Developing a Special Purpose Vehicle to Support CCS in the Steel Industry

The steel sector is a major greenhouse gas emissions source. Although a number of pilot-scale CCS projects have been built in the power sector, there is no steel CCS project in China. Steel sector stakeholders are generally unfamiliar with opportunities and risks in CCS. This report reviews business models of current CCS projects and identifies potential challenges. By learning from the successful experiences of Japan CCS Ltd. and Norway Gassnova, and based on the current policy system and the energy industry structure in China, we explore an option of creating a special purpose vehicle (SPV) to kickoff CCS in the steel sector. The SPV has a higher degree of risk tolerance and is capable of attracting financial support from the public sector. The business models of the case studies appraised make it evident that: • Every current CCS project is either owned by the government or supported to a certain extent by the government, while the revenue model is key to creating value proposition and current projects remain largely reliant on revenue from Enhanced Oil Recovery (EOR). • Unlike global large-scale CCS SPVs, such as Japan CCS and Norway’s Gassnova which are both directly-funded by their respective governments, the Chinese Government will not own a SPV to kickoff steel CCS projects. Therefore, steel plant owners who intend to deploy a CCS project should establish a SPV independently. Once a steel company makes a final investment decision on a CCS project, an SPV should be established which would own the assets of CO2 capture facilities. All CCS-related businesses can then be transferred from the steel company to the SPV. As a legal entity and operational body of the CCS project, the SPV can: 1) Receive domestic financial support and policy support from the government; 2) Sign contracts with a construction company and supply company to ensure the successful construction of the project; 3) Achieve agreements with both international and national research institutes and universities to develop CCS technology R&D; 4) Contract with a transport company and oil company to deploy a full-chain CCS project, and 5) Attract CCS-related private companies to participate in the project.