As renewable energy specialists writing for the European Future Energy Forum, we have observed Europe’s rapid shift towards clean energy solutions, including the expanding roles of wind, solar, and hydrogen technologies. Alongside policy frameworks, climate finance mechanisms, and public-private collaborations, another crucial component of Europe’s decarbonization efforts is the potential for bioenergy crop production and its integration with carbon capture and storage (CCS) technologies, often referred to as bioenergy with carbon capture and storage (BECCS).
While the theoretical potential for BECCS is significant, the market potential remains virtually non-existent due to the lack of sufficient economic incentives. To address this gap, some European countries are exploring the use of reverse auctions as an interim policy solution to kickstart BECCS deployment. However, the design of these reverse auctions must carefully navigate the potential conflicts between stakeholder interests, environmental sustainability targets, and economic outcomes.
Reverse Auction Design for Bioenergy Crop Production
The use of reverse auctions to incentivize BECCS is a novel approach, with Sweden being the first country to develop such a policy. The Swedish Energy Agency has proposed a series of reverse auctions to support the deployment of BECCS, with the first auction planned for the end of 2022. This interim policy aims to provide long-term contracts and stable revenue streams for BECCS project developers, while giving the government control over the volume and budget through a competitive bidding process.
Objectives and Stakeholder Interests
The primary objective of the reverse auction design is to incentivize the capture and storage of biogenic CO2 emissions from industrial processes, such as those in the pulp and paper industry or power generation. However, the interests of various stakeholders, including bioenergy crop producers, CCS project developers, environmental organizations, and policymakers, must be carefully balanced.
Auction Mechanisms and Incentive Structures
The Swedish reverse auctions will use sealed bids, with project developers competing to offer the lowest price per ton of captured and stored biogenic CO2. Auction winners will receive 15-year contracts, providing them with a stable investment horizon. This mechanism aims to drive cost-efficiency and foster innovation, but it also raises questions about the appropriate level of incentives and the potential for information asymmetries between bidders and the government.
Auction Dynamics and Information Asymmetries
The success of reverse auctions in incentivizing BECCS relies on the participation of a sufficient number of qualified bidders and the availability of accurate information about project costs and risks. However, BECCS is a relatively new and complex technology, and the actual costs may not be well-known, especially for early-stage projects. This information asymmetry could lead to suboptimal outcomes or even the exclusion of certain stakeholders from the auction process.
Goal Conflicts in Auction Design
The design of reverse auctions for bioenergy crop production and BECCS must consider the potential conflicts between different policy objectives, such as landowner profit maximization, bioenergy crop adoption rates, and environmental sustainability targets.
Landowner Profit Maximization
Bioenergy crop producers may focus on maximizing their own profits, which could lead to the cultivation of the most lucrative crops rather than those with the highest potential for carbon sequestration or biodiversity preservation. Reverse auction designs must find a way to align these incentives with broader societal goals.
Bioenergy Crop Adoption Rates
Policymakers may aim to increase the adoption of bioenergy crops to meet renewable energy targets, but this could come at the expense of other land-use priorities, such as food production or natural habitat conservation. Reverse auctions must consider these trade-offs and ensure that bioenergy crop production does not undermine sustainable land-use practices.
Environmental Sustainability Targets
Governments and environmental organizations may prioritize the achievement of greenhouse gas emission reduction and biodiversity conservation targets. However, these goals may not always align with the economic interests of bioenergy crop producers or CCS project developers. The reverse auction design must find a way to incentivize solutions that deliver positive environmental outcomes.
Potential Conflicts in Auction Outcomes
The implementation of reverse auctions for bioenergy crop production and BECCS may lead to unintended consequences, such as changes in crop production levels, land-use patterns, and economic impacts on various stakeholders.
Crop Production Levels
Reverse auctions could incentivize the production of certain bioenergy crops over others, leading to changes in the overall crop mix and potentially impacting food security or biodiversity. Monitoring and adjusting the auction design may be necessary to mitigate these effects.
Land Use Changes
Increased bioenergy crop production driven by reverse auctions could lead to the conversion of natural habitats or the displacement of other agricultural activities. Policymakers must carefully consider the land-use implications and ensure that the auction design promotes sustainable land-use practices.
Economic Impacts on Stakeholders
The introduction of reverse auctions may have uneven economic impacts on different stakeholders, such as bioenergy crop producers, CCS project developers, and local communities. Policies must be designed to address these distributional concerns and ensure a just transition.
Multilevel Analysis Approaches
To navigate the complex dynamics and potential conflicts in the design of reverse auctions for bioenergy crop production, a multilevel analysis approach is essential. This may involve the use of integrated modeling frameworks, optimization and decision support tools, and stakeholder engagement and scenario analysis.
Integrated Modeling Frameworks
Combining economic, environmental, and social impact models can provide a comprehensive understanding of the potential consequences of reverse auction design, including the trade-offs between different policy objectives.
Optimization and Decision Support Tools
Advanced analytical tools can help policymakers and stakeholders identify the most effective auction design parameters, such as bid selection criteria, contract durations, and volume or budget caps, to achieve desired outcomes.
Stakeholder Engagement and Scenario Analysis
Engaging with a diverse range of stakeholders, including bioenergy crop producers, CCS project developers, environmental organizations, and local communities, can help identify potential conflicts and inform the design of reverse auctions. Scenario analysis can also explore the implications of different auction design choices under various future conditions.
As renewable energy specialists, we recognize the critical role that bioenergy crop production and BECCS can play in Europe’s transition to a low-carbon economy. However, the design of reverse auctions to incentivize these technologies must be approached with great care, balancing the interests of multiple stakeholders and ensuring that the outcomes align with broader environmental and social sustainability goals. By leveraging multilevel analysis approaches, policymakers can navigate the potential conflicts and unlock the full potential of bioenergy crop production and BECCS in Europe’s clean energy future.