The Projects, Legislation, Regulations and Leadership Changes That Are On Our Radar
Tamar Hallerman
GHG Monitor
1/4/13
This year will be critical for carbon capture and storage in the U.S. as a series of upcoming large-scale project milestones, high-level leadership changes, federal regulations and potential legislation could ultimately help determine the future viability of the technology. CCS has endured a rough couple of years. After the 2009 American Recovery and Reinvestment Act brought the largest-ever infusion of cash into the technology’s RD&D in 2009, the Senate’s failure to pass carbon legislation the following year created a major slowdown in private sector investment. Pilot and demo projects were delayed, halted and scrapped from West Virginia to California as developers complained about a lack of long-term certainty and financial support to help cover high capital and operational costs.
The emergence of CO2 utilization, primarily enhanced oil recovery, over the last few years has helped buoy the industry to some extent in North America, but overall deployment of CCS projects has still dragged on at a much slower place than initially expected by the Department of Energy and groups like the International Energy Agency and Global CCS Institute. CCS projects in the U.S. appeared to weather 2012 due in no small part to the marketability of anthropogenic CO2 in EOR hotbeds like the Gulf Coast and the Permian Basin. The continued emergence of Denbury Resources as an EOR titan in the Gulf and Rockies, as well as Chinese interest in Summit Power Group’s poly-generation Texas Clean Energy project (see below) further showcased the driving factor of CO2 utilization in 2012.
While CO2 utilization will undoubtedly continue to wield heavy influence on the U.S. CCS industry in 2013, other political and regulatory factors could leave their marks on the field as developers make key investment decisions on several large-scale projects in the coming year. “In 2011 and 2012, there was this story in the background about CCS being dead, projects being cancelled, et cetera, but in 2013 we’re going to see some key projects moving forward that have been percolating for years that will become pretty real,” Kurt Waltzer, CCS coordinator at the Clean Air Task Force, said in an interview. Here are some of the major stories GHG Monitor will be watching out for over the next 12 months:
Regulations
Two regulations in the pipeline from the Environmental Protection Agency could have an outsized impact on CCS deployment in 2013. Perhaps the most highly-anticipated rulemaking expected from the agency this year is the finalization of performance standards for new fossil fuel-fired units. EPA last March proposed an emissions limit of 1,000 pounds of CO2 per megawatt hour—similar to the rate of an uncontrolled natural gas combined cycle unit—for all new fossil fuel-fired units above 25 MW. During several contentious House Energy and Commerce subcommittee hearings last year, Republican and industry opponents argued that the standards, if finalized, would essentially kill coal and unfairly push natural gas generation. EPA has argued that the proposed standards do not prefer one energy technology over another and allow a path forward for coal generation with CCS. However, some CCS advocates have argued that the proposal as it stands would actually drive developers away from the technology given the cheap price of natural gas. Legal challenges are considered all but inevitable following the rulemaking’s finalization.
Another key determination from EPA expected early this year is aimed at removing a key regulatory barrier for CO2 storage. The agency said it would soon move to finalize a rule that would conditionally exclude geologically sequestered CO2 from its definition of hazardous waste under the Resource Conservation and Recovery Act. Initially proposed in Aug. 2011, the exemption would only apply to CO2 streams injected into permitted Class VI wells and not for enhanced oil or gas recovery projects permitted by EPA under Class II.
Legislation
Always high on the wish list of CCS proponents is the desire for Congress to pass some sort of legislation to help remove roadblocks for the technology and incentivize developers to invest in new projects. Further, always at the top of that wish list is the implementation of some sort of price on carbon. While a flicker of hope emerged last summer that lawmakers from both parties could come together to support a revenue-neutral carbon tax as a partial fix for the “fiscal cliff,” that proposal appears to be all but dead for 2013 after the White House and lawmakers from both parties quickly backed away from the proposal following the election.
But it is not only carbon legislation that could be a big political lift for members of Congress. The outlook for any legislation, energy-related or not, in Washington is currently very pessimistic. The Huffington Post last week reported that the most recent 112th Congress was the most unproductive since the 1940s—in two years, the only energy legislation to be reported to the president’s desk was a relatively non-controversial package of energy efficiency measures and temporary extensions to some energy production tax credits that were inserted last-minute into “fiscal cliff” legislation passed this week. Passing any legislation in the 113th Congress for now appears to be just as difficult. New chairman of the Senate Energy and Natural Resources Committee Ron Wyden (D-Ore.) and his Republican counterpart Lisa Murkowski (R-Alaska) have both indicated their desire to work together on some sort of comprehensive energy bill, but many analysts say the chances of getting such legislation passed in this political climate will continue to be difficult. “In 2013, I think you’re going to see continued running in circles relative to some sort of comprehensive energy strategy or legislation. At this point, it’s almost predictable at the beginning of every new Congress. I think we’ll see a lot of movement in 2013, but whether there will be any actual results is hard to say,” United States Energy Association Executive Director Barry Worthington told GHG Monitor.
On the House side, legislation taking aim at upcoming EPA regulations—especially the agency’s greenhouse gas performance standards for new fossil plans—in defense of the coal industry will likely materialize in 2013. House Energy and Power Subcommittee Chairman Ed Whitfield (R-Ky.) has also indicated in recent months that he would like to move forward on some sort of Clean Air Act reform process in the coming year. The landmark environmental protection act has not been amended by Congress in a major way in 23 years. Whitfield held several listening sessions with state regulators on the matter late last year but has remained fairly mum on what he hopes to accomplish with the process. Some green groups said they are worried that his subcommittee would try to weaken some environmental protections given the tone of recent House legislation related to EPA’s recent air rules.
But perhaps the most relevant legislation for CCS advocates could come out of the upper chamber in 2013. Sen. Jay Rockefeller (D-W.Va.) is expected to release highly-anticipated ‘clean coal’ legislation early this year, according to a staff aide. Stakeholders sent their policy recommendations to the senator last summer. The measure could recycle provisions Rockefeller introduced in 2010 CCS legislation that ultimately failed to see action as broader cap-and-trade legislation was being considered by the Senate. That measure provided funding for CCS R&D and early large-scale projects. It also created technology and greenhouse gas emissions performance standards for new power plants and clarified long-term stewardship rules for sequestered CO2. Rockefeller could also fold in provisions from a bill he co-sponsored last fall with Sens. Mike Enzi (R-Wyo.) and now-retired Kent Conrad (D-N.D.) that would have clarified the existing federal tax credit for enhanced oil recovery operations.
Major CCS Projects to Watch
Policy and regulatory environments will undoubtedly have a large impact on how the CCS industry moves forward in 2013, but nothing will be able to parallel on-the-ground experience from operating demonstration projects, Worthington said. “The biggest hump to get over is how to finance these demonstration projects,” he said. “You’re going to need to see projects that are operating and succeeding before the financial community becomes willing to finance a lot of these projects…but once people can’t deny that’s is working, I think you’re going to see some of the naysayers become more quiet and you’ll see others regain their enthusiasm about the technology.”
Several large-scale projects are nearing final investment decisions or are expected to complete construction and begin start-up procedures in 2013, with several notables expected to begin operations. Here are some of the major North American projects GHG Monitor is closely watching this year:
- Port Arthur—Air Products and Chemicals’ industrial CCS project has frequently flown under the radar compared to many other DOE-funded demos, but will likely be the Department’s first to enter into operation, and is expected to do so in the coming weeks. The $430 million project will retrofit capture technology onto two steam methane reformers used for large-scale hydrogen production at a Valero Energy Corp. refinery in Port Arthur, Texas, and will capture one million tons of CO2 annually for use in enhanced oil recovery operations in Texas oilfields;
- Boundary Dam—Canada’s pioneering $1.2 billion CCS project will likely be North America’s first large-scale power generation demo when it goes online in April 2014. Retrofit work is currently wrapping up on the 110 MW Unit 3 at SaskPower’s Boundary Dam facility in southeast Saskatchewan, and company officials plan to begin hot testing in October. The utility recently secured an off-take agreement with Cenovus Energy for all of the CO2 that will be produced at the facility;
- Texas Clean Energy Project—this 340 MW poly-generation integrated gasification combined cycle plant planned for Texas’ Permian Basin was the subject of one of the CCS industry’s biggest stories of 2012 when its developer Summit Power Group signed a memorandum of understanding with Chinese oil and gas goliath Sinopec in September. Summit said it expects to declare financial close on the $2.9 billion facility, which will produce and sell electricity, CO2 for EOR and urea fertilizer, in the second quarter of 2013. It could also spur its own pair of spinoff projects this year;
- Decatur—this $208 million industrial capture project is expected to be operational by the second half of 2013 and will capture one million tons of CO2 annually from an Archer Daniels Midland ethanol plant in Decatur, Ill., for sequestration into the Mount Simon sandstone formation. Project developers are currently waiting for an underground injection control permit from EPA. A nearby sister injection project being managed by one of DOE’s regional partnerships has been injecting CO2 captured from the same ethanol plant into a nearby reservoir for more than a year;
- Kemper County—Mississippi Power’s IGCC plant currently under construction in eastern Mississippi easily wins the distinction of having faced the most legal and regulatory challenges in 2012. An ongoing challenge from the Sierra Club put the project’s $2.88 billion certificate in question last spring and spurred a flurry of legal and regulatory hurdles. The flap also caused multiple rating agencies to downgrade Mississippi Power’s credit rating and prevented the utility from being able to raise rates on its customers in order to pay for the facility’s construction. That legal uncertainty will continue into the early months of 2013 as the Sierra Club has appealed its most recent case against the project to the Mississippi Supreme Court. Meanwhile, construction continues on the 582 MW facility. Utility officials say the plant is about three-quarters complete and that start-up could begin as early as the second quarter of 2013 ahead of commercial operations in 2014; and
- FutureGen 2.0—The FutureGen Alliance scored a notable victory last month when Illinois regulators approved a 20-year power purchase agreement for the $1.65 billion project planned for western Illinois. But perhaps a more make-or-break moment for the project could occur in the coming weeks as the Department of Energy determines whether to allow the FutureGen Alliance to move into Phase II front-end engineering and design work. The Department will also rule on several other requests accompanying the Alliance’s Phase II applications.
Leadership Changes
Perhaps the biggest uncertainty in 2013 is the new leadership that could champion or ignore CCS issues during the second Obama Administration. The top brass at the Department of Energy is expected to drastically change in the coming months. Energy Secretary Steven Chu is widely expected to depart the Administration, but he has yet to announce any formal exit plans. While Chu always spoken in favor of CCS RD&D during his four-year tenure, he spent a much larger chunk of his time focused on the development of renewable energy. Some of Chu’s speculated replacements could be more friendly to coal and CCS-related interests, including outgoing Duke Energy CEO Jim Rogers and former North Dakota Sen. Byron Dorgan.
Other leadership changes in the Senate and at EPA could also have an impact, albeit a smaller one, on CCS in 2013. The retirement of well-placed CCS and EOR supporters Kent Conrad (D-N.D.) and Jeff Bingaman (D-N.M.) in the Senate could leave the upper chamber without a CCS champion in the 113th Congress beyond Rockefeller. Waltzer, though, expressed hope that the growing national prominence of EOR could help bring some de-facto support for CCS-related issues in the future. “As we collectively better appreciate the opportunity that enhanced oil recovery has in driving CCS, I think the potential of using anthropogenic CO2 to get more domestic oil out of the ground will help expand the number of folks in Congress who care about this, even if they don’t necessarily care about climate,” he said. The person who will be nominated by the Obama Administration to replace the outgoing Lisa Jackson as EPA administrator will also undoubtedly impact the level and tone of coal and greenhouse gas regulations in the coming years.
Despite many moving parts at play, John Thompson, director of the Clean Air Task Force’s Fossil Transition Project, said 2013 could end up being a turning point for CCS in North America. “When I look at 2013, one of the most important things I see is EPA finalizing performance standards for new fossil power plants. What that does is set the signal that we’ve actually moved into the era of carbon capture and storage. Not in the future, but today,” he said. “When that happens—when projects like Kemper County start reaching completion and others like the Texas Clean Energy Project begin construction—2013 may be the time when we look back and say that we didn’t realize it at the time, but that was when a shift in the [industry occurred].”
