Hedging Carbon

By Jim Spiers
Former Senior Vice President Business Strategy,
Chief Technology Officer
Tri-State Generation and Transmission Association, Inc.

The business of an electric utility is to manage the risk of producing and delivering a reliable and affordable power supply. Utilities do this on behalf of tens of thousands, if not millions, of customers across large areas through an economy of scale only known in the last century.

For decades, utilities have well managed operational, market, financial, and regulatory risks to provide the electricity that has allowed economies to thrive and quality of life to improve. The responsible use of fossil fuels has been the foundation of this prosperity, and fossil fuels will continue in this role.

Conversion of CO2 into other materials could contribute to global CO2 mitigation efforts, but more R&D is needed.

Conversion of CO2 into other materials could contribute to global CO2 mitigation efforts, but more R&D is needed.

Fossil fuel-based power generation has not been stagnant; over decades, incremental technological innovation has driven constant improvement in power plant efficiency and emission controls. As a result, coal and natural gas offer not only energy security and the low cost that drives economic growth, but also increased sustainability.

For Tri-State Generation and Transmission Association, Inc., a not-for-profit wholesale power supplier in the rural western U.S., its mission to produce and deliver affordable and reliable electricity to its 44-member electric cooperatives is founded upon stewarding membership resources and insulating its members from market volatility, managing risk, and maintaining options. Throughout the association’s 62-year history, it has focused on cooperative planning and, where appropriate, the joint development of resources to mitigate risk.

CO2 Is a Unique Risk across Many Industries

The U.S. Environmental Protection Agency has proposed CO2 limits for new and existing fuel power plants. In fact, all fossil fuel-consuming industries face the same issue and may face a similar challenge. The discussion and imposition of these limits conveys a clear fact: In the U.S., power providers must be ready for a carbon-constrained regulatory environment.

The emergence of this challenge poses tremendous risk to the industry, including the nearly 900 GW of installed fossil-based capacity in the U.S.,1 the installed fleet globally, and any new fossil-based capacity or industrial facility affected by other CO2 emission regulations.

Although the aggregate industry impacts of CO2 regulation are daunting, the risk profile for individual utilities is highly driven by its existing generation and transmission fleet, operational characteristics, and access to resources.

The regulatory exposure of managing CO2 emissions from power plants presents a unique risk to Tri-State, its member electric systems, and their consumers. A plentiful and affordable fossil fuel supply and a modern, efficient baseload coal fleet complemented with natural gas, hydropower, and other renewable resources ensures that the association is in a position to effectively manage many of the risks of its industry.

To manage risks associated with CO2 regulations, there has been a push for utilities to fuel switch, moving from coal to natural gas and renewable resources. In the U.S., fuel switching to natural gas has been catalyzed in recent years by the discovery of major new unconventional sources of methane, brought on by advances in hydraulic fracturing. However, for many utilities, including Tri-State, switching resources, and reducing fuel options, introduces new risks, such as exposure to market volatility. With Tri-State’s significant capital investment in its modern production fleet with advanced emissions controls, fuel switching for the purpose of CO2 management would be a high-cost CO2 management option and is not a viable strategy for our association.

It is clear that CO2 management strategies must offer ways to reduce regulatory risk without introducing new operational, market, and financial risks.

Technology Options Manage Risk

The challenge of managing CO2 emissions presents a wholly different proposition, compared to other emissions control. Aggressive CO2 regulation adds risk to the use of fossil fuels in power production until technology to manage emissions is commercialized.

In response, publicly and privately funded research, development, and demonstration efforts are incrementally improving existing CO2 capture and storage (CCS) technologies. Pre- and post-combustion capture technologies aim to increase efficiency and reduce costs. Geologic storage and variations of this approach, such as enhanced oil recovery (EOR), remain the focus of CO2 disposal options. We believe that, in a carbon-constrained world, this narrow range of technology options, in light of the enormous challenge to manage CO2 and its associated liability, presents significant risk.

A technology hedge is needed. At Tri-State, we believe that another technology path exists. This new direction is based on the belief that CO2 can be an asset that can be used to create value. With radical thinking and revolutionary technology development, spurred by innovation models currently underutilized in the energy industry, breakthroughs can lead to options to meet energy and environment challenges.

CCS Offers Incremental Advancement

To ensure the ongoing viability of existing fossil capacity, the energy industry has placed its “bet” on the capture and storage of CO2, including EOR. Yet, for an industry in which managers place a premium on technical and strategic options to ensure predictability and reliability, I believe it is ironic that this sole bet seems to have been placed on an approach to manage CO2 risk when viability is not yet certain.

CO2 storage faces challenges. One is cost: According to Dr. S. Julio Friedmann, Deputy Assistant Secretary for Clean Coal at the U.S. Department of Energy (DOE), the first generation of CCS technologies capture CO2 at a cost between $70 and $90/ton for wholesale electricity production.2 Current technologies for trapping and storing CO2 can increase the fuel needs of a coal-based plant by 25–40% and subsequently drive up the cost of energy from that plant by 21–91%.3 Another is communal activism (i.e., lack of public approval).

Having technological options at the industry’s disposal when the price of CO2 regulation becomes untenable will increase the odds that the industry can preserve its ability to provide affordable, reliable electricity to its customers. As prudent managers, hedging the CO2 bet by pursuing options in addition to storage is essential.

CO2 Is an Asset

The good news is that potentially viable CO2 management alternatives exist. However, the conventional thinking in research and academic circles has been that other approaches to CO2 utilization are too difficult, if not impossible. Yet, for innovators involved in the CO2 utilization space, a significant body of work is being developed in both novel CO2 capture and utilization sciences.

As part of our effort to assess its risks and potential mitigation strategies, Tri-State commissioned research that identified more than 90 emerging CO2 capture approaches.4 New solvents, enzyme-based systems, physical sorbents, precipitated calcium carbonates, ionic liquids, gas separation membranes, and metallic organic frameworks have the potential to leapfrog over current approaches to industrial CO2 capture and dramatically decrease capital and operating costs.

If the potential of these new capture approaches can be realized, the challenge turns to utilizing CO2 when and where geological storage is not feasible. EOR is appealing precisely because it affords economic value to displace some of the costs associated with CO2 capture and transportation. There are other options that can afford economic value to CO2, thereby changing what is currently deemed a liability into an asset. This asset leads to a reduction in net CO2 emissions by displacing carbon-based fuels or effectively storing CO2 in useful products.

CO2 utilization technologies, in theory, can produce virtually any carbon-based material. The key then is ensuring that new innovations can utilize a portion the 2158 Mt of CO2 per year produced from the U.S. fossil-based electric capacity5 or the 948.5 Mt of CO2 per year produced from the U.S. coal-based electric capacity that is appropriate for CO2 capture retrofits6 to be a meaningful CO2 management tool. CO2 utilization is an invaluable option that can complement a portfolio including CO2-EOR, CCS, or other technologies to be developed.

Further syndicated research sponsored by Tri-State identified 136 emerging companies and institutions that are working to convert CO2 into valuable products, such as transportation fuels, chemicals, synthetic plastics, and concrete and other building materials.7 A recent Advanced Research Projects Agency-Energy (ARPA-E) conference showcased promising CO2 utilization technologies, including fuels production technology from Dioxide Materials, which is receiving ARPA-E funding, and chemical production from Liquid Light.8

These technologies are nascent and are not yet demonstrated at scale. Even the basic logistics and physics of CO2 conversion are daunting, because the CO2 reduction process is thermodynamically uphill. The carbon and oxygen molecules in CO2 are linked with double bonds and splitting them apart requires a fair amount of energy, which is a challenge to overcome.

With new breeds of biological organisms that can better synthesize CO2 and excrete valuable oils, advances in proprietary catalysts using lower-cost materials and more efficient methods of application, or better applications of renewable energies to heat catalysts and power the CO2 conversion processes, breakthroughs can occur.

If we can facilitate these breakthroughs, our research has shown that these technologies could have the potential to produce between approximately 237 and 1079 Mt of product from the 948.5–2158 Mt of supplied CO2 per year, depending on various preliminary conversion assumptions, which are explored in our syndicated research. Given that the U.S. consumed approximately 1.07 billion tons equivalent of crude oil in 2010,A we immediately see that this one market alone offers a virtually unsaturable outlet for CO2-produced product.

The challenge is technical, and history has shown us that it is unwise to bet against technical innovation. For instance, we all remember rather widespread predictions that we would currently be living in a world impaired by “peak oil,” a prediction that was upended by hydraulic fracturing and horizontal drilling innovations. Realizing these breakthroughs is a matter of creating an innovation model that maximizes the chances that a breakthrough can emerge and doing so in a thoughtful, cost-efficient way that accelerates results faster than envisioned through traditional research and development approaches.

Innovation Model to Drive Solutions

Over the past several years, Tri-State has pursued a unique collaborative effort to bring awareness to the opportunity for CO2 utilization. This includes Tri-State’s initial development work for a CO2 utilization inducement prize in collaboration with Canadian energy companies. With Prize Capital, a firm focused on catalyzing advanced energy technologies, the association has developed a comprehensive model that affords a practical, cost-effective approach to fostering breakthrough innovation in the field of CO2 capture and conversion. This is a logical extension of the association’s view of risk management through collaboration that is prevalent across its operations.

Rather than taking a traditional research and development approach to innovation—which, to a large extent, requires the judgment and validation of technologies before they have exhibited any ability to meet utilities’ need—Tri-State’s innovation model crafts a platform that attracts and supports emerging innovation focused on clearly defined performance requirements. The platform subsequently nurtures and supports those technologies that are able to not just claim, but also actually prove their abilities to meet these requirements.

It is a seven-component, decentralized process designed, in part, by referring to and mimicking common characteristics present at the beginning of successfully emerged industries. Its intent is to foster the arrival of a fully commercialized, self-sustaining CO2 asset industry. This commercialization pyramid process is captured in Figure 1.

Figure 1. The “commercialization pyramid”

Figure 1. The “commercialization pyramid”

Test Center Drives Market’s Acceptance

One component integral to the commercialization pyramid is the establishment of a real-world CO2 solutions “test center” adjacent to an operating power plant. One of the greatest challenges that utilities face in validating new technologies is the transposition of laboratory data to the real world at utility scale.

Laboratories are inherently small scale and their environments are meticulously controlled. Thus, understanding how an emerging laboratory technology will perform in larger scale, uncontrolled environments—especially ones that place a premium on predictability and reliability—is an exercise in estimates.

A test center fills a critical need in the transition between laboratory and scaled operation by affording easier access to real-world testing conditions. A test center establishes a platform by which technologies can move in or out of real-world testing, thus bypassing much of the hurdle that innovators face in convincing utilities to pilot test their technologies. It also bypasses much of the risk that utilities take in choosing to test one technology over another.

The current vision of the test center, to be located at a coal-fired power plant and matched with a natural gas-fired facility, is to establish five testing “plots.” A slipstream of flue gas as well as water, electricity, land, and shared resources will be provided and will remain in place as innovators create units to “plug into” this preexisting format.

Although the notion of energy test centers is established—approximately a dozen are in current operation around the world—research reveals that the test center we envision will be the first to focus on a full CO2 “solution”, including breakthrough early-stage CO2 capture, as well as diverse conversion, technologies. The state of Wyoming, through the vision of Governor Matt Mead and legislative leadership, has set aside funding for such a test center at a coal-fired power plant in Wyoming. Figure 2 plots the value propositions afforded by known existing energy test centers and reveals the opportunity to capitalize on a new type of test center.

Figure 2. Energy test centers proposition

Figure 2. Energy test centers proposition


The establishment of new types of test centers is one component of seven needed to develop a commercial CO2 asset industry. Other efforts underway include the development of a global, multimillion-dollar inducement prize competition, the seeding of a global CO2 asset network, and deployment of “advanced market commitments” from industry to purchase yet-to-be-developed technologies. These components are designed to work together and leverage one another to maximize outcomes, but they will not yield results overnight.

The challenge of managing CO2 emissions by spurring the creation and commercialization of multiple “solution” paths is not going to be fast or easy, but research indicates that through the diligent, calculated application of this comprehensive approach, we have the best chance of affording the industry with a portfolio of CO2 management options that can manage risk and ensure the continued provision of reliable, affordable energy in a carbon-constrained world.



  1. U.S. Energy Information Administration. (2013). Electric power annual 2012. Table 4.3. Existing capacity by energy source, 2012. www.eia.gov/electricity/annual/html/epa_04_03.html
  2. Friedmann, S.J. (11 February 2014). Testimony before the Committee on Energy and Commerce Sumcomittee on Oversight and Investigations, U.S. House of Representatives, Washington, DC.
  3. Metz, B., Davidson, O., de Coninck, H.C., Loos, M., & Meyer, L.A. (Eds.). (2005). Carbon dioxide capture and storage. IPCC special report prepared by working group III, Intergovernmental Panel on Climate Change. New York/Cambridge: Cambridge University Press.
  4. Peak, M. (2012). Emerging carbon capture technologies overview. Prize Capital, LLC.
  5. U.S. Environmental Protection Agency. (2011, February). Draft inventory of U.S. greenhouse gas emissions and sinks: 1990–2011. www.epa.gov/climatechange/ghgemissions/usinventoryreport.html
  6. Specker, S., Phillips, J., & Dillon, D. (2009). The potential growing role of post-combustion CO2 capture retrofits in early commercial applications of CCS to coal-fired power plants. Palo Alto, CA: Electric Power Research Institute. www.epri.com/abstracts/Pages/ProductAbstract.aspx?ProductId=000000000001019552&Mode=download
  7. Peak, M. (2011). Carbon capture & recycling industry overview. Prize Capital, LLC.
  8. Ling, K. (2 April 2014). Entrepreneurs vie to turn heat-trapping gas into a red-hot commodity. Greenwire. www.eenews.net/greenwire/stories/1059997195
The content in Cornerstone does not necessarily reflect the views of the World Coal Association or its members.

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