Federal Regulations

 

Federal regulations could drive CCS adoption

 

New Source Performance Standards

 

In 2012, EPA will announce regulations to limit CO2 emissions from new and existing power plants.  The structure of these regulations and how much they reduce CO2 won’t be known until EPA makes their approach public, but properly designed regulations could drive CCS technology adoption over time.

 

CATF believes that EPA should propose and finalize rigorous standards that result in substantial reductions of carbon dioxide.   Given the failure of Congress to pass comprehensive climate legislation, EPA’s Clean Air Act authority remains the first and best line of defense against the risks posed by climate change.

 

Power plants are good candidates for regulation under NSPS because they:

1) emit high levels of CO2 emissions, and

2) there are relatively few of them to regulate (hundreds of plants in the US, not thousands or tens of thousands). 

 

There are a variety of approaches that USEPA could use in designing emission limits that would reduce carbon emissions over time while limiting electricity price increases.  These approaches could phase-in limits to plants based upon the age of the units, how often they are used, and how much life remains in them.

 

 

Incentives

Enhanced Oil Recovery (EOR)

 

For decades, CO2 has been safely injected into depleted oil fields to recover more oil.  The CO2 trapped in these formations stays isolated from the atmosphere.  However, the carbon dioxide used for EOR has traditionally come from the least expensive source- geologic formations that have held naturally occurring CO2 for hundreds of thousands of years.  These natural sources cannot meet all of the nation’s EOR production needs. 

 

The carbon dioxide from power plants and other industrial sources currently released into the atmosphere can be captured and used for EOR.  Doing so now would:

 

  • Reduce carbon emissions into the atmosphere, and

 

  • Make capture technology more widespread, mature and less costly because of scale.

 

 

But using EOR to drive CCS has two limits. 

 

1. Although oil producers would pay for the CO2 captured from power plants, the value of CO2 is insufficient to fully offset the cost of capture and compression.   

2. Furthermore, capture from power plants would be limited to regions where EOR is already established—Texas and the Gulf Coast, some small parts of the Midwest, parts of Canada (especially Alberta), and parts of the Interior West.   To serve other regions, large CO2 pipelines would need to be built to connect their distant sources of CO2  to existing EOR resources.

 

 

Federal incentives could close the cost gap so power plants and other industrial sources capture carbon dioxide for EOR, and federal incentives could defray some of the costs of pipelines to connect existing EOR fields to distant power plants.   The existing 45Q program passed by Congress as part of the TARP bill, provides some tax credits for using CO2 with EOR.  But the $/ton level of support is low and the overall program is capped at amounts that are unlikely to drive much CCS.  An expanded federal effort is necessary.

 

 

Two kinds of federal incentives are important:

 

  • Investment tax credits (ITC) that help offset the capital costs of capture equipment on power plants and industrial sources, and

 

  • Production tax credits (PTC) expressed as a $/ton of CO2 that offset operating costs such as compression and transportation costs of CO2 used in EOR.

 

How incentives are distributed is as important as the value of the incentives.  Analysis by CATF finds that a reverse auction is key to distributing incentives so that they are both efficient and effective.  A reverse auction awards incentives to the lowest bidder. If credits remain, the next highest bidder is awarded them until no more credits are available.  A reverse auction results in more projects moving ahead and drives developers to innovation that lowers costs.

 

 

Saline Project Funding

 

Saline formation capacity is so large that CO2 injection into these formations is expected to store most of the world’s carbon dioxide from CCS.  But unlike EOR, injection of CO2 into saline formations does not produce revenue.   Until companies must pay to release CO2 into the atmosphere, there is no financial reason for companies to pay to inject CO2 into saline formations.

 

Federal incentives are needed to develop saline injection.  Some incentives are provided by the existing 45Q program, but like EOR, the amount is capped an unlikely to drive much CCS.  Other federal programs provide demonstration dollars for small scale and medium scale (1 million tons/year) injection sites.  But these projects are limited by funding as well.

 

Recently, legislation was introduced in Congress to fund 10 saline injection projects. The “Department of Energy Carbon Capture and Sequestration Program Amendments Act of 2011” would authorize the appropriation of $100 million over 10 years .  Eligible projects would be selected by DOE and inject at least 1 million tons/year of CO2. 

 

 

Increased CCPI funding and Loan Guarantees

 

Clean Coal Power Initiative (CCPI)

 

Since 2002, the Clean Coal Power Initiative provides matching grants for coal projects that demonstrate cleaner ways to utilize coal.  Increasingly, these projects include CCS.  Available funding for the program, however, is nearly fully allocated to projects, and additional funding from Congress has not been appropriated.  Additional funding could play an important role in advancing more CCS projects that help to eliminate technical uncertainties.

 

In the short-term, Congress must fix a problem in the IRS code that hurts some CCS projects that receive grants under the Clean Coal Power Initiative (“CCPI”).  These grants are not taxed for many projects, including those developed by "C" corporations.  But grants received by partnerships are taxed-- as much as 35%--  harming the chances of actually building these projects.  This particular anomaly hurts two US flagship CCS projects with 90% capture in the U.S that use a partnership structure.  The first is Summit Power Group's Texas Clean Energy Project (TCEP).  The second is Hydrogen Energy California (HECA) which will be located near Bakersfield.  Congress fixed this problem for partnership-based solar and wind projects so that these grants are not taxed, but the solution must be extended to CCS projects to advance this key technology.  Summit Power Group's memo details the problem and solution.

 

Federal Loan Guarantees

 

Loan Guarantees are important to new CCS projects for several reasons.  In the aftermath of the financial crisis, US capital markets have been more constrained.  This has made financing of multi-billion projects more difficult.  Loan guarantees from the federal government makes possible financing for CCS technology and associated projects that investors might not be willing to do otherwise.  Loan guarantees can be highly cost-effective.  For well designed projects, the risks to the US government are small.

 

 

Energy Purchasing Requirements

 

Clean Energy Standards (CES)

 

The federal government must expand the clean energy standards contemplated in various energy bills to include buying electricity from CCS projects. The federal government will need to provide significant additional incentives to build CCS projects. States are providing significant funding for new coal and CCS projects, but the federal government will need to help fill the gap in cost between building a first-of- a-kind coal plant with CCS today and the most economic alternative for providing electricity (an uncontrolled natural gas combined-cycle plant).

 

 

To be effective, the clean energy standard must specify required levels of CCS-based electricity by an early date. Otherwise, the standard may not drive CCS at levels needed to complete the pioneer phase quickly enough. A clean energy standard that sets a strong requirement for CCS power in later years could drive the higher levels of CCS needed (50 GW) to complete the cost reduction phase.

 

 

Many CCS projects today are primarily underwritten by state governments, which have taken a leadership role in areas where federal support has been lacking. The total federal support for CCS incentives is around $8 billion, and no single project has received more than $500 million in federal funds. In contrast, states have provided (or are considering providing) several billion dollars worth of support per project, largely by allowing projects to be placed into the rate base and paid for by customers

 

 

 

Research and Development

 

Federal research must establish a 10-year, advanced PCC technology RD&D pipeline supporting bench-scale research, proof of concept systems, and pilot-scale plants. Establish a federal program to develop UCG process simulation, monitoring tools, and testing CO2 Capture Establish a publicly funded GCS testing facility, costing $200 million over 4 years.

 

 

Providing $10 million for a DOE/DOI assessment of offshore geologic storage potential is key. Throughout the pioneer, cost reduction, and mature industry phases of CCS development, the federal government will need to make investments in CCS research, development, and demonstration (RD&D). This research could be especially important in accelerating learning and, ultimately, reducing costs. These recommendations are described in detail in CATF’s 2009 report, Coal Without Carbon: An Investment Plan for Federal Action, which includes expert contributions from researchers at MIT, Tufts University, Lawrence Livermore National Laboratory, and private project developers. The full report is available at http://www.catf.us/resources/publications/view/101.

 




Fact

What CATF is doing in federal policy:

  • CATF is working closely with the Administration and leaders in Congress to develop climate policies and regulations grounded in science, technology, and the law
    • Provide non-partisan, data-driven analysis that has won the trust of Senate and House members and staff,  and help to identify and defend policy designs that will achieve the greatest climate benefit at the least cost.
    • Strengthen laws and regulations to clean up coal and implement carbon capture and storage