Chinese power giant Huaneng will launch its second pilot carbon capture project in Shanghai at the end of this year, but high costs are holding back further progress, an executive with the company said.

It is very, very expensive, said Jiang Minhua, director general of Huaneng's science and technology department.

China's coal-dominated power generation capacity has been soaring by 70 gigawatts a year and its CO2 emissions are now thought to be the highest in the world. Finding the technology to burn coal more cleanly has become a priority.

By 2050, capturing CO2 before it is released into the atmosphere could provide 15 percent of the cuts required to stop global warming, the International Energy Agency estimated this year, but despite a number of pilot projects across the world, the technology is far from mature.

Carbon capture costs around 200 yuan ($29.31) per tonne using current technology. And actually handling it, processing it so it can be used industrially, will cost another 150 yuan ($21.98) per tonne, Jiang said.

Last month, Brian Ricketts, coal analyst with the IEA, said each CCS installation would cost a billion euros and funding was the biggest challenge.

Huaneng's Shanghai project aims to sequester 10,000 tonnes of CO2 per annum from one of Huaneng's power plants, and is the next step to industrializing the process, Jiang said, but it is only a small fraction of the plant's total emissions.

Huaneng's first facility -- launched last year at the Gaobeidian power plant on the outskirts of Beijing -- was even smaller, capturing just 3,000 tonnes of carbon dioxide per year, which is then processed and used by local drinks manufacturers. The CO2 collected from the Shanghai facility will be sold to local industry, Jiang said.

We've done a survey into the market capacity for CO2 in Shanghai. We believe that selling 100,000 tonnes a year in the Shanghai market will not be a problem, and that doesn't include something else we are looking into -- using the CO2 (to boost extraction rates) in nearby oilfields.

As well as being used in fire extinguishers, refrigerants or pneumatic tools, captured carbon dioxide can be injected into depleted oil wells in order to boost extraction rates.

But such recycling will have only a limited impact on China's overall strategy to reduce emissions. The amount of carbon dioxide that can be used (industrially) in China stands at a few tens of millions of tonnes, about 1 percent of the total, Jiang said.

STORING UP TROUBLE

While the technology for capturing carbon is expensive, the bigger problem could be storage.

With limited industrial demand for CO2, rolling out the technology will require hundreds of unmined coal seams, depleted oil wells or saline aquifers to hold vast volumes of carbon dioxide over timescales that could be millennial.

We are currently doing research, said Jiang. We have spoken to experts and they say China's geology isn't as stable as the United States, and so there are more risks in China.

Once the storage site is identified, they also have to figure out ways of transporting the CO2 safely and cheaply.

There are additional problems. Installing CCS technology is also likely to reduce efficiency rather than improve it, said Herve Machenaud, chief executive of the Asia Pacific section of Electricite de France.

In normal coal-powered plants, the efficiency rate is about 45 percent, but with CCS, not only is the cost very much higher, but the efficiency is 10 percent lower.

Some experts are skeptical CCS will offer any viable long-term solution. Far from cleaning the environment, the technology is actually enabling the coal and power industries to continue business as usual.

The real cost of the technology, and its practicality, is all speculation right now, said Wolfgang Palz, chairman of the World Council for Renewable Energies.

The proper way is to go directly for renewables, he said.

($1=6.823 Yuan)

(Reporting by Beijing Newsroom; Editing by Clarence Fernandez)

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