Ambre Submission To Cprs

ACN 114 812 074 Level 27 AMP Place, 10 Eagle Street, Brisbane Qld 4000, Australia t: +61 (0)7 3009 9180 f: +61 (0)7 3009 9181

Carbon Pollution Reduction Scheme Green Paper Submission By Michael van Baarle, Director Business Development, Ambre Energy Limited The purpose of this submission is to outline briefly the potential impact of a Carbon Pollution Reduction Scheme on emerging coal gasification projects that ultimately seek to reduce the carbon footprint of coal-based energy production, and to suggest ways in which adverse impacts might be mitigated. Background Ambre Energy Limited is developing its own coal gasification project known as the Felton Clean Coal Project at Felton, near Toowoomba, Queensland. The project will gasify local high-ash coal to produce a next-generation synthetic fuel called dimethyl ether (or DME), and co-generate power. The project will begin with a demonstration stage during which 2,000 tonnes of coal per day will be mined and gasified to produce 1980 tonnes per day of synthesis gas (syngas – H2 and CO in approximately equal volumes). The feed coal will have an ash content of about 35% which makes it unsuitable for export. The syngas will be fed into a DME reactor to produce about 445 tonnes per day of DME. In addition, there is sufficient unreacted syngas (tail gas) discharged by the DME reactor to co-generate 51 MW of power using gas engines. About 10 MW of this power would be needed for internal purposes, with the balance being exported to the grid. If the demonstration stage is successful, there are sufficient coal reserves onsite to expand the project in stages to mine and gasify 12.8 million tonnes per year of coal for the production of 2.8 million tonnes per year of DME and cogeneration of 650 MW of power using combined cycle power plants. The environmentally significant features of the project are:

Much  of the CO in the tail gas will be “shifted” pre‐combustion to CO2 which will then be  captured in a pure form suitable for geosequestration. During the demonstration stage, 1339  tonnes per day of CO2 will be captured in this way.    The  consequences of shifting the CO to CO2 will be to concentrate the hydrogen content of the  tail gas to 60% (by volume). Combustion of the tail gas will then generate power with an  emissions profile of 400kg of CO2 per MWhr – less than half of that produced by a modern black  coal‐fired power station (and less than a third of brown coal‐fired power).    The  future development of hydrogen turbines should allow for the concentration of hydrogen in  the tail gas to exceed 60% (this is the limit of current commercial turbines) by shifting more of  the CO in the tail gas to CO2. This would have the effect of reducing the emissions profile of the  power generation even further.    DME (chemical formula  CH3‐O‐CH3) is the cleanest and most efficient fuel being proposed for  the ultimate replacement of petroleum‐based fuels for diesel engines, in particular, because  combustion of DME produces virtually no particulate matter. DME is also an excellent fuel for  fuel cells.  The demonstration stage is scheduled for commissioning in 2011 and is designed to be commercially viable even before any expansions. Many informed commentators have expressed the view that the development of coal gasification projects, in conjunction with rapid development of renewable forms of energy, presents the world with its most realistic chance of stabilizing global greenhouse gas levels in the coming decades. Renewable sources of energy alone are unlikely to be able to provide the volume of energy needed by the world, particularly as populous countries such as China and India modernize their economies. Coal gasification is important because of the relative ease with which pure CO2 (and local pollutants such as sulphur and nitrogen compounds) can be stripped from the gas stream before combustion for power generation. This makes carbon capture and storage technically and commercially feasible. By comparison, stripping pure CO2 from the flue gases of traditional coal-fired power stations is a difficult and expensive undertaking. Aside from the environmental benefits, the development of cleaner uses of coal, particularly low-value coal, is strategically important for Australia because of its vast reserves of this energy-rich fuel. Moreover, this strategic importance is increasing as local oil production declines and natural gas prices increase. Impact of Carbon Pollution Reduction Scheme

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Ironically, although coal gasification is seen as our best chance of reducing the world’s greenhouse gas emissions, the introduction of the Carbon Pollution Reduction Scheme in 2010 has the potential to impact adversely on the development of this technology in Australia for at least 2 reasons: 1. The Scheme adds to the already high commercial risks associated with these types of projects. The cost of purchasing carbon pollution permits comes on top of the high capital costs of coal gasification plants and the difficulty of attracting project finance because of the relative novelty of the technology. (The estimated cost of the Demonstration Stage of the Felton Clean Coal Project is in the order of $400 - $600 million depending on varying projections on the cost of inputs.) 2.

While the technology for capturing pure CO2 from syngas is well advanced, the technology associated with geosequestration of CO2 requires further development. There is much confidence about the ultimate prospects for low-cost commercial geosequestration, but during this “gap”, coal gasification plants will have no option but to purchase carbon pollution permits.

The likely effect of these impacts is to discourage the commercialization of coal gasification in Australia, as noted in recent i press reports about the proposed HRL-Harbin power station in Victoria . This would be an unfortunate outcome given the ii importance of the future role of coal gasification . Mitigating the Negative Impacts of the Scheme The simplest way to mitigate the negative impacts of the Scheme on proposed coal gasification projects would be to grant such projects an initial ‘holiday’ of a specified period of years during which time carbon pollution permits would be provided at no cost for all or most of the CO2 emissions generated by the project. This would have the effect of reducing some of the financial risks associated with the project. The holiday would have to be restricted to a fixed period, otherwise there would be little point in encouraging such projects. This option would also allow more time for the development of geosequestration technologies and projects, thereby closing the “gap” between CO2 capture and geosequestion technology development. Alternatively, financial assistance could be offered in other forms, for example, by way of government loans or loan guarantees for qualifying projects (compare the US Department of Energy’s Loan Guarantee Scheme). Unless appropriate assistance is offered to these projects, there is a very strong possibility that coal gasification technology will not be established in Australia by commercial operators for many years, if ever. In that case, it will be left to government to take up this role, at a time when there are already many other demands on government for expansion of infrastructure.

i

 The Australian, August 26 2008, p.4 – “ETS to make coal plant ‘white elephant’” 

ii

 See Jeffrey Sachs, Common Wealth ‐ Economics for a Crowded Planet (Allen Lane 2008) p.98