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The Future of Coal Under Carbon Cap and Trade

Testimony Before the House Select Committee on Energy Independence and Global Warming

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Read the full testimony (pdf)

Read Global Warming and the Future of Coal, by Robert Sussman and Ken Berlin

I am a partner in the law firm of Latham and Watkins in Washington DC and was formerly Deputy Administrator of the U.S. Environmental Protection Agency. I’m pleased to testify today on behalf of the Center for American Progress, a non-partisan research and educational institute dedicated to promoting a strong, just, and free America that ensures opportunity for all. CAP has recently published two reports on Carbon Capture and Storage that my colleague Ken Berlin and I wrote. My testimony will highlight the conclusions of these analyses, which are attached to my written testimony.  Please include them in the hearing record. Our reports express the views of the authors and CAP but not necessarily our law firms or their clients.  

A major challenge in addressing global warming is the potential for a dramatic increase in greenhouse gas emissions as a result of a new generation of coal-fired power plants. If these plants do not control their emissions, they will add many millions of tons of carbon dioxide to the atmosphere—making it virtually impossible to achieve overall emission reductions of 80 percent by 2050 that scientists tell us are necessary to avoid the most serious consequences of global warming. 

The most promising—and perhaps the only—path to control CO2 emissions from new coal plants is carbon capture and storage, or CCS.  The task facing Congress is to maximize the likelihood that CCS is widely deployed on an expeditious but realistic timetable and at a reasonable cost.  If we succeed at this task, we will assure coal—an abundant domestic fuel—a secure place in the future U.S. energy mix without exacerbating global warming. If we fail, coal’s historic role as a vital energy resource in the United States will be at risk. 

The uncertain future that coal faces in the United States without CCS is becoming increasingly apparent. Despite rosy predictions of a resurgence of coal just two years ago, there is growing public opposition to new coal plants. Legal and political challenges to these plants are now routine. The recent proposal by private equity investors to cancel eight of 11 coal plants announced by Texas utility TXU Corp. is evidence that public concerns are influencing investment decisions. States like Florida and California have new policies that discourage new coal plants because of their impact on global warming. Recognizing these trends, in July, Citigroup analysts downgraded the stocks of coal companies across the board, maintaining that “prophesies of a new wave of coal-fired generation have vaporized, while clean coal technologies . . . remain a decade away, or more.”   The Washington Post recently echoed Citigroup’s concerns in a story headlined “Coal Rush Reverses, Power Firms Follow” (Sept. 4, 2007).

There is a way to reconcile reliance on coal for electricity with the need to reduce the threat of global warming.  Timely CCS deployment would enable new coal plants to continue to help meet America’s need for electricity while avoiding growth in CO2 emissions.  Replacement of existing, uncontrolled plants with new CCS plants would be a valuable tool to reduce CO2  emissions.

Cap-and-trade programs are currently the principal focus of Congress’s efforts to reduce global warming pollution from power plants and other industrial sources.  It is imperative to determine whether cap-and-trade proposals will lead to timely deployment of CCS.  Unfortunately, our analysis determined that the initial stages of cap-and-trade programs are not likely to create carbon prices high enough to eliminate the cost differential between new coal plants with CCS and those without it. This would mean that new coal plant owners are unlikely to install CCS systems until the emission caps for these programs become sufficiently stringent to increase the price of CO2 allowances to at least $30 per ton—probably not until 2030 and perhaps later. 

To accelerate CCS deployment, we recommend that Congress adopt an emission performance standard for all new coal plants pegged to the capture efficiency of available technology. This standard would apply to new plants for which construction begins after the legislation takes effect (presumably in 2008) and would provide these plants with a phase-in period to allow for further testing and improvement of the technology before full implementation. Under this timeline, CCS systems would need to be in place by 2016 or four years after the plant begins operation, whichever is later.

We recognize that a target date of 2016 for implementing CCS at all new coal plants is challenging. However, there is a growing consensus that CCS systems will be ready for widespread commercial deployment by 2020 if not earlier. Thus, requiring CCS operation starting in 2016 would be an ambitious but achievable goal that sends a clear signal to plant developers and investors that CCS systems are an essential feature of all new coal plants. This will spur innovation and cost-reduction by technology vendors and utilities and concentrate public and private resources on the remaining technical, economic, and regulatory hurdles to CCS implementation. It would also position the United States as a leader in developing CCS technology and thereby speed its adoption by the rest of the world.

We are not proposing an emission performance standard for existing coal-fired power plants, which do not threaten the same increase in overall CO2 emissions as new plants that lack CO2 controls. In our view, existing plants—like other large CO2 emitters—should be subject to an economy-wide cap-and-trade program that progressively lowers national greenhouse gas emissions.

Our reports found that, at the current stage of technology development, CCS-equipped plants are more costly than conventional plants. Closing this cost gap is essential so that (1) investors have incentives to build plants with CCS, (2) coal remains competitive with other fuels, and (3) consumers do not suffer significant electricity price increases. Accordingly, we propose a package of financial assistance that would initially offset 20 percent of total construction costs and a portion of ongoing operating costs. Such a program would likely be in the range of $36 billion over 18 years for construction costs and an additional amount for operating costs. Revenues for these subsidies could be derived from the proceeds of allowance auctions under cap-and-trade legislation, from a national “wires charge” on electricity sales, or from a mix of traditional financial instruments (loan guarantees, tax credits, and grants). 

This framework for deployment of CCS at new coal plants will only be workable with a concerted national commitment to create a sound legal and technical foundation for CCS. Along with a program of large-scale testing of sequestration sites, Congress must assure that a regulatory regime is in place for CO2 transportation and storage as soon as possible. It must also clarify who bears long-term liability for maintaining and operating sequestration sites—a vitally important issue to industry and a potentially serious hurdle to CCS deployment if it is not resolved.

In sum, bold action by Congress to establish an emission performance standard for new coal-fired power plants would demonstrate leadership in addressing global warming and build a technological and regulatory foundation that countries such as China and India could emulate as they attempt to tackle global warming without stifling economic growth. It would also assure coal a secure and important role in the future U.S. energy mix. 

I look forward to your questions.

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