2
Disused oil or gas field Onshore Europe 1.2 1.7 3.8
Disused oil or gas field Offshore N.Sea 3.8 6.0 8.1
Source: IPCC

Conclusion
Given the number of variables at work it is clearly misleading to talk about a cost of CCS per
tonne of CO2. All that we can say with (any degree of) confidence is that the carbon capture

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costs will represent the largest single element of the overall cost. The figure below makes
the point more elegantly in our opinion, showing a range of costs depending on the nature of
the emitter, the distance of that emitter from the storage site an the nature of the storage
medium.

Figure 21: Illustration of various future CCS cost scenarios

(1 )H ig h p u rity
a m m o n ia p la n t ,< 1 0 $120
m ile s to E O R
$100
(2 ) H ig h p u rity n a tu ra l 10
g a s p ro c e s s in g fa c ility
~ 5 0 m ile s fro m E O R $80
Net CCS Cost ($/tCO2)

(3 ) L a rg e , c o a l- 9
$60
fire d p o w e r p la n t < 1 0 8
m ile s fro m E C B M 7
$40
5 6

4 ) H ig h p u rity 3 4
$20
h y d ro g e n p ro d u c tio n
fa c ility < 2 5 m ile s fro m 2
d e p le te d g a s fie ld $0

(5 ) L a rg e , c o a l-fire d -$ 2 0 1
p o w e r p la n t (< 2 5 m ile s 10 0 300 500 700 900 1100 1300 1500 1700 1900 2100 2 3 00 2500
fro m d e e p s a lin e C O 2 C a p tu re d & S to re d (M tC O 2 )
fo rm a tio n

(6 ) C o a l-fire d p o w e r S o u rc e : P a c ific N o rth w e s t N a tio n a l L a b o ra to ry

p la n t < 5 0 m ile s fro m
d e p le te d g a s fie ld
(7 ) Iro n & s te e l p la n t
< 1 0 m ile s fro m d e e p
s a lin e fo rm a tio n
(8 ) S m a lle r c o a l-fire d (9 ) C e m e n t p la n t > 5 0 (1 0 ) G a s -fire d p o w e r p la n t
p o w e r p la n t / n e a rb y m ile s fro m d e e p s a lin e > 5 0 m ile s fro m d e e p s a lin e
(< 2 5 m ile s ) d e e p s a lin e fo rm a tio n fo rm a tio n
b a s a lt fo rm a tio n

Source: Pacific Northwest National Laboratory (EOR = Enhanced Oil Recovery)

A certain amount of CO2 is already being captured and stored today because either (a) there
are associated revenues, normally from EOR activity as shown on the bottom left of the
figure above, or (b) there are penalties for not doing so meaning that costs are lower than
possible fines for venting CO2 (e.g. Norway).

Figure 22: Current commercial CCS projects

Project Country Injection started Avg rate (tonnes/day) Total planned (Mt) Storage type

Sleipner Norway 1996 3,000 20 Aquifer

Weyburn Canada 2000 3,000 - 5,000 20 EOR
In Salah Algeria 2004 3,000 - 4,000 17 Depleted hydrocarbon
reserves
Salt Creek USA 2004 5,000 – 6,000 27 EOR
Snoǿvit Norway 2006 2,000 n/a Saline formation
Source: Industry Sources

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The problems
Regulation holds the key
The barriers hampering the adoption of CCS are predominantly not technical, they are
financial and regulatory. The size of the capital investments are such that there needs to be
clear guidance from governments as to the opportunity cost of not capturing CO2. These
penalties can take the form of cap-and-trade or more simple tax systems, but the fact
remains that clarity is needed urgently – and not just for the short term. The nature of the
investment required for CCS and the useful life of power plants is such that long term
visibility is essential, way beyond current targets for GHG emissions.

Current projects are in existence, a number operating on a commercial basis, but to date the
project have been so small that they have been allowed to operate under existing legislation.
For example the Sleipner project is currently regulated under Norway’s Petroleum Act,
although this means that a number of the issues highlighted below remain potentially
unresolved. If CCS is to become a significant business, however, existing regulations need to
be amended. Papers published under the umbrella of The London Accord on the potential
legal issues highlight a number of key areas.

CO2 as waste
Defining the CO2 from CCS as waste (given that it is a by-product on an industrial process
and the intention is to dispose of it) has many implications regarding its shipment and
ultimate landfill storage. If CO2 from CCS becomes classified as “hazardous waste” then the
issue becomes all the more difficult. This could easily happen if certain impurities were left in
the gas.

National Boundaries. Legislation such as the EU’s Waste Shipment Regulations prohibits
the export of waste for disposal outside the EU. Waste is allowed to cross national
boundaries within the EU on a “prior informed consent” basis and with financial guarantees,
but it is by no means certain that CCS activities would fit neatly under existing legislation.

Onshore storage. If the CO2 is classed as waste then there are likely to be local restrictions
on using onshore landfill. Again in the EU, the Landfill Directive prohibits the injection of liquid
waste into landfill sites. As such legislation may need to be clarified and/or amended in the
case of CO2 injection.

Offshore storage. In their current forms, regulations protecting marine life are likely to
represent legal hurdles. For example, the OSPAR Convention, in force since 1998, addresses
"all human activities that might adversely affect the marine environment of the North East
Atlantic". Specific guidance needs to be drawn up to ensure that CCS activities have been
properly addressed.

Property Rights. There are both onshore and (to a lesser extent) offshore elements to issues
of subsurface property rights. Not only do issues of ownership need to be addressed, but
and management of planning applications needs to be co-ordinated on at least a national , if
not an international level.

Liability. The challenge with addressing issues of liability is the length of time that might be
involved. Despite attempts to devise systems that adequately allocate the commercial risk,
the length of time involved in storage means that current thinking has a tendency to drift back
towards liability being taken at some point at a national rather than a corporate level. An
added issue is trying to estimate the cost of providing remediation.

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Incentives. With CCS not specifically included in Phase II of the EU ETS (Emission Trading
Scheme), it is very unclear exactly how governments intend to bridge the gap between the
current economics and a world when carbon prices are such that investment in CCS needs
little if any incentive.

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Conclusions
Watch this space
It might be early days for CCS technologies to appear on the radar screens of equity
investors, but it is an area that we will keep investors updated on as it evolves. For now the
following points are worth re-iterating.

1. Fossil fuels a will be used as a primary energy source for many years to come.

2. As a result CCS is too important an initiative in the climate change armoury to not
happen. Improving efficiency cannot deliver the GHG reductions that we require to hit
emission targets.

3. Given the rate at which coal-fired power stations are being brought online, technology
will not only have to be incorporated into new build but will also require retrofitting. The
capital cost of either option adds significantly to both capital cost and running costs.

4. CCS will never represent a major revenue source. It must therefore be encouraged by
either financial and/or legal penalties.
5. CCS technology is proven on a small scale but must be scaled up.

6. Expect demonstration plants over the next few years with commercial operations by
2015.

7. One of the greatest barriers to more rapid development is clarity over legal issues and
visibility over a long term incentive programmes.
How big could this market be? Riahi et al (2004) estimated that global front-end investment
for niche applications and demonstration plants alone could amount to US$70bn globally over
the next 20 years. The International Energy Agency estimated that US$350-440bn of OECD
investment alone in CCS technologies over the next 30 years. There is no reason at this point
in time to suggest that these figures are overstated.

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Appendix A: CCS Background

Carbon capture
Rapid moves away from fossil fuels in the near term are probably unrealistic; therefore
considerable efforts continue to be made in burning hydrocarbon fuels more efficiently and
then capturing the carbon released. The current principal technologies for power generation
using these fuels are:

„ Pulverised fuel. As the principal solid fuel technology, the fuel (coal) is ground to grain-
sized particles and then mixed with hot air and blown through the furnace as it is burned.
This improves thermal efficiency and thus reduces (but does not eliminate) greenhouse
gas emissions.
„ Integrated Gasification Combined Cycle (“IGCC”). This process represents a bridge
between solid and gas fuel technology. Carbon-rich materials can be converted into a
mix of carbon monoxide and hydrogen by reacting the material at high temperatures with
a controlled amount of oxygen. The origins of this technology are based on the fact that
if the fuel is coal, then the resulting CO/H2 mix (“Syngas”) combusts more efficiently
than the original fuel. This is discussed in more detail later.
„ Natural Gas Combined Cycle (“NGCC”). As the principal gaseous fuel technology,
combined cycle power generation technology aims to utilise the heat contained within
the spent flue gasses of the gas turbine to generate additional power via a steam
turbine.
These efficient combustion technologies can be combined with carbon dioxide capture,
which can occur at one of three stages:

„ Pre-combustion. In the gasification process, the CO that is produced can be converted

to CO2 in a shift reactor and can then be separated using physical solvents, leaving the
hydrogen to be burned using gas turbine technology. At present, no coal-fired IGCC
plants incorporate such CO2 capture
„ Post-combustion. CO2 is captured from the power plant’s flue gas using (most likely)
chemical solvents such as amines. One problem is the presence of oxygen in the flue
gases which degrade some solvents and lead to the corrosion of equipment. Levels of
nitrous oxides (NOx) and Sulphur oxides (SOx) must also be low as they form stable, non
regenerative salts with the amine solvent. Post-combustion technologies are only
available with pulverised fuel and gas turbine technologies.
„ Oxy-combustion. This describes the combustion of fossil fuels using nearly pure
(typically 95%) oxygen mixed with recycled flue gas. Oxy-fuel combustion produces
approximately 75% less flue gas than air fuelled combustion and produces flue gases
that consist primarily of CO2 and H2O. The flue gases that are not recycled can be
purified to very high concentrations of CO2. The lack of nitrogen means less nitrous
oxides in the flue gas compared to air combustion. Such technology is at an early stage
but plans to build commercial power plants are advancing.
Work by the Greenhouse Gas R&D Programme suggests that GTCC technology is the most
thermally efficient mainstream combustion technology. Capturing CO2 requires energy
however, and taking this into account, NGCC plants are still most efficient. The efficiency
penalty for CO2 capture is lowest in post-combustion carbon capture.

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Figure 23: Comparing net efficiency of different power generation technologies

Fuel Technology CO2 Capture Net Efficiency (%) #

Coal Pulverised Fuel None 44.0

Post-combustion 35.3
Oxy-combustion 35.4

IGCC (Various) None 38.0 – 43.1

Pre-combustion 31.5 – 34.5

Gas NGCC None 55.6

Post-Combustion 49.6
Oxy-Combustion 44.7
Source: “Capturing CO2” (Greenhouse Gas R&D Programme 2007)# Measured using lower heating value and therefore not taking account of the latent heat in the
vapourisation of water.

Analysis of the CO2 captured makes an interesting point. The addition of CO2 capture
technology reduces the thermal efficiency of any power plant. Hence CO2 production is
greater leading to more CO2 being captured than would be emitted if the capture technology
was absent. This reduction in thermal efficiency also increases the consumption of raw
materials

Figure 24: The efficacy of different carbon capture techniques

Fuel Technology CO2 Capture CO2 emitted CO2 captured
(g/KWh) (g/KWh)
Coal Pulverised Fuel None 743 nil
Post-combustion 92 832
Oxy-combustion 84 831

IGCC (Various) None 763-833

Pre-combustion 142-152 809-851

Gas NGCC None 379 Nil

Post-combustion 63 362
Oxy-combustion 12 403
Source: “Capturing CO2” (Greenhouse Gas R&D Programme 2007)

Emission control
While few power plants operating today specifically remove significant amounts of carbon
dioxide, they are all required to control various emissions. Raw coal can contain a range of
undesirable constituents such as ash-forming materials (anything up to 40%) as well as
sulphur (anything from 0.5% to 5%). Elimination of these contaminants also helps to control
emissions of potentially harmful trace element such as arsenic, cadmium, lead and mercury.
Cleaning coal can also reduce CO2 levels to some extent by improving the thermal efficiency
of the coal burned. From an economic perspective, the advantages of cleaning the coal must
be matched against the investment in cleaning plants as well as the cost of water disposal
(most washing processes are water based) and the loss of energy from the discard. In
practice, the most overriding consideration has been legislative. In the UK, over the past 25
years, for example, the maximum allowed particulate emission levels have fallen tenfold. Also
more advanced furnaces have very low tolerance for impurities – some even lower than
legislative requirements.

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Washing usually takes advantage of the different densities of unwanted minerals versus
organic coal. Coal is sometimes crushed at a washing plant (although this often happens at
the coal’s face to avoid damage to conveyor systems), passes over sieves and through a
series of washes. The process can differ significantly from mine to mine depending on the
composition of the coal extracted. Newer cleaning technologies that use either chemical or
biological (bacterial) techniques are being investigated.

Advanced coal cleaning techniques must be used on fine particulates (below 100µm
diameter) as particles of this size are subject to turbulence and are therefore difficult to
separate using gravity-based systems. A series of technologies have been employed as
shown in Figure 14. Note that while cyclone technology is much less efficient, it is still used,
as it is best able to handle variable load levels. Furthermore, certain technologies such as
ESPs (“Electrostatic precipitators”) are highly sensitive to the type of coal being used.

Figure 25: A comparison of advanced coal cleaning technologies

Technology Particle Size Particulate removal Operating temperature
(Celsius)

Cyclones # 1.0 - 100 μm 75%-79% n/a

Electrostatic precipitators 0.01 - 100 μm 99%+ 130-180 (Cold Side)
300-450 (Hot side)
Wet Scrubbers 0.5 - 100 μm 90% + n/a
Fabric Filters 0.01 - 100 μm 99% + 120 - 180
Source: IEA Clean Coal Centre, 2003

Carbon storage
Experts predict that the storage of captured carbon will play a major role in combating
climate change for the foreseeable future. There are both land-based and ocean-based
alternatives being investigated:

Enhanced Oil Recovery (“EOR”). The storage of CO2 deep underground has been used to
achieve higher yields (typically an increase of 10%-15%) from oil fields using Enhanced Oil
Recovery (“EOR”) techniques. Under such systems, CO2 is injected into near-exhausted oil
fields in order to allow the extraction of the remaining reserves. Once depleted of oil, the
field continues to hold the CO2 thanks to the layer of impermeable cap-rocks that allowed the
oil & gas field to accumulate in the first place. In natural gas fields, the methane and CO2
mixture that is produced by deep rock formations is separated and the CO2 is pumped back
for storage. The methane is used in a power plant for electricity production.

Depleted oil fields have a number of attractions;

„ Low exploration costs

„ Proven to trap CO2
„ Well known geology
„ Re-use potential with some of the oil extraction equipment
Deep saline reservoirs. As well as depleted oil fields, CO2 can also be stored in deep saline
(salt water) aquifers, although the geology is much less well understood. CO2 dissolves
readily in salt water, the resulting mixture being heavier than the water around it. As a result,
it sinks to the bottom of the saline formation and is stored indefinitely. This dense mixture is
also mildly acidic, and may react with the surrounding minerals to form new carbonates and
effectively bind the CO2 to the formation. The first commercial injections using this
technology began in 1996 in the Norwegian sector of the North Sea. Ocean storage is
discussed in more detail later.

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Enhanced Coal bed Methane (“ECM”) production. Methane is currently extracted from
un-minable coal seams using de-pressurisation technology, although this typically only
retrieves only 50% of the gas present. This extraction process can be enhanced by injecting
carbon dioxide into the coal seam, pushing out more methane while also storing the CO2
indefinitely, so long as the coal is never mined. Coal has the ability to absorb around double
the amount of CO2 than does methane.

Other methods have been suggested (underground caverns, dry ice storage, carbonate
production) but these still have one or more significant issues to overcome.

Global storage capacity could be enormous. A paper by the IEA Greenhouse Gas R&D
Programme suggested that by 2050 there could potentially be more than enough storage
capacity to account for all CO2 emissions up to 2050.

Figure 26: Natural reservoirs suitable for CO2 storage

Storage Option Global capacity (Gt CO2) % of emissions to 2050
Depleted oil & gas fields 920 45
Deep Saline reservoirs 400 – 10,000 20-500
Un-minable coal measures >15 >1
Source: IEA Greenhouse Gas R&D Programme, 2001

Ocean storage
The ocean has always been a major reservoir of the planet’s carbon, successfully removing
around 2 Gigatonnes of carbon (equating to 6 Gigatonnes of CO2) per annum (Houghton et al,
2001). Carbon dioxide is much more soluble in salt water than in fresh water, with 90% being
stored in the form of the bicarbonate ion rather than molecular CO2. Similarly it is much more
soluble in colder deep waters than the warmer waters of shallower depths. Despite having
greater capacity to hold CO2, deeper cold waters actually hold only 12% more dissolved
inorganic carbon (“DIC”) than the shallower waters. This represents a significant storage
opportunity.

There are two natural processes by which carbon is sequestered into the deep ocean but
both are very slow.

„ The Thermohaline Conveyor. CO2dissolves in the colder waters found in the North
Atlantic and is then carried deep in the ocean as ocean currents travel south with the
cold, dense water being replaced at the surface by warmer water. These deep colder
waters eventually surface in the Indian or equatorial Pacific Ocean and release their CO2
into the atmosphere before returning to the North Atlantic, thus creating a “conveyor”.
As this entire process is estimated to take around 1,000 years, the carbon is captured by
the ocean for a significant period of time.
„ The “Biological pump”. Phytoplankton use CO2 during photosynthesis. A large amount
of this carbon is recycled via the food chain as the phytoplankton find their way into the
ocean’s food web. A proportion of the carbon (it is estimated some 30%), however is
taken out of the food chain due to the sedimentation of decaying phytoplankton. Whilst
the sedimentary carbon will eventually be released (by micro-organisms), the process is
again very slow and the carbon is effectively locked-up for around 1,000 years.

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Figure 27: Schematic diagram of the ocean’s biological pump

Atmospheric Dust

River
Input

Euphotic Nutrients Organic

+ Photosynthesis Matter
Zone CO2

Upwelling Detritus Downwelling

Flux
Deep Nutrients Remineralisation
+ Organic
Ocean Matter
CO2

Source: IEA Greenhouse gas R&D Programme

While no commercial exploitation of oceanic carbon storage has yet appeared, the direct
injection of CO2 into water at least 1500m in depth is thought to be of long-term interest.
Studies in the 1990s suggest that at these depths all CO2 would be dissolved within 100m of
the diffuser. At depths below 3000m, the carbon dioxide could occupy a shallow trench on
the seabed. Another technique would be to drop solid CO2 into the ocean. These blocks
could be shaped to penetrate the sediment layer on impact with the sea bed. Calculations
suggest that after 3000m some 50% of a 4m cube would remain intact.

As well as the obvious cost implications of storing carbon directly in the ocean, there have
been concerns voiced regarding the impact on marine life. It is well known that dissolving
CO2 in seawater depresses its pH which could be an issue at lower depths where there is
little change to acidity levels over time. Scientists believe that the dispersion technique could
be utilized, which limits or eliminates any significant impact. Some commentators believe
that such concerns are overstated, pointing to the fact that levels of CO2 in the upper levels of
the oceans (the euphotic zone) have already increased due to higher atmospheric levels of
CO2.

Three techniques have been suggested for the exploitation of the biological pump

„ Add macro-nutrients to the ocean to encourage phytoplankton growth

„ Add iron to ocean areas rich in macro nutrients but low in iron, again encouraging
phytoplankton growth
„ Add nitrates in ocean areas low in iron
While supporters point to spin-off benefits such as the fact that more phytoplankton will be
able to support a larger food web, there are still question marks over precisely how much
carbon will be sequestered in this manner.

Page 26 Deutsche Bank AG/London

12 May 2008 Carbon Capture & Storage

Appendix 1
Important Disclosures
Additional information available upon request
For disclosures pertaining to recommendations or estimates made on a security mentioned in this report, please see
the most recently published company report or visit our global disclosure look-up page on our website at
http://gm.db.com.

Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s). In addition, the
undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in
this report. Ross Jobber

Equity rating key Equity rating dispersion and banking relationships

Buy: Based on a current 12- month view of total share- 49%

holder return (TSR = percentage change in share price from 400 44%
current price to projected target price plus pro-jected
dividend yield ) , we recommend that investors buy the 300
stock.
200 31%
Sell: Based on a current 12-month view of total share-holder 27%
100 6%
return, we recommend that investors sell the stock 36%
Hold: We take a neutral view on the stock 12-months out 0
and, based on this time horizon, do not recommend either a
Buy or Sell. Buy Hold Sell

Notes:
1. Newly issued research recommendations and target Companies Covered Cos. w/ Banking Relationship
prices always supersede previously published research.
European Universe
2. Ratings definitions prior to 27 January, 2007 were:
Buy: Expected total return (including dividends) of 10%
or more over a 12-month period
Hold: Expected total return (including dividends)
between -10% and 10% over a 12-month period
Sell: Expected total return (including dividends) of -10%
or worse over a 12-month period

Deutsche Bank AG/London Page 27

12 May 2008 Carbon Capture & Storage

Regulatory Disclosures
SOLAR Disclosure
For select companies, Deutsche Bank equity research analysts may identify shorter-term trade opportunities that are
consistent or inconsistent with Deutsche Bank's existing longer term ratings. This information is made available only to
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Disclosures required by United States laws and regulations

See company-specific disclosures above for any of the following disclosures required for covered companies referred to in
this report: acting as a financial advisor, manager or co-manager in a pending transaction; 1% or other ownership;
compensation for certain services; types of client relationships; managed/comanaged public offerings in prior periods;
directorships; market making and/or specialist role.

The following are additional required disclosures:

Ownership and Material Conflicts of Interest: DBSI prohibits its analysts, persons reporting to analysts and members of their
households from owning securities of any company in the analyst's area of coverage.
Analyst compensation: Analysts are paid in part based on the profitability of DBSI, which includes investment banking
revenues.
Analyst as Officer or Director: DBSI policy prohibits its analysts, persons reporting to analysts or members of their households
from serving as an officer, director, advisory board member or employee of any company in the analyst's area of coverage.
Distribution of ratings: See the distribution of ratings disclosure above.
Price Chart: See the price chart, with changes of ratings and price targets in prior periods, above, or, if electronic format or if
with respect to multiple companies which are the subject of this report, on the DBSI website at http://gm.db.com.

Additional disclosures required under the laws and regulations of jurisdictions other
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Japan: See company-specific disclosures as to any applicable disclosures required by Japanese stock exchanges, the
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Author: As referred to on the front cover. All rights reserved. When quoting, please cite Deutsche Securities Research as the
source.

Page 28 Deutsche Bank AG/London

12 May 2008 Carbon Capture & Storage

Turkey: The information, interpretation and advice submitted herein are not in the context of an investment consultancy
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decisions solely based on the information herein may not result in expected outcomes.
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the rules of the Financial Services Authority, should read this research in conjunction with prior Deutsche Bank AG research on
the companies which are the subject of this research. Disclosures relating to the firm's obligations under MiFiD can be found
at http://globalmarkets.db.com/riskdisclosures.

Deutsche Bank AG/London Page 29

Deutsche Bank AG/London

European locations
Deutsche Bank AG London Deutsche-Bank AG, Deutsche Bank AG Deutsche Bank Sim S.p.a
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Deutsche Bank AG Deutsche Securities Deutsche Bank AG Deutsche Bank AG

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Tel: (61) 2 8258 1234

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