ULCOS: a CCS project withdrawn under peculiar circumstances

News of ULCOS’s withdrawal from the first call broke on 6 Dec 2012. The European Commission confirmed it had received a letter from ArcelorMittal (AM), the Project Sponsor, saying the project faced insurmountable technical challenges. Its withdrawal was significant in Brussels and among the CCS community because it was the last CCS project in the competition, making this a public relations disaster for CCS. It was significant in France because ULCOS would have given a raison d’être to AM’s steel plant in Florange. Production there had been winding down for at least 18 months and the threat of job losses loomed large.

The French Left reacted furiously to the news, accusing AM of undermining a deal it struck with the French government on 30 Nov to keep Florange open. This criticism was wide of the mark. As AM said in its defence, ULCOS’s withdrawal from the first call of NER300 had been written into the deal.

Those who suspect AM of negotiating in bad faith would do better to go one step further back and ask whether the technical challenges that AM pleaded were genuine. It would be difficult to prove that they were not, but AM faces some important questions and inconvenient facts:

• The technical challenges were flagged very late, less than two weeks before the Member States and EC were due to agree the portfolio of projects to fund in the first call. Why?
• The European Investment Bank subjected ULCOS and the other NER300 proposals to a detailed technical and financial due diligence assessment for nine months from May 2011 to Feb 2012. The EIB hired blue-chip engineering consultancies Parsons Brinckerhoff and DNV to assist it with scrutinising CCS projects and paid them enough to do a thorough job. It found ULCOS to be sound.
• To leave the EC with no doubt that the project is utterly dead, the language of AM’s short letter to the EC describes the technical challenges in emphatic terms, especially in comparison to the language used in its agreement with the French government. “Five highly critical points” were identified. The word “critical” appears twice. The letter avoided any reference to concerns over the cost of the technology (‘cost’ being a word that AM’s detractors would seize upon). Instead attention is drawn to concerns over the project’s safety (the letter says ‘security’ — probably a mistranslation of the French ‘sécurité’). This could be a ruse. Neither the EC nor AM’s detractors would protest the abortion of ULCOS on grounds of safety: who wants to be the person who says safety isn’t paramount?

There is some evidence that AM has no intention of pursuing funding for ULCOS in the second call, either. In mid-Nov 2012, Jean-Pierre Birat, “an expert from ArcelorMittal and European Coordinator of the ULCOS Program” spoke frankly to European Energy Review saying that Florange’s job was to produce steel, not CO₂. The price of steel needs to recover before it makes sense to invest in Florange and fit CCS. EER wrote, “He imagines the CCS work could continue in 2015-16 when the economy picks up for completion around 2020.”

ZEP (the group representing Europe’s CCS interest) seems to doubt AM’s commitment to CCS, too. It learned of the outcome of AM’s negotiations with the French government very soon after they concluded and noted the weakness of AM’s commitment to demonstrate CCS at Florange: all that the deal requires of AM is to keep open the possibility of applying CCS to one of its mothballed blast furnaces for the next six years. AM is not compelled to take any action in regard to the second NER300 call.

Judging that ULCOS will not be ready to apply unless the call is very late, the next working day ZEP wrote to the EC asking it to launch the second NER300 call as soon as possible to benefit the other CCS projects that were withdrawn late in the first call (“ZEP strongly recommends accelerating the award decision for Phase II for those projects that are clearly ready to be executed.”). Two days later, AM sent its own letter to the EC, which, like its deal with the French government, contained no commitment to submit the project to the second call. The rest is history. Ignoring the remonstrations of the French delegate to the Climate Change Committee meeting of 13 Dec 2012, the EC sided with ZEP and decided to launch the second call fast.