CCS SUPPORTERS: NEW CLIMATE PLAN MAY DO LITTLE TO ACCELERATE RD&D

Tamar Hallerman
GHG Monitor
6/28/13

Carbon capture and storage supporters and market analysts said despite soaring rhetoric from White House earlier this week touting the technology’s potential, the effect of the President’s new climate strategy on CCS RD&D could be limited. In interviews with GHG Monitor this week, many said the two legs of the plan that the Administration has said could move the ball forward on CCS—greenhouse gas emission performance standards for new and existing power plants and a fresh batch of federal loan guarantees for advanced energy projects—on their own may not do much to spur significant new investment in the still-fledging technology. “I don’t think the President’s climate plan will disincentivize CCS, although I don’t think it’ll do anything for RD&D either,” said Mark Taylor, an analyst at Bloomberg New Energy Finance.

In a June 25 memorandum, President Obama said he is directing the Environmental Protection Agency to issue a retooled proposal limiting carbon emissions from new power plants by Sept. 20, with a final rule coming in a “timely fashion” thereafter. Obama also notably called on EPA to use its authority under the Clean Air Act to propose carbon emission performance standards for existing power plants by June 1, 2014 and to finalize the rulemaking a year later. “Today, about 40 percent of America’s carbon pollution comes from our power plants. But … right now, there are no federal limits to the amount of carbon pollution that those plants can pump into our air. We limit the amount of toxic chemicals like mercury and sulfur and arsenic in our air or our water, but power plants can still dump unlimited amounts of carbon pollution into the air for free. That’s not right, that’s not safe and it needs to stop,” Obama said in a June 25 speech at Georgetown University.

Could Performance Standards Spur CCS Investment?

The President’s plan also calls for the permitting of more renewable energy projects on public lands, the expansion of energy efficiency programs and increased climate change adaptation planning. But the emission performance standards are arguably the most symbolically significant step in the climate blueprint, and senior White House officials said the standards, depending on how EPA structures them, could incentivize CCS deployment. Taylor said, though, that it will be the economics of natural gas that will likely determine the amount of investment companies make in CCS. “Given the relatively inexpensive CAPEX for gas, it seems more likely that utilities would opt for scrapping coal plants [and forgoing a CCS retrofit] and building gas instead,” he said. Coal industry officials have argued that EPA’s current proposal limiting carbon emissions from new power plants would lead to a “dash for gas” due to the fuel source’s rock-bottom prices, instead of a renewed interest in CCS.

Chuck McConnell, who stepped down as Assistant Secretary for Fossil Energy at the Department of Energy in February, said he sees the President’s climate plan as “troubling” for CCS’ future. “To me, this is a very disingenuous message in terms of supporting a true ‘all-of-the-above’ approach to energy,” he said in an interview. If the Administration wants to incentivize CCS through performance standards for fossil plants, “it can’t choose to also gut the budget of the Fossil Energy department that’s trying to create those formative technologies for the future so that you can meet these improved standards. You’re talking out of both sides of your mouth. If you want fossil to perform at higher standards—which is great, environmentally—you can’t at the same time gut the budget for technology development.” The White House’s April budget request to Congress for FY 2014 proposes slashing DOE’s coal R&D budget by 25 percent, in favor of boosting funding for other Administration priorities like renewable energy and efficiency programs.

In several interviews this week following the President’s speech, Secretary of Energy Ernest Moniz said that despite the recent rhetoric of many coal-state lawmakers, the Obama Administration is not waging a so-called “war on coal.” “The president made clear that we anticipate that coal and other fossil fuels are going to play a significant role for quite some time on the way to a very low carbon economy,” Moniz told the Associated Press, emphasizing the new $8 billion in loan guarantee authority. He added, “It’s not going to happen tomorrow, but I believe in this decade we will have demonstrated the viability of large-scale storage” of CO2 from industrial operations, Moniz said

‘Good Start’ for CCS?

Others appeared more optimistic about the developments the performance standards could spur. Kurt Waltzer, carbon storage development coordinator at the Clean Air Task Force, said the performance standards are a good start for CCS since they can drive some RD&D investment. However, he underscored that they must be paired with targeted incentive policies in order to truly move the ball forward on CCS. Waltzer compared CCS’ projected cost curve with that of power plant scrubber technologies in decades past, which he said saw costs dramatically decrease over time due to a combination of performance standards and steady RD&D investment from the government. “Ideally you need the push of performance standards and the pull of RD&D to really drive the costs of the technology down and drive deployment,” he said. “In terms of what the Obama Administration did this week, they mostly did the first half of that equation … but from our view we’re going to need some additional incentives and investments to move the technology forward to drive the costs down.”

Waltzer suggested a price on carbon—which requires Congressional approval and is likely near-impossible given today’s political climate—or other tax incentives like an expanded version of the current 45Q credit as good ways to incentivize the technology. The current 45Q tax credit provides $10 per ton of CO2 stored via enhanced oil recovery projects and $20 per ton stored by geologic sequestration. However, the program is limited to the first 75 million tons of CO2 stored and is riddled with technical uncertainties that have limited its effectiveness. Legislation aimed at tweaking the tax credit was introduced in the Senate last year, however that proposal died without being formally considered by a committee. Taylor also said a retooled 45Q could prove effective in setting a price for putting carbon in the ground. “Bumping up that tax incentive to $50 or $60 to make it not market-based, but policy-based, could be effective,” he said.

Stakeholders Split on Potential of Loan Guarantees

As part of the climate plan, the White House said it would also issue a notice in the Federal Register in the coming weeks announcing a draft solicitation that would make up to $8 billion in self-pay loan guarantee authority available for a “wide array of advanced fossil energy projects” including CCS under DOE’s Section 1703 loan guarantee program. “This solicitation is designed to support investments in innovative technologies that can cost-effectively meet financial and policy goals, including the avoidance, reduction, or sequestration of anthropogenic emissions of greenhouse gases,” the White House outlined in its climate action plan released following the President’s speech.

In interviews this week, CCS stakeholders appeared to differ on how much the new loan guarantees could help incentivize large-scale CCS projects. McConnell said previous DOE loan guarantees have demonstrated “how troubling that approach is to developing new technology.” “The government is not in a position where it should be supporting business plans with loan guarantees,” he said. “The Department of Energy is supposed to be developing new transformative technologies for the future … Technology development doesn’t need loan guarantees, which make bets on big projects with existing technology. [DOE] needs a solid annual R&D budget that can project transformative technology changes over time.”

But Ben Yamagata, executive director of the industry advocacy group the Coal Utilization Research Council and a partner at the law firm Van Ness Feldman, said depending on the details of the loan guarantees, the program could have an impact on CCS RD&D. “One of the biggest challenges for CCS at this point is cost. If the loan guarantees were to operate in a way that could reduce the risk, as well as the cost of the technology, then it’s conceivable that the program could be helpful,” he said. “Given the state of the technology, these large-scale projects are not going to be done without some type of fairly substantial government support. If loan guarantees can fill part of that criteria, that’s great. Hopefully we’ll see some projects as a consequence of that.”

Waltzer said that while the loan guarantees could be effective as one of a suite of incentives large-scale CCS projects could use to reach deployment, he does not think “loan guarantees by themselves will close the gap.” “When you look at the projects that have moved forward like [Southern Company’s] Kemper and [Summit Power Group’s] Texas Clean Energy Project, the way that they’re moving forward isn’t just by one silver bullet, it’s by pulling together a lot of different, creative ways to support the development of the project,” he said. “This could play an important role, but by itself it’s not a cure-all.”

‘Overwhelming Judgment of Science’

Obama’s remarks this week were some of his most forceful to date about the need to act on climate change. “The question is not whether we need to act. The overwhelming judgment of science—of chemistry and physics and millions of measurements—has put all that to rest,” Obama told a crowd of Georgetown University students and clean energy advocates. “… The question now is whether we will have the courage to act before it’s too late.” The President said he hopes to overcome the recent partisan gridlock over climate change, but said he is willing to act alone if Republicans do not step up. “This is a challenge that does not pause for partisan gridlock. It demands our attention now,” Obama said, vowing to “lead the world in a coordinated assault on a changing climate.”