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Securing Coal’s Future: CCS Demonstration Projects at Coal-fired Plants Must Begin Now

SOURCE: AP/U.S. Department of Energy

An artist's rendering of the FutureGen carbon capture and sequestration demonstration project. The Bush administration blocked the next-generation power plant from being built this past January.

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The recent Senate floor debate on the Lieberman-Warner Climate Security Act ended any prospect for comprehensive global warming legislation in 2008. But that doesn’t mean Congress should close the books on global warming until next January. There is still time to take targeted but vital measures that lay the groundwork for the deep cuts in greenhouse gas emissions that will hopefully be enacted into law in 2009.

A promising candidate for congressional action is the creation of a non-governmental early deployment fund, funded by fees on electricity sales, which would invest in technologies for carbon capture and storage, or CCS, systems at coal-fired power generation plants. This concept is embodied in H.R.6258 , the Carbon Capture and Storage Early Deployment Act, introduced by Congressman Rick Boucher (D-VA) and a bipartisan group of co-sponsors earlier this week. There is considerable room for improvement in the Boucher bill but it provides a starting point that Congress should build on without delay.

CCS technology is crucial for reducing the carbon footprint of coal combustion, which accounts for over 50 percent of our electricity and is the largest source of CO2 emissions in the United States and many other countries, especially China. Technical experts are optimistic that CCS will enable the great bulk of CO2 generated during coal combustion to be captured before its release into the atmosphere and then safely sequestered in secure underground formations. Under the recently proposed Investing in Climate Action and Protection Act (H.R. 6186), introduced by Rep. Edward Markey (D-MA), CCS would be required for all new coal-fired power plants.

But right now large-scale experience with CCS at power plants is limited. Demonstration projects are urgently needed as a prerequisite to widespread deployment. These projects would provide data on the safety and reliability of CCS systems at scale, accurate information on plant costs and performance, and practical experience on which the public and regulators could build. At their June 8 meeting in Aomori, Japan, the energy ministers for the Group of 8 nations (the United States, Canada, Britain, France, Germany, Italy, Japan and Russia) strongly recommended that “20 large-scale CCS demonstration projects need to be launched globally by 2010, with a view to supporting technology development and cost reduction for the beginning of broad deployment of CCS by 2020.”

The United States was on track to undertake a CCS demonstration program before the Bush administration threw a wrench in the works. In 2003, the Bush administration proposed to build FutureGen, an innovative coal power plant that would demonstrate CCS technology. Numerous utilities, mining companies and governments around the globe came forward to provide financial and technical assistance. But after considerable design work and selection of a construction site in Mattoon, Illinois, FutureGen was abruptly canceled in January of this year because of concern about cost overruns.

The Department of Energy announced that it would shift the funding designated for FutureGen to a new program that would support installation of CCS at proposed commercial power plants. Plans for this program, however, are advancing slowly and it is doubtful whether any CCS projects will be funded before the administration leaves office. This lack of progress is discouraging, and demonstrates that the United States is failing to exercise the leadership that Energy Secretary Samuel Bodman called for at the G8 energy meeting earlier this month.

How to fill this void and regain U.S. leadership? One answer is a non-governmental entity funded through the utility industry that provides a new source of financing for CCS demonstration projects and a mechanism for their implementation. In January of this year, the USEPA Advanced Coal Technology Work Group, an independent advisory body with members from environmental groups, labor and industry, called for the creation of a CCS Early Deployment Fund that would support 5 to 10 full-scale CCS demonstrations, principally at coal-fired power plants. A Pew Climate Center paper by Carnegie Mellon professor Edward Rubin also advocates this concept.

An industry-funded CCS “trust fund” offers several benefits. It would spread the costs of CCS development over the entire industry, creating a large funding base with relatively modest fees on individual utilities and their customers. It would ensure a reliable, multi-year funding stream outside of the annual appropriations process, providing continuity and stability to long-term projects. It would enable funds to be deployed without the bureaucracy and delay common in government procurement and grant programs. And it would augment direct government funding for CCS projects with the sizable financial resources of the power industry, permitting a larger overall investment in CCS demonstration efforts.

The Boucher bill attempts to achieve these objectives. It would authorize establishment of a non-governmental entity, the Carbon Storage Research Corporation—if in a referendum the representatives from two-thirds of the nation’s fossil fuel-based electricity voted for its creation. For a period of 10 years, this new corporation would assess fees on retail electricity providers totaling approximately $1 billion annually. These fees could be recovered from retail consumers and would translate into a roughly $10-to-$12 annual increase in residential electricity rates. The Carbon Storage Research Corporation would use the fees it collects for grants and contracts to private, academic, and governmental entities to conduct projects that accelerate the commercial availability of CCS technologies.

While sound in concept, the Boucher bill is far from perfect. It needs to be improved in several areas to assure that the new research corporation is accountable to Congress and the public for its investments in CCS technology, that the projects it funds are rigorously screened to maximize their benefits, and that individual utilities who benefit from these projects assume their fair share of the financial burden. To achieve these goals, the following changes in the bill need to be made:

  • The Carbon Storage Research Corporation’s board of directors should not consist entirely of industry representatives, but should also include representatives from government agencies such as the Environmental Protection Agency and the Department of Energy, as well as key members of public interest groups and independent experts.
  • The board of directors should be required to create an independent scientific advisory committee to recommend priorities for funding, and to assure that demonstration projects are properly designed and monitored.
  • Drawing on the advice of the advisory committee, the board should be required to develop a comprehensive plan for identifying the most relevant and useful demonstration projects, reflecting a mix of combustion and capture technologies, a diversity of geological conditions, a range of coal types, and an appropriate balance between new generation facilities and retrofits at existing plants.
  • This plan should include procedures for designing and monitoring these projects to maximize transparency, and to make project results available to the public in a timely manner. The plan should be subject to public comment and submitted to Congress.
  • The new corporation should issue an annual report, available to Congress and the public, which describes the status of all projects underway, itemizes their costs, and reviews the results achieved. The independent advisory committee should separately provide an annual evaluation of ongoing projects.
  • The final legislation should ensure that demonstration projects achieve the highest level of CO2 capture practically achievable for the coal type and combustion technology employed. (As a condition for obtaining bonus emission allowances, the Lieberman-Warner bill specified minimum levels of capture for different types of coal and combustion technologies and for new plants and retrofits; the Boucher bill might include these targets for demonstration projects undertaken by the new corporation.)
  • The bill should require all CCS projects to be conducted in compliance with the new regulations EPA is developing for CO2 sequestration under the Underground Injection Program of the Safe Drinking Water Act. It might also direct EPA to issue final regulations by June 1, 2009 so they are in place at the time new demonstration projects are launched.
  • The bill cannot be silent on the role utilities and other plant developers would play in funding and operating power plants built as CCS demonstration projects with the fees collected by the new corporation. As commercial-scale power generators supplying electricity to the grid, these plants would presumably be built, owned and operated by private entities, either utilities or independent power producers. These entities should be substantial investors who bear a large portion of the capital costs and financial risks of the plant. The Boucher bill should spell out the financial responsibilities of plant developers and owners explicitly.
  • As a rule of thumb, the new Carbon Capture Research Corporation should fund the incremental costs attributable to adding CCS capability to a conventional coal plant, including the loss of plant efficiency plus CO2 transport and storage costs. Professor Rubin has estimated these costs at between $700 million and $1 billion for a 400-megawatt plant. The new corporation should also assume some of the risk of start-up delays and technology failure, resulting in a “premium” payment to the plant developer beyond the incremental costs of CCS. Under this approach, the $10 billion in fees collected by the corporation, when leveraged with private capital, should support 8-to-10 CCS demonstration projects.

The Center for American Progress elsewhere has urged that comprehensive cap-and-trade legislation include an emission performance standard for new coal plants which would require these plants to capture and store their CO2 emissions. This standard would be supplemented by subsidies, drawn from the revenues obtained from the auctioning of allowances, that would offset the cost differential between CCS and non-CCS coal plants. This approach is embodied in Mr. Markey’s iCAP bill .

By creating a funding source and mechanism for early CCS demonstration projects, the trust fund established under the Boucher bill would provide an important stepping stone to full-scale CCS deployment under an emission performance standard. The sooner we begin these demonstration projects, the greater likelihood there is of achieving broad-based CCS implementation by 2020—a goal of the G8 energy ministers as well as many policymakers and industry leaders.

The European Union, Australia, and China are all moving ahead with CCS demonstration projects, but, with the collapse of FutureGen, the United States is falling behind despite the central role of coal in our electricity sector. If Congress moves quickly, we can again take a leadership role by marshalling the resources of the industry to jumpstart the demonstration projects that are desperately needed.

The Boucher bill provides a useful starting point in that endeavor but needs substantial improvements. Making these revisions and advancing a sound bill toward enactment should be a priority for this Congress.

Robert Sussman is a Senior Fellow at the Center for American Progress. To read his reports and analysis on CCS technology and the future of coal in a clean energy environment, please go to the Energy and Environment page of our website.

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