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Ever-rising industrial and consumer demand for more power in tandem with cheap and abundant coal reserves across the globe are expected to result in the construction of new coal-fired power plants producing 1,400 gigawatts of electricity by 2030, according to the International Energy Agency. In the absence of emission controls, these new plants will increase worldwide annual emissions of carbon dioxide by approximately 7.6 billion metric tons by 2030. These emissions would equal roughly 50 percent of all fossil fuel emissions over the past 250 years.
In the United States alone, about 145 gigawatts of new power from coal-fired plants are projected to be built by 2030, resulting in CO2 emissions of 790 million metric tons per year in the absence of emission controls. By comparison, annual U.S. emissions of CO2 from all sources in 2005 were about 6 billion metric tons.
Policymakers and scientists now recognize that the current growth of greenhouse gas emissions must be reversed and that emissions must be reduced substantially in order to combat the risk of climate change. Yet a dramatic increase in coal-fired power generation threatens to overwhelm all other efforts to lower emissions and virtually guarantees that these emissions will continue to climb. This would preclude any possibility of stabilizing greenhouse gas concentrations in the atmosphere at levels that would acceptably moderate the predicted rise in global temperatures.
In China and other developing countries experiencing strong economic growth, demand for power is surging dramatically, with low-cost coal the fuel of choice for new power plants. Emissions in these countries are now rising faster than in developed economies in North America and Europe: China will soon overtake the United States as the world’s number one greenhouse gas emitter. With the power sector expanding rapidly, China and India will fall further behind in controlling greenhouse gas emissions unless new coal plants adopt emission controls. Lack of progress in these countries would doom to failure global efforts to combat global warming.
The Promise of Carbon Capture and Storage
Fortunately, there is a potential pathway that would allow continued use of coal as an energy source without magnifying the risk of global warming. Technology currently exists to capture CO2 emissions from coal-fired plants before they are released into the environment and to sequester that CO2 in underground geologic formations. Energy companies boast extensive experience sequestering CO2 by injecting it into oil fields to enhance oil recovery. Although additional testing is needed, experts are optimistic this practice can be replicated in saline aquifers and other geologic formations that are likely to constitute the main storage reservoirs for CO2 emitted from power plants.
However, these so-called carbon capture and storage, or CCS systems, require modifications to existing power plant technologies. Today the prevailing coal-based generation technology in the United States is pulverized coal, with high-temperature (supercritical and ultrasupercritical) designs available to improve efficiency. It is possible to capture CO2 emissions at these pulverized coal units, but the CO2 capture technology currently has performance and cost drawbacks.
But there’s a new coal-based power generation technology, Integrated Gasification Combined Cycle, or IGCC, which allows CCS systems in new plants to more efficiently capture and store CO2 because the CO2 can be removed before combustion. Motivated by this advantage, some power plant developers have announced plans to use IGCC technology but very few have committed to installing and operating CCS systems.
The great challenge is ensuring that widespread deployment of CCS systems at new IGCC and pulverized coal plants occurs on a timely basis. Despite growing recognition of the promise of carbon capture and storage, we are so far failing in that effort. The consequences of delay will be far-reaching—a new generation of coal plants could well be built without CO2 emission controls.
Barriers to the Adoption of Carbon Capture and Storage Systems
Industry experts today are projecting that only a small percentage of new coal-fired plants built during the next 25 years will use IGCC technology. IGCC plants currently cost about 20 percent to 25 percent more to build than conventional state-of- the-art coal plants using supercritical pulverized coal, or SCPC, technology. What’s more, because experience with IGCC technology is limited, IGCC plants are still perceived to have reliability and efficiency drawbacks.
More importantly, IGCC plants are not likely to capture and sequester their CO2 emissions in the current regulatory environment since add-on capture technology will reduce efficiency and lower electricity output. This will increase the cost of producing electricity by 25 percent to 40 percent over plants without CCS capability.
These barriers can be partially overcome by tax credits and other financial incentives and by performance guarantees from IGCC technology vendors. Even with these measures, however, it is unlikely that IGCC plants will replace conventional coal plants in large numbers or that those plants which are built will capture and store CO2. There are two reasons for this.
First, even cost-competitive new technologies are usually not adopted rapidly, particularly in a conservative industry such as the utility sector, where the new technology is different from the conventional technology. This is the case with IGCC plants, which are indeed more like chemical plants than traditional coal-fired plants.
Second, there is now no business motivation to bear the cost of CCS systems when selecting new generation technologies even though the cost of electricity from IGCC plants is in fact lower than from SCPC plants once CCS costs are taken into account. This is because plant owners are not required to control greenhouse gas emissions and CCS systems are unnecessary for the production of power. The upshot: IGCC units (with and even without CCS capability) will lack a competitive edge over SCPC units unless all plant developers are responsible for costeffectively abating their CO2 emissions. No such requirement exists today.
A New Policy Framework to Stimulate the Adoption of CCS Systems
This paper considers how best to change the economic calculus of power plant developers so they internalize CCS costs when selecting new generation technologies. Five policy tools are analyzed:
- Establishing a greenhouse gas cap-and-trade program
- Imposing carbon taxes
- Defining CCS systems as a so-called Best Available Control Technology for new power plants under the Clean Air Act’s New Source Review program
- Developing a “low carbon portfolio” standard that requires utilities to provide an increasing proportion of power from low-carbon generation sources over time
- Requiring all new coal power plants to meet an “emission performance” standard that limits CO2 emissions to levels achievable with CCS systems.
Each of these tools has advantages and drawbacks but an emission performance standard for new power plants is likely to be most effective in spurring broad-scale adoption of CCS systems.
In the current U.S. political environment, a cap-and-trade system is unlikely to result in a sufficiently high market price for CO2 (around $30 per ton) in the early years of a carbon control regime to assure that all coal plant developers adopt CCS systems. At lower carbon prices, plant developers could well conclude that it is more economical to build uncontrolled SCPC plants and then purchase credits to offset their emissions. A carbon tax that is not set at a sufficiently high level likely would have the same consequences.
A low carbon portfolio standard would be complex and difficult to implement because of the wide variations in generation mix between different regions. Moreover, unless the standard sets stringent targets for low carbon generation, it would not preclude construction of uncontrolled coal plants.
Although the recent Supreme Court decision defining CO2 as a “pollutant” has opened the door to controlling new power plant emissions under the New Source Review program, legal uncertainties may prevent the Environmental Protection Agency from defining CCS systems as the Best Available Control Technology under current law. Individual states could also reject CCS systems during permitting reviews. Moreover, the New Source Review program would not allow flexible compliance schedules for installing and operating CCS systems, nor would it provide financial incentives to offset the increased cost of electricity.
How Emission Performance Standards for New Coal Plants Would Work
In contrast to other approaches, an emission performance standard that limits new plant emissions to levels achievable with CCS systems would provide certainty that new coal plants in fact capture and store
CO2. To provide a clear market signal to plant developers, this standard would apply to all new plants built after a date certain, although some flexibility would be allowed in the timing of CCS installation so that the power generation industry can gain more experience with various types of capture technology and underground CO2 storage. For example, all plants that begin construction after 2008 could be subject to the standard and would be required to implement carbon capture technology by 2013, and then to meet all sequestration requirements by 2016.
To provide additional flexibility while CCS technology is being perfected, plant developers during the first three years in which the new performance standard is in effect could have the option to construct traditional coal plants that do not capture and sequester CO2 if they offset on a one-to-one basis their CO2 emissions by taking one or more of the following steps:
- Improving efficiencies and lowering CO2 emissions at existing plants
- Retiring existing coal or natural gas units that generate CO2 emissions
- Constructing previously unplanned renewable fuel power plants representing up to 25 percent of the generation capacity of the new coal plant.
In 2011, this alternate compliance option would sunset and all new plants subsequently entering construction would need to capture and sequester their emissions.
An emission performance standard for new coal plants should be accompanied by a cap-and-trade program for existing power plants, with the cap starting at 100 percent of emissions and progressively declining over time. A declining cap would encourage greater efficiencies in operating existing plants and incentivize the retirement of higher emitting existing plants. This would assure that an emission performance standard for new plants does not simply prolong the useful life of older plants. In addition, as the cap declines, retrofitting existing plants with CCS systems could become a viable option.
Mitigating Electricity Price Hikes
If legislation requiring an emission performance standard for new coal plants is enacted, then Congress should simultaneously take steps to offset the additional costs of installing CCS systems and provide relief from electricity price increases. This would prevent disproportionate costs from falling upon consumers who live in regions heavily dependent on coal for power generation. By reducing the financial risks and uncertainties of building power plants with CCS systems, it would also encourage investments in such plants by developers and their financial backers.
One approach would be to create a fund to “credit” utilities for all or part of the price increase that consumers would otherwise bear if they receive power from plants with CCS systems. Alternatively, financial incentives could be offered to plant developers which, in combination, offset a significant portion of the incremental costs of installing a CCS system as opposed to operating a coal-fired plant that does not control CO2 emissions. This new incentive program would replace current incentive programs for IGCC plants and other coal technologies that do not include CCS systems.
Assuming that government incentives cover 10 percent to 20 percent of total plant construction costs and that they apply to the first 80 gigawatts of new coal capacity with CCS systems built by 2030, these incentives could cost in the range of $36 billion over 18 years. Although $36 billion is a large sum, it is only a fraction of the $1.61 trillion that the International Energy Agency predicts will be invested in new power plants in the United States between now and 2030.
Building a Technical and Regulatory Foundation for CCS Systems
Once the nation commits to a rapid timetable for requiring CCS systems at all new coal plants under an emission performance standard, then all of our regulatory and research and development efforts should be focused on implementing CCS technology as effectively as possible. This would require:
- An enhanced R&D program for capture technologies at both SCPC and IGCC facilities to reduce the costs of capture as quickly as possible
- An accelerated program to gain largescale experience with sequestration for a range of geologic formations
- A comprehensive national inventory of potential storage reservoirs
- A new regulatory framework for evaluating, permitting, monitoring, and remediating sequestration sites and allocating liability for long-term CO2 storage.
Maintaining the Viability of Coal in a Carbon-Constrained World
Although an emission performance standard that requires CCS systems for all new coal plants would pose a daunting technological and economic challenge, it will ultimately assure coal a secure and important role in the future U.S. energy mix. Such a standard would establish a clear technological path forward for coal, preserving its viability in a carbon-constrained world and giving the utility industry confidence to invest substantial sums in new coal-fired power generation. In contrast, continued public opposition and legal uncertainties may cause investors to withhold financing for new coal plants, placing the future of coal in jeopardy.
If the United States is successful in maintaining the viability of coal as a cost-competitive power source while addressing climate concerns, our leadership position would enable U.S. industries to capture critical export opportunities to the very nations facing the largest challenges from global warming. Once our domestic marketplace adopts CCS systems as power industry standards, the opportunities to export this best-of-breed technology will grow exponentially.
This will be critical to combating the massive rise of coal-derived greenhouse gas emissions in the developing world. Boosting exports while also helping China, India, and other developing nations reduce emissions and sustain economic growth would be a win-win-win for our economy, their economies, and the global climate.
