CBO: FUNDING, DIRECTION OF DOE’S CCS PROGRAM NOT ENOUGH TO MAKE TECHNOLOGY COMPETITIVE

Tamar Hallerman
GHG Monitor
07/06/12

The Department of Energy’s current carbon capture and storage program is unlikely to help advance the widespread deployment of the technology unless the federal government enacts other policies to incentivize utilities to limit greenhouse gas emissions, according to a Congressional Budget Office analysis. In a report released late last week that was undertaken at the request of Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-N.M.), Congress’ nonpartisan economic analysis arm says that the direction and level of funding for the CCS program within DOE’s Office of Fossil Energy is not substantial enough on its own to make CCS competitive with other energy technologies in the near future. CBO estimates that since 2005, Congress has provided DOE with roughly $6.9 billion to help develop CCS technology. “But unless DOE’s funding is substantially increased or other policies are adopted to encourage utilities to invest in CCS, federal support is likely to play only a minor role in deployment of the technology,” the analysis says.

DOE currently supports CCS largely through a combination of R&D work, demonstration projects and tax credits for utilities that invest in ‘clean coal’ technology. About half of that funding came through the 2009 American Recovery and Reinvestment Act, which funneled $3.4 billion into CCS work. The rest is provided through the Office of Fossil Energy’s coal research budget, which has been allotted roughly $400 million per year since 2005. But even with those efforts in place, CBO said the investments are currently “unlikely” to provide the level of work necessary to drive down the cost of CCS to the point that it is economically competitive. “DOE’s present funding for CCS would allow the United States to build only a small number of demonstration plants, which are unlikely to be sufficient to reduce costs through [the learning-by-doing process],” the analysis says. DOE did not return calls for comment.

DOE’s 35 Percent Goal Would Require 200 GW in CCS Capacity, CBO Says

DOE’s CCS program is currently focused on the goal of reducing the additional cost of producing electricity with CCS to less than 35 percent above the cost of electricity generated from conventional fossil fuels. That figure is less than half of the current cost premium, which CBO estimates to be roughly 75 percent above the cost of electricity produced from conventional coal. The analysis says that costs are expected to shrink via “learning-by-doing,” however that requires a particular amount of coal capacity with CCS to be installed. By looking at the historical pace of cost reductions from earlier emission-control technologies for coal plants like sulfur dioxide, CBO estimates that more than 200 GW of coal capacity with CCS—about two-thirds of the country’s current coal capacity—would need to be installed onto new or existing coal plants to meet DOE’s 35 percent goal if there is no major technological breakthrough in CCS. “Even [with learning by doing], reducing the cost by enough to achieve DOE’s goal of only a 35 percent premium could require a lengthy process of building a large amount of new electricity generation capacity,” the report says. Under the current energy landscape, utilities are unlikely to build that much new capacity or invest in adding CCS to much of their fleet without some sort of carbon price in place, particularly given the cheap price of natural gas, the report says.

CBO’s assessment finds that even if DOE’s 35 percent cost reduction goal is attained, CCS will still not be cost competitive with other low carbon technologies if there is no climate policy in place to incentivize low-carbon technologies and put a price on carbon emissions. CBO says there could be an opportunity for growth with CCS on gas-fired facilities and says that the cost of producing electricity with gas-CCS plant could be lower depending on future coal and gas prices. But CBO says that recent regulatory action is now more likely to shift production from coal to gas without CCS and other low-emissions fuels, like biomass, rather than CCS.

Recommendations for Congressional Action

The analysis offers several policy approaches that members of Congress could take in order to move forward with the technology. “The decisions facing policymakers with regard to support for CCS center on whether current federal technology programs, which are mainly devoted to reducing the costs of the capture portion of the process, should continue as they are currently structured,” the report says. CBO says that lawmakers could redirect CCS funding from technology demonstration projects to R&D programs, with the rationale that the federal government traditionally has a better track record with R&D success and has experienced failure in the past trying to commercialize some fossil fuel-related technologies.

CBO also says that members could opt to put a price on carbon or provide electricity production subsidies to encourage private investment in CCS and make the technology more competitive. “The private sector would have a greater incentive to invest in CCS technology if the federal government adopted policies that in some way offset the higher cost of generating electricity in coal-fired plants equipped with the technology,” the report says. However, while attaching a price to greenhouse gas emissions could help sweeten the deal CCS, it would also help incentivize other like nuclear, wind, biomass, renewables and gas that CCS would have to compete with. However, CBO acknowledges that the option would require more federal investment in a technology that is already considered controversial and where there is already a substantial federal investment, making it harder to get the political support to delegate more money to the technology.

A final option, CBO says, is to reduce or eliminate all future spending for the development and deployment of CCS given DOE’s limited ability to lower the cost of the technology so it is competitive. “Scaling back or eliminating the CCS programs would reduce the need for future annual appropriations for those activities. Moreover, eliminating larger-scale technology demonstration projects would reduce DOE’s involvement in fields in which the agency has a mixed track record and in which U.S. industry is generally not poised to follow up with subsequent investment,” the report says. Leaving the development of CCS to rapidly developing countries like China and India, which have high demand for coal capacity, might be the most economical. Allowing those countries to develop the technology, making it cheaper and then bringing the technology back to the U.S. could work, CBO says.