6 Benefits and costs of Longship

6.1 Benefits

Longship’s goal is to contribute to Norway and Europe achieving their long-term climate targets at the lowest possible cost. The purpose of the benefit realisation work is to enable the project to generate the greatest possible benefits. Section 3 described market failure for the development of carbon capture and storage (CCS) and showed the potential cost reductions that would follow from more CCS projects being developed. This section deals with how Longship will address market failure and contribute to enabling cost reductions for subsequent projects.

The potential benefits of Longship can be divided into two main categories: 1) Climate effects and 2) Business development. These categories can also be seen in the impact goals, where climate effects correspond to impact goals 1–3 and business development corresponds to impact goal 4.

The extent of these benefits will depend, among other things, on future European climate policy and whether the emission reduction targets are followed up with policy instruments and measures. The business development effects are thus dependent on the climate effect being recognised and in demand. At the same time, successful demonstration of a full value chain for carbon capture, transport and storage will demonstrate a realistic solution for reducing emissions from important industries that have no alternatives to CCS. Longship will therefore make it easier to follow up the political ambitions for emission reductions with concrete measures, and therefore contribute to achieving Europe’s climate targets.

6.1.1 Climate effects

The climate effects of Longship come both directly in the form of emission reductions in Norway and indirectly through cost reductions generated by demonstration and development of CCS, and the development of infrastructure for subsequent projects; see section 3 on market failure.

The direct national emission reductions from the project will initially be around 400,000 tonnes of CO₂ per year when Norcem’s capture project becomes operational, and will increase to around 800,000 tonnes of CO₂ if Fortum Oslo Varme’s project is implemented as well. Of these, around 200,000 tonnes of CO₂ from Fortum Oslo Varme can be counted under Norway’s obligations to the EU on reductions in sectors not included in the European Emissions Trading System (EU ETS). Norcem’s cement factory falls under a sector that is subject to the EU ETS and its emission reductions under the system will in time be countered by increased emissions in other areas within the maximum emissions stipulated by the EU ETS.

Indirectly, the project will generate climate effects by demonstrating a full and flexible CCS value chain, and the establishment of CO₂ transport and storage infrastructure will contribute to reducing costs for subsequent projects [41]. This is illustrated in Figure 3.1. Longship contributes to reducing costs in several ways.

Firstly, learning and technology development from the project at Norcem and, if applicable, Fortum Oslo Varme, will contribute to reducing costs and risk for subsequent projects. DNV GL’s report on expected CCS cost reductions estimates reductions of around 10 per cent for each cumulative doubling of the CO₂ volume captured [41]. Establishing carbon capture will contribute to this process. The cost reduction potential from the first projects is also greater than is the case when more projects have been developed. As such, the first projects contribute a relatively greater share of the cost reductions [25].

Secondly, establishing CO₂ transport and storage infrastructure will also contribute to reducing costs. Establishing CCS infrastructure will also assure actors with industry emissions considering carbon capture that they can actually store CO₂. It is therefore necessary to establish infrastructure in order to establish a market for CCS. A number of actors planning carbon capture in Europe are considering storing CO₂ in a Norwegian storage facility. Proximity to the CO₂ storage facility and the flexible transport solutions that sea transport provides, make Northern Lights’ infrastructure attractive for a number of emission sources around the North Sea. The infrastructure Northern Lights establishes has the potential to trigger carbon capture projects both in Norway and the rest of Europe.

Thirdly, establishing a carbon capture facility at Norcem with transport and storage provided by Northern Lights will also demonstrate a full value chain. A successful project will reduce the risk for subsequent projects, both because they will see that the solutions actually work and because specifications and procedures have already been developed. A failed project with high costs can have a negative effect since it may scare off future projects.

These effects enable industry to direct their efforts towards developing carbon capture, and more testing and utilisation of technology will result in a faster innovation cycle. More users can shorten the innovation process for new technologies, and new technologies can lower the threshold for using carbon capture technologies. The road towards achieving a critical mass of carbon capture projects that can create a cycle of technology development and use is long, but can be shortened by establishing a full carbon capture, transport and storage value chain.

International cooperation is imperative to solving global climate challenges and the Norwegian Government wants Norway to be a driver in international climate work.

Establishing a full carbon capture, transport and storage value chain will also demonstrate that CCS is an available climate measure, and will lower the threshold for the realisation of new carbon capture projects that can connect to Northern Lights. This will make it easier to follow up policy measures and instruments because the solutions have been implemented and are available. As such, it could be argued that the project also has a vital political demonstration effect.

Based on DNV GL’s analysis and the IEA’s expected CO₂ price for the power and industry sectors in advanced economies in 2030 and 2040, CCS may be profitable from a business economics perspective between 2030 and 2040, depending among other things on how many carbon capture facilities have been established [41].

Investment in hydrogen is a key element of achieving the targets of the European Green Deal for a climate neutral Europe. Hydrogen can contribute to lower emissions from industry, transport, power production and buildings across Europe.

The European Commission launched a new hydrogen strategy on 8 July 2020 [57]. The strategy sets out how the EU can implement this potential through investments, regulation, market development, research and innovation. In the strategy, the EU prioritises hydrogen produced from renewable power, but in the short and medium term, there will be a need for large quantities of hydrogen from other sources.

Around 90 per cent of all hydrogen currently produced in Europe comes from reformation of natural gas without CCS. For the sake of comparison, only 4 per cent of hydrogen is produced from electrolysis of water, and only parts of this electrolysis is based on clean renewable energy.

Establishing CO₂ storage infrastructure will make it possible to produce hydrogen with almost no emissions in Europe, produced from natural gas with CCS. Access to storage infrastructure has the potential to accelerate European hydrogen initiatives and reduce high CO₂ emissions from existing and future hydrogen production. Gas produced efficiently with low emissions on the Norwegian continental shelf could contribute to covering the need for gas to produce low-emission hydrogen in Europe.

The Government presented its hydrogen strategy on 3 June 2020. The strategy, which is the first of its kind in Norway, sets out the basis for further work on hydrogen. Longship makes it possible to produce hydrogen from natural gas with low overall emissions. Longship is thus an important contribution to the success of the EU’s ambitious hydrogen strategy. The Government will follow-up the hydrogen strategy and Longship with a dedicated roadmap for hydrogen.

6.1.2 Business development

In addition to the climate effects described above, Longship may also have a positive effect on business development in Norway [9]. How such effects increase value creation in Norway is difficult to measure and will depend, among other things, on whether the world and Europe implement policies and measures in line with the global climate goals of the Paris Agreement. Longship aims to contribute to developing a measure that is necessary to achieve the global climate targets at the lowest possible costs.

It will be extremely challenging for the EU to achieve its long-term target of climate neutrality by 2050 without CCS being adopted in many areas. CCS must also contribute to large-scale negative emissions [17, 18].

Norway is the only country in Europe that currently stores CO₂. We have developed great expertise, and Equinor is at the international forefront of offshore CO₂ storage. Other European countries considering or planning CO₂ storage are the Netherlands, the UK, Ireland and Denmark. This will generate demand for knowledge and experience of CCS that can lead to positive effects in Norway in three areas: 1) Transition of Norwegian industry to a low-emission society; 2) Business development that is dependent on access to CO₂ storage and further development of the petroleum and energy supply and service industries; and 3) State revenues from CCS-related activities.

As described in section 2, some industries, such as cement and waste management, are unlikely to find alternatives to CCS that can substantially reduce their CO₂ emissions. For other sectors, CCS can be a competitive alternative to other climate measures.

CCS can contribute to maintaining industry jobs that would otherwise be at risk in the transition to a low-emission society. These jobs are distributed across the country, because the processing industry and other activities that generate CO₂ emissions are spread all over Norway. The industry cluster around Mo Industripark in Norland (including Alcoa Mosjøen, Elkem Rana and Elkem Salten), the Eyde cluster and several activities in the Øra area of Fredrikstad (including Borregaard in Sarpsborg and Saugbrugs in Halden) are examples of enterprises considering the development of carbon capture at their facilities and utilising Northern Lights’ transport and storage infrastructure.1 Returkraft in Kristiansand, together with Northern Lights and others, have applied for EU funding for studies on CO₂ transport for storage in a potential Norwegian storage facility.

Development and operation of carbon capture and storage facilities will facilitate jobs and business development in Norway. The project is expected to employ around 1,500–3,000 full-time equivalents during the construction phase, and create around 170 jobs during the operational phase. Norway has developed a knowledge community and a supply industry with a high level of expertise in carbon capture, transport and storage over the course of more than 25 years. This has been based on a long-term focus on research, new technology and business development. In a future global CCS market, the Norwegian supply industry will be a strong contender to win contracts and take international market shares. This effect will be enhanced by having a head start. Participation in European projects will generate assignments for the Norwegian supply industry, strengthen Norway’s competence base, and further develop Norwegian business and industry in the field.

In its work on attracting third-party customers to the CO₂ storage facility, Northern Lights has been in contact with actors that are considering moving to or starting new business activities in Norway as a result of access to CO₂ transport and storage infrastructure. Dialogue is at an early stage and factors other than access to CO₂ storage are decisive for the localisation of industry.

Examples of such industrial actors are CCB and ZEG Power, which have received funding from Enova to establish an industrial pilot facility for hydrogen production with CCS. The facility will be established near Northern Lights’ onshore facility.2

The project facilitates infrastructure development that can lead to substantial CO₂ storage capacity in Norway. Sections 4 and 8 outline how CO₂ transport and storage infrastructure will be developed in phases to enable the capacity to be increased. Northern Lights’ assessment of market potential is also outlined.

Assuming more projects follow suit, Longship and our investment in CCS over a long period of time will give Norway an advantage through its expertise, established infrastructure and the fact that Norwegian authorities and companies are in key positions in relevant international networks.

The state does not intend to be co-owner of the CO₂ storage facility in development phases 1 and 2. The state’s role is primarily to provide financial support and share the risk as set out in the agreement. The state does not have costs related to development phase 2, nor does it receive any direct income from CO₂ storage during these phases. If Northern Lights’ real return on invested capital exceeds 10 per cent, then part of the profit during the funding period including part of any profit from development phase 2, will accrue to the state.

If the capacity for the annual amount of CO₂ stored is expanded after development phase 1 and 2, the established infrastructure will have to be further developed and further investment made in new infrastructure (development phase 3). The state may decide to initiate negotiations on ownership of the established infrastructure. In the event of high demand, new storage licenses will be required pursuant to the CO₂ Storage Regulations. In accordance with the CO₂ Storage Regulations, the state is entitled to enter into the partnership if new licenses are granted.

6.2 The state’s costs and risks

6.2.1 Cost overview

The state covers a large share of the actual costs of the project. The cost and risk distribution in the negotiated agreements entail a percentage distribution of actual costs. The cost overview in this section is therefore an estimate based on the front-end engineering design (FEED) reports and agreements. The state’s actual costs will depend on the actual costs of the project and will therefore increase if project costs increase, up to the agreed maximum limit. See section 4.2.6 for details about the funding agreements.

In Proposition No 1 to the Storting (2020–2021), the Ministry of Petroleum and Energy will propose to the Storting that the project be implemented with Norcem as the first carbon capture project followed by Fortum Oslo Varme’s carbon capture project, conditional on sufficient own funding and funding from the EU or other sources. Fortum Oslo Varme must clarify whether it wishes to implement the project on these conditions within three months of the funding decision from the second round of calls issued by the EU’s Innovation Fund, but no later than 31 December 2024. State aid awarded to Fortum Oslo Varme is limited to a maximum of NOK 2 billion in investments and NOK 1 billion in operating costs. This proposal will have overall expected costs for the state of NOK 16.8 billion and a Parliament’s cost frame for investment support of NOK 13.1 billion and operating support of NOK 6.1 billion.

The figures do not include potential additional funding during the operational phases from 2024 for compensation for captured CO₂ that is not included in the EU ETS. Carbon capture from non-fossil sources will not reduce costs or provide income for Norcem or Fortum Oslo Varme. The funding agreement therefore facilitates additional funding for capture of CO₂ equal to the allowance price in the EU ETS per tonne of captured CO₂ that is not included in the trading system.

The Norwegian Tax Administration has distributed a proposal for consultation concerning the introduction of a carbon tax on waste incineration. A tax will reduce the amount of additional funding. If a carbon tax is introduced on waste incineration, around half of the Fortum Oslo Varme facility’s emissions (those from fossil sources) will be subject to the tax. If the tax is introduced, carbon capture will reduce costs for Fortum Oslo Varme in that it will have to pay less tax. If the tax is lower than the allowance price, Fortum Oslo Varme will receive the difference between the tax and allowance price, while if the tax is higher than the allowance price, the difference will be deducted from the additional funding for CO₂ from biogenic sources.

Around 12 per cent of Norcem’s emissions are not subject to the EU ETS because they come from biogenic sources and will therefore form the basis for additional funding.

If the state realised both Norcem and Fortum Oslo Varme without EU funding, the expected costs for the state would be around NOK 20 billion (P503). This includes the state’s share of investment costs and share of the ten-year operating costs. The difference in costs between Norcem and Fortum Oslo Varme is around NOK 2 billion.

In the agreement with Equinor on behalf of Northern Lights, the state commits to provide funding for cessation, monitoring and removal of up to 80 per cent of the costs of the proportional share of captured CO₂ from the demonstration facility for full-scale CCS in Norway after ten years of operation. Monitoring costs are not included in the cost estimates. If the transport and storage operator does not manage to obtain third-party customers and the storage facility is therefore shut down without storing CO₂ from sources other than Fortum Oslo Varme and Norcem, the state is obliged to cover 80 per cent of the costs related to cessation, monitoring and removal.

If the transport and storage operator is able to attract customers and continue commercial operation beyond the ten-year funding period, the proportional share of the stored CO₂ from Norcem and, if applicable, Fortum Oslo Varme will gradually be reduced. The state’s share of the costs related to cessation, monitoring and removal will in such case be reduced and may reach zero if Northern Lights achieves a certain minimum return during the course of operations.

6.2.2 Funding from other sources

In addition to the share covered by industry companies in the negotiated agreements, the Ministry has looked into other co-funding possibilities for the project. The project will contribute to enabling industry and actors in the EU to reduce their emissions at a lower cost. Particular efforts have therefore been made to secure co-funding from the EU.

The biggest potential source of EU funding is the Innovation Fund. This fund is financed by the sale of allowances from the EU ETS. The fund can grant funding of up to 60 per cent of the relevant investment and operating costs of projects. See more about the Innovation Fund in Box 2.6.

The EU’s first round of calls for proposals was issued in July 2020 with a deadline for applications of 29 October 2020. Projects applying for funding in the first round can expect to receive a funding decision from the Innovation Fund in the last quarter of 2021. In the application, the actors must indicate whether they expect financial support from the national authorities. The Government’s proposal to implement the project gives Fortum Oslo Varme such an indication.

6.2.3 Risk

Cost risk

Based on the negotiated agreements, the state will cover around 80 per cent of the actual project costs. The state covers 80 per cent of investment costs related to development phase 1 of Northern Lights, with the exception of a potential additional ship and additional well, where the state covers a maximum of 50 per cent of the costs. The draft contract with the capture actors states that the state will cover 75 per cent of all costs above a given level. However, none of the parties will be obliged to cover investment costs that exceed the agreed level (P85). The project is complex, which is evident by the extensive funding agreements. Box 6.3 provides an overview of cost and risk distribution in the agreements.

There are certain exceptions from the maximum cost for transport and storage with potentially unlimited cost exposure for the state. If an extraordinary incident should occur, with a risk of leakage from the storage facility or harm to the environment or life and health, the state is required to cover 80 per cent of the costs of preventive and corrective measures related to the volume stored in phase 1 of the project (up to 1.5 million tonnes of CO₂ per year). This responsibility applies throughout the storage facility’s operational period and is not limited by the maximum limit for the state’s cost responsibility stipulated in the agreement.

In the event of CO₂ leakage from the storage facility, including after the funding period, the state’s costs will be 80 per cent of the costs related to the CO₂ volume from Norcem and, if applicable, Fortum Oslo Varme. These costs will depend on the size of the leakage and the price of allowances. For the remaining 20 per cent, the state has also committed to assuming some of the risk for increased allowance prices by covering the allowance cost above EUR 40 per tonne of CO₂.

There is a very low probability of CO₂ leaking from the storage facility.4 Any CO₂ emitted from other sources must be covered in full by Northern Lights. Responsibility will be distributed proportionately based on the total amount of CO₂ deposited at the specific time.

However, this does not apply if the leaks are due to gross negligence or willful misconduct, or omissions by personnel in managerial, supervisory or particularly independent positions in Northern Lights or someone for whom they are responsible. The funding recipients will in such case cover all costs related to the leaks.

After a storage facility has been shut down, all obligations relating to monitoring and corrective measures pursuant to the regulations will be transferred to the state represented by the Ministry of Petroleum and Energy or a party authorised by it. The transfer of liability is regulated by the Regulations relating to exploitation of subsea reservoirs on the continental shelf for storage of CO₂ and relating to transportation of CO₂ on the continental shelf (the CO₂ Storage Regulations). The rights and obligations of the state and operators pursuant to the Regulations are detailed in section 4.3.

External quality assurers have emphasised uncertainty in some of the remaining processes. Emission licences constitute one such process. This applies to all three actors, but Gassnova and the external quality assurers highlight this uncertainty as being greatest for Fortum Oslo Varme’s facility, since at the time of assessment, they had not completed all of the necessary documentation for the emission licence.

Fortum Oslo Varme has since obtained the necessary documentation. Gassnova has followed this work closely and on the basis of tests carried out at the pilot facility, the Statement of Qualified Technology from DNV GL, and the diffusion and trickle down calculations that have been conducted, it believes that there is a high probability that the emissions will satisfy the requirements the Norwegian Environment Agency is expected to stipulate to issue an emissions licence.

It is not common for an emissions licence to be issued before an investment decision has been made for a project. However, the fact that the emissions licence has not been issued poses uncertainty that can lead to delays and/or increased costs.

Interface risk

A basic principle in the project, based on the results of the pre-feasibility study, is that the state assumes the role of intermediary between Norcem and, if applicable, Fortum Oslo Varme and Northern Lights. This entails an interface risk that can lead to high costs for the state if, for example, project completion in part of the chain is delayed. The state must in such case cover the costs for the actor that has to wait for other actors in the chain. This also increases the risk of higher costs during the operational period if CO₂ from the capture actors does not meet the specifications, or they do not deliver CO₂ as expected. In the same way, the state’s costs may increase if Northern Lights cannot receive the CO₂ that has been captured, which must instead be emitted; see Box 6.3. With certain exceptions, the impact on the other parts of the chain are generally the responsibility of the state. The interface risk makes good project management essential on the part of the state.

Other matters that entail risk in the project

Health, safety and the environment

The industry actors have stated that mapping and management of HSE risk has been well studied and conducted in accordance with good practice. A serious HSE incident is unlikely, but if such an incident should occur, it may in addition to the serious direct consequences damage the state’s reputation.

The industry actors downscale activities

The carbon capture projects are dependent on industry activity being maintained at the facilities. Both Norcem and Fortum Oslo Varme are in a situation where downscaling is unlikely. The funding agreements require the companies to operate their capture facility, but in the event that meeting the funding agreement entails an unreasonable burden, they may demand re-negotiation.

Problems during start-up

Injection of CO₂ in the storage location is dependent on a generally stable flow of CO_2. If the flow is unstable, it may mean that the facility needs to stop and start more often, which will lead to higher costs. This is a likely risk during the start-up phase, but this will be reduced in step with more capture facilities and with operational experience.

Patent risk

The company International Energy Consortium (IEC) has had a CCS patent approved. IEC has contacted Gassnova and Equinor several times concerning alleged infringement of their patent in connection with the Norwegian project.

Objections have been made in relation to the patent, and the case is under consideration by the European Patent Office (EPO).

The patent bureau Zacco, on behalf of Gassnova, sent an objection concerning the IEC’s patent for full-scale CCS to the EPO on 10 October 2018. A further two objections were submitted before the deadline, among others from Equinor. The grounds for the objections are unlawful amendments, insufficient feasibility and insufficient novelty/inventive merit. These are separate conditions, and will therefore be assessed individually.

The EPO convened an oral hearing in the Netherlands on 24 March 2020. In the summer of 2019, the EPO issued its provisional (non-binding) assessment of the patent based on the three objections, the IEC’s response and the comments submitted to the response.5 The EPO’s provisional assessment of the case supports the objectors’ position to a great extent. The EPO’s consideration of the case has been postponed until 2021 due to the coronavirus situation.

In Zacco’s assessment, there is a high probability that the EPO will either retract its approval of the patent or narrow its scope so that it does not conflict with the interests of the CCS actors.

6.3 Measures to manage risk in the project

6.3.1 The industry’s incentives in the agreement

The most important risk management measure in the project is the clear responsibility of the companies to own and develop the carbon capture, transport and storage projects, and that they cover a share of the actual costs when they accrue. The companies therefore have incentives to keep the costs at a minimum. The companies also have incentives to complete their projects on schedule since a delay will increase their costs and delay the revenues or savings they generate.

Northern Lights’ business model is to provide CO₂ transport and storage services to industry companies with CO₂ emissions in return for negotiated tariff payments. Northern Lights will not generate revenue from CO₂ storage from Norcem and, if applicable, Fortum Oslo Varme, and without commercial volume, Northern Lights will operate at a continuous loss. Northern Lights therefore has a strong incentive to develop the market for CO₂ storage and to offer tariffs that industry companies are capable of paying.

Norcem and Fortum Oslo Varme will generate savings by reducing the need to buy emission allowances, tax obligations and additional funding per tonne of captured CO₂. They therefore have strong incentives to operate their carbon capture facilities efficiently.

6.3.2 Project management

Longship is complex and therefore challenging to manage. The project requires good follow-up by the state and particular attention to any changes in the sub-projects. The industry actors in the project are international companies with established project management and quality assurance procedures. This also includes processes to establish risk-reducing measures. The funding agreements between the state and the actors regulate obligations, liability and rights.

The state’s risk is regulated by the agreements. The industry actors’ compliance with the agreements will be important to the outcome. This means that the state will exercise its access and audit rights provided for in the agreements. It is nonetheless likely that cases will arise where the state and industry disagree about specific technical assessments, and this must be resolved by dialogue with the companies.

There are no commercial agreements between Norcem and, if applicable, Fortum Oslo Varme, and Northern Lights. The state’s representative must therefore be qualified to manage the interface between the actors since this risk is mainly borne by the state. The state also has the right of instruction in cases where measures are needed in part of the chain to reduce costs in another part. The state must in such case bear the cost consequences of the instruction. The state’s cost and risk exposure mean that the state will need to follow up more than payments and funding.

The Ministry of Petroleum and Energy will be responsible for following up the funding agreements. Steps have been taken to allow Gassnova on behalf of the state to follow up the actors’ project management through agreed reporting. According to the plan, Gassnova will also coordinate the work on benefit realisation and facilitate the sharing of relevant experience with other projects and stakeholders.

6.4 The project’s socioeconomic profitability

Several assessments have been made of the socioeconomic profitability of Longship. In QA1, external quality assurers conducted an assessment of socioeconomic profitability [45]. On the basis of the QA1 analysis, Gassnova together with DNV GL conducted an updated assessment of the project’s socioeconomic profitability ahead of QA2 [59]. External quality assurers have not conducted an independent socioeconomic analysis as part of QA2, but have based their analysis on that of Gassnova/DNV GL and reviewed methods and assumptions [56].

A socioeconomic analysis should in principle be limited to the effects on groups in Norway. However, a global perspective has been used in this case since the project is designed to reduce emissions and realise cost reductions that may also be generated at the international level.

Gassnova’s analysis and QA2 show the same picture. The project is socioeconomically profitable if based on a climate policy in line with the global temperature goals of the Paris Agreement. The need for many projects to follow suit shows the importance of European countries following up Norway’s project with their own initiatives. In a scenario with current European climate policy, the project is not socioeconomically profitable and the analysis shows negative net quantified effects of the project.

The quantified socioeconomic cost of realising the project is the sum of investment and operating costs and the tax-financing cost. The analysis is based on the project having a lifetime of 25 years, while tax-financing costs are only for the ten years of state aid in addition to investment costs.

The socioeconomic benefits of implementing the project have two quantified elements: The value of emission reductions and productivity effects. Productivity effects mean that subsequent CCS projects can be implemented at lower costs as a result of the implementation of this project. Productivity effects can again be divided into two parts: Effects that follow from learning and knowledge transfer (learning effect) and effects that follow from increased use of the CO₂ storage capacity (scale effect). The QA2 report assesses the productivity effects as option values. This means that the effects depend on others also making decisions, beyond implementing the project addressed in this report, in order for them to have an impact. Specifically, the benefit realisation effect is dependent on other projects making investment decisions and being realised. The analyses show that subsequent projects in Europe and globally are prerequisities for CCS becoming an efficient and competitive climate policy instrument.

In addition to the quantified benefits, Gassnova’s analysis and the QA2 report identify and assess a number of non-quantified effects. The project will demonstrate that CCS is a feasible and safe climate measure, it will have a facilitating effect on subsequent projects and provide regulatory and commercial learning.

Longship will also facilitate utilisation of the storage capacity on the Norwegian continental shelf and facilitate low emissions from the use of Norwegian natural gas through conversion to hydrogen with CCS.

Table 6.4 summarises the assessment of the project’s socioeconomic profitability in the QA2 report. The non-quantified effects are assessed on a scale from +++++ (large-scale positive effect of major importance to society) to ----- (large-scale negative effect of major importance to society).

In the scenario where the world achieves the global temperature goals of the Paris Agreement, the alternative where only Norcem is realised and the alternative where Norcem and Fortum Oslo Varme are realised have almost the same socioeconomic profitability. If option values are included, the project is highly socioeconomically profitable in this scenario.

In the scenario ‘Current European climate policy’, the project is very unprofitable from a socioeconomic perspective, but the alternative with Fortum Oslo Varme is least unprofitable. This is because the scenario distinguishes between sectors included and not included in the EU ETS, and the CO₂ prices it is based on are much higher in sectors not included in the EU ETS than those that are.

The QA2 report indicates that the project can be socioeconomically profitable, given an ambitious international climate policy that results in CO₂ prices that are around ten times higher than current allowance prices. The assumed point in time that CO₂ prices reach a level ten times higher than the current level is vital to the analysis. Table 6.4 shows the situation where CO₂ prices are ten times higher in 2040 than today. This indicates a very socioeconomically profitable project after option effects. If a flat CO₂ price is assumed for the first ten years followed by prices rising to ten times as high in 2050, the project is marginally socioeconomically profitable after option effects. There will at the same time be other effects that also influence profitability, such as the size of cost reductions that stem from the project and the number of subsequent projects. The effect of Norway’s project is that the next projects will require a lower CO₂ price to be profitable, and that these projects will be socioeconomically profitable without CO₂ prices that are ten times the current level.

The QA2 report also provides an analysis of how much these results change if the assumptions are changed. These analyses show that the measure can also be very unprofitable if based on lower, but still rising, CO₂ price pathways, if the lifetime is limited to ten years or if a purely national perspective is used in the analysis, or if fewer facilities follow and utilise learning from the project. In the analysis of sensitivity to higher CO₂ prices, the project becomes more socioeconomically profitable.