EU drive for carbon storage stumbles in Germany

FRANKFURT/LONDON (Reuters) - Europe's push for pioneering carbon capture and storage (CCS) has suffered a setback in Germany, Europe's top greenhouse gas emitter, which put back a plan to create a legal framework for the technology.

This has made visions of a clean coal future a more distant reality and risks pushing up power prices in a country which has already made big strides in the technology.

Realizing there is too much disagreement, Germany's ruling politicians on Tuesday dropped a pending national CCS law and postponed it until after general elections in September.

Environmental groups attacked CCS as unproven and a figleaf for coal burning. Individual states refused to house CO2 amid public opposition and squabbles about land rights.

This shows a difficult road ahead for the EU's plan to get 10 to 12 commercial scale CCS demonstration plants up and running by 2015 to show the effectiveness of the technology, seen crucial to cut global carbon dioxide emissions and mitigate climate change.

Germany's step back follows a small step forward in Britain where the government last week proposed an electricity levy to fund up to four demonstration projects in the country.

Success in scrubbing off and storing CO2 from coal burning to make electricity would allow European countries to meet their joint target to cut CO2 emissions by 20 percent by 2020, while safeguarding continued operations of coal-to-power industries.

It could also create jobs in technology exports to countries such as China and India which are fast adding coal-fired plants.

All these benefits seem further away now that Chancellor Angela Merkel's conservatives have decided to steer clear of controversy, even if at a price for industry and consumers.

"There will be a delay to new coal-fired CCS power stations due to the financial, and in particular storage risks," said Matthias Heck, an analyst at Sal. Oppenheim bank.

"This delay will keep production capacities tight and generation margins high," he added, referring to Germany.

GERMANY BLOCKS ITS OWN SUCCESS

The hiatus in Germany is in contrast to its technical progress. The country is home to some of the world's largest CCS pilot projects, such as Vattenfall Europe's 30 megawatts oxy-fuel plant in Schwarze Pumpe.

Sector peers E.ON and RWE had also hoped for a quick legal framework to back their pilot plants.

Although serious investment money from outside the industry is not in sight, German coal importers' lobby VDKI was so encouraged by the results of the tested equipment it said CCS can cut German CO2 by 81 percent by 2050.

But Vattenfall has failed to get permission for a storage project in northern Saxony Anhalt as planned by March or April.

"It's really frustrating," Staffan Goertz, Vattenfall's chief media officer for CCS, said recently in London. "It is the result of the local public having questions and hesitations about this."

Green campaigners who say CCS might not work and diverts interest and funding away from alternative energies. "The power utilities only want to paint their climate killing plants green," Friends of the Earth Germany fumed.

BRITISH MOVE A MODEL?

To speed up CCS development and keep a handle on the process, the EU early this year drew up at a 1.05 billion euro plan within a wider economic recovery package.

This is designed to support up to seven CCS demo projects in member states, or parts of up to 10 or 12 projects.

The real cost of building and operating CCS over the longer term is higher, but public money is still crucial at this stage.

The UK government wants both a lead on the technology and money from the EU.

It has suggested a levy on power prices to be collected and channeled into the process by 2011 that would add 2 percent to bills by 2030.

The UK model attracted both German plaudit and envy.

VDKI Chairman Erich Schmitz called it "an interesting alternative."

Manuel Frondel, analyst at the RWI Institute in Essen in the German Ruhr region, said German consumer contributions to prop up coal mining were abolished for good reason.

"In Germany, this (help for CCS) would be considered anti-constitutional as it would burden the consumer with what must be a state and private sector job," he said.

And Claudia Kemfert, head of energy at the Berlin-based DIW research institute, said German money needed redirecting.

"...we demand central German mining subsidies be changed to research CCS," she said.

The EU also allows CCS research to be funded from revenues obtained from auctioning CO2 emissions permits to industry.

(Editing by Sue Thomas)