Tag Archives: NEORI

Understanding the National Enhanced Oil Recovery Initiative

By Patrick Falwell
Solutions Fellow, Center for Climate and Energy Solutions
Brad Crabtree
Vice President, Fossil Energy, Great Plains Institute

Since 2011, the Center for Climate and Energy Solutions (C2ES) and the Great Plains Institute (GPI) have convened the National Enhanced Oil Recovery Initiative (NEORI). Bringing together leaders from industry, the environmental community, labor, and state governments, NEORI has worked to advance carbon dioxide enhanced oil recovery (CO2-EOR) as a key component of U.S. energy security, economic, and environmental strategy. Currently, most CO2-EOR is done with natural underground reservoirs of CO2, yet the industry’s future growth depends on taking advantage of the large amounts of CO2 that result from electricity generation and industrial processes. NEORI therefore is working to turn a waste product into a commodity and to encourage policies that will help bring an affordable supply of man-made CO2 to the market.

As such, NEORI has offered consensus recommendations for federal- and state-level policy action. In May, Senator Jay Rockefeller (D-WV) introduced legislation in the U.S. Congress adopting NEORI’s centerpiece recommendation to reform and expand an existing federal tax incentive for the capture of man-made CO2 and its geologic storage through CO2-EOR. Going forward, NEORI will work to educate policymakers across the political spectrum and the broader public about the opportunity for CO2-EOR to serve as a national solution to energy and environmental challenges.

In May 2014 Senator Jay Rockefeller introduced legislation incorporating the main principal of the National Enhanced Oil Recovery Initiative. (creativecommons.org/licenses/by/2.0/)

In May 2014 Senator Jay Rockefeller introduced legislation incorporating the main principal of the National Enhanced Oil Recovery Initiative. (creativecommons.org/licenses/by/2.0/)

BACKGROUND ON CO2-EOR

Although commonly considered a “niche” extractive technology, CO2-EOR is a decades-old practice. Since the 1970s, CO2-EOR projects have utilized CO2 to produce additional oil from otherwise tapped-out fields. CO2 readily mixes with oil not recovered by earlier production techniques, swelling the stranded oil and bringing it to the surface. The CO2 is then separated from the oil and re-injected in a closed-loop process. Each time CO2 is cycled through an oil reservoir, the majority of it remains trapped in the underground formation, where, over time, all utilized CO2 will be stored permanently.

Today, CO2-EOR in the U.S. accounts for over 300,000 barrels of oil production per day, or nearly 5% of total annual domestic production.1 More than 4000 miles of CO2 pipelines are in place and, as of 2014, approximately 68 million tonnes of CO2 are being injected underground annually for CO2-EOR. Nearly 75% of this CO2 is from naturally occurring deposits, but over time the supply of CO2 from man-made sources is expected to grow significantly. Currently, 11 U.S. states have CO2-EOR projects. Most are in the Permian Basin of Texas, with new activity emerging on the Gulf Coast and in the Mountain West. Untapped opportunities exist in California, Alaska, and a number of states in the industrial Midwest. Estimates suggest that CO2-EOR could ultimately access 21.4–63.3 billion barrels of economically recoverable reserves.2 Recovering this oil would require 8.9–16.2 billion tonnes of CO2 that would predominantly come from man-made sources. Technically recoverable reserves offer potential to produce additional oil and utilize more man-made CO2 that is currently otherwise emitted into the atmosphere.

The main barrier to taking advantage of CO2-EOR’s potential has been an insufficient supply of affordable CO2. For an oilfield operator looking to implement CO2-EOR on a depleted oilfield, there is a cost gap between what they could afford to pay for CO2 under normal market conditions and the cost to capture and transport CO2 from power plants and industrial sources. For some industrial sources, such as natural gas processing or fertilizer and ethanol production, the cost gap is small (potentially $10–20/tonne CO2). For other man-made sources of CO2, including power generation and a variety of industrial processes, capture costs are greater, and the cost gap becomes much larger (potentially $30–50/tonne CO2). Recognizing the cost gap as a significant barrier, NEORI has worked to determine the role that public policy can play in narrowing it.

NEORI’S CONSENSUS RECOMMENDATIONS AND ANALYSIS

For the last three years, NEORI has brought together a broad and diverse group of constituencies that share a common interest in promoting CO2-EOR. Some NEORI participants support CO2-EOR as a way to provide a low-carbon future for coal by managing and avoiding its carbon emissions. Others are interested in the jobs and economic growth that deploying new CO2 capture projects, pipelines, and EOR operations will bring. Still other participants want to advance innovative technologies that can capture and permanently store CO2 underground. Despite differences of opinions among participants on other issues, all agree that CO2-EOR is a positive endeavor and that public policy can play an important role in realizing CO2-EOR’s many benefits. As such, NEORI’s participants have crafted a set of consensus recommendations for federal and state policy incentives to enable the widespread deployment of carbon capture technologies to provide CO2 for use in CO2-EOR, while addressing concerns about how incentives have been allocated in the past.

To support its consensus recommendations, NEORI also prepared a quantitative analysis to estimate the extent to which a federal initiative could spur new CO2-EOR projects and improve the federal budget at the same time. An incentive awarded for capturing CO2 from man-made sources for use in CO2-EOR has the potential to be self-financing, given that it could lead to new oil production that is taxed at the federal level. CO2-EOR in the U.S. generates federal revenue from three sources:

  1. Corporate income taxes collected on the additional oil production
  2. Income taxes on private royalties collected from CO2-EOR producers
  3. Royalties from CO2-EOR production on federal land

Together these sources equate to nearly 20% of the sales value of an additional barrel of oil and generate the source of public revenues that will in turn cover the cost of newly allocated incentives.

NEORI’s most recent analysis of the budget implications of a tax incentive reflects the legislation introduced by Senator Rockefeller. This analysis shows that an improved federal incentive could lead to the production of over eight billion barrels of oil and the underground storage of more than four billion tonnes of CO2 over 40 years and generate federal revenues that exceed the value of tax incentives awarded within the U.S. Congress’ standard 10-year budget window.

NEORI PROPOSES AN ENHANCED FEDERAL INCENTIVE

NEORI recommends a reform and an expansion of an existing federal tax incentive, the Section 45Q Tax Credit for Carbon Sequestration. First authorized in 2009, the 45Q tax credit provides a $10 tax credit for each tonne of CO2 captured from a man-made source and permanently stored underground through enhanced oil recovery (a $20 tax credit is available for CO2 stored in saline formations). While enacted with the best of intentions, the existing 45Q program has been unable to encourage widespread adoption of carbon capture technologies for two main reasons. First, 45Q is only authorized to provide tax credits for 75 million tonnes of CO2, a relatively small amount considering how much CO2 could possibly be utilized through CO2-EOR. As of June 2014, tax credits for approximately 27 million tonnes of CO2 had already been claimed, and it is foreseeable that the remaining pool of credits will be exhausted in the near future. Second, 45Q has been unable to provide needed certainty to carbon capture project developers that they will be able to claim the incentive, due to rigid definitions in the tax code and the lack of a credit reservation process. Carbon capture project developers have not been able to present the guarantee of credit availability when seeking private-sector finance.

Under NEORI’s proposal, a larger pool of 45Q credits would be established, while suggested reforms would increase certainty and private-sector investment, improve transparency, and help the program pay for itself fiscally within 10 years.

Allocating New 45Q Credits via Competitive Bidding and Tranches

To minimize the cost of new 45Q tax credits to the federal government, NEORI recommends that carbon capture projects of similar cost bid against one another for allocations of tax credits. Under annual competitive bidding processes, carbon capture projects would bid for a certain tax credit amount that would cover the difference between their cost to capture and transport CO2 and the revenue they would receive from selling CO2 for use in CO2-EOR. The project submitting the lowest bid would receive an allocation of tax credits, and allocations would be made to capture projects up to specified annual limits.

NEORI recommends the allocation of new 45Q tax credits.

NEORI recommends the allocation of new 45Q tax credits.

Given the wide difference in capture costs for potential man-made sources of CO2, three separate pools of credits, or tranches, would be established. The creation of separate lower-cost industrialA and higher-cost industrialB tranches for power plants would ensure that an incentive is available for the diversity of potential man-made sources of CO2.

Tax Credit Certification

A certification process would provide essential up-front certainty to carbon capture project developers and enable them to reserve their allocation of 45Q tax credits to be claimed in the future. Upon receiving an allocation of 45Q tax credits through competitive bidding, a project would have to apply for and meet the criteria of certification within 90 days. For example, a carbon capture project would need a contract in place to sell its CO2 for use in CO2-EOR to be certified. To maintain certification, a carbon capture project would have to complete construction in three years, if it is a retrofit, and five years, if it is a new facility.

Revenue Positive Determination and Program Review

Following the seventh annual round of competitive bidding, the U.S. Secretary of the Treasury would assess whether newly allocated 45Q tax credits have been revenue-positive to the federal government. If the new 45Q tax credits are not proving to be revenue-positive, the Secretary will make recommendations to Congress to improve the program. Otherwise, competitive bidding will continue until the next review.

The Secretary of the Treasury also would be advised by a panel of independent experts.

Annual Tax Credit Adjustment Based on Changes in the Price of Oil

Each year, the value of claimed 45Q tax credits would be adjusted up or down to reflect changes in the price of oil. In most instances, the price that CO2-EOR operators would pay CO2 providers for their CO2 is linked explicitly to the prevailing price of oil. When the price of oil rises and CO2-EOR operators are willing to pay more for CO2, the value of 45Q tax credits would be adjusted downward to ensure the federal government does not pay more than needed. Conversely, when oil prices fall, the value of 45Q tax credits would be adjusted upward, ensuring that carbon capture projects receive sufficient revenue.

NEORI is designed to boost U.S. domestic oil production while providing much-needed financial support for CCUS projects.

NEORI is designed to boost U.S. domestic oil production while providing much-needed financial support for CCUS projects.

Tax Credit Assignability

Potential carbon capture project developers include electric power cooperatives, municipalities, and startup companies. Not all of these entities have sufficient tax liability to allow them to realize the economic benefit of a tax credit. As such, NEORI recommends that carbon capture projects have the ability to assign 45Q tax credits to other parties within the CO2-EOR supply chain. This provision could facilitate tax equity partnerships, but only among entities directly associated with the project and managing the CO2.

CONCLUSION

In a time of considerable disagreement on U.S. energy and climate policy at the federal level, NEORI members believe that CO2-EOR offers broad benefits and the rare opportunity to unite policymakers and stakeholders in common purpose. The NEORI coalition therefore remains committed to educating members of both political parties and the broader public as to how CO2-EOR can generate net federal revenue from domestic oil production, meet domestic energy needs, safely store man-made CO2 underground, and help advance and lower the costs of carbon capture technology.

NOTES

A.  Lower-cost industrial sources of CO2 include natural gas processing, ethanol production, ammonia production, and existing projects involving the gasification of coal, petroleum residuals, biomass, or waste streams.

B.  Higher-cost industrial sources of CO2 include cement production, iron and steel production, hydrogen production, and new-build projects involving the gasification of coal, petroleum residuals, biomass, or waste streams.

REFERENCES 

  1. Kuuskraa, V., & Wallace, M. (2014, 7 April). CO2-EOR set for growth as new CO2 supplies emerge. Oil & Gas Journal, www.ogj.com/articles/print/volume-112/issue-4/special-report-eor-heavy-oil-survey/co-sub-2-sub-eor-set-for-growth-as-new-co-sub-2-sub-supplies-emerge.html
  2. Wallace, M., Kuuskraa, V., & DiPietro, P. (2013). An in-depth look at “next generation” CO2-EOR technology. National Energy Technology Laboratory,www.netl.doe.gov/File%20Library/Research/Energy%20Analysis/Publications/Disag-Next-Gen-CO2-EOR_full_v6.pdf

The authors can be reached at FalwellP@c2es.org and bcrabree@gpisd.net

The content in Cornerstone does not necessarily reflect the views of the World Coal Association or its members.

Beyond Roadmaps to Deployment: Ensuring CCS Is a Component of Mid-century CO2 Emissions Control

By Kurt Walzer
Managing Director, Clean Air Task Force
Pam Hardwicke
Special Projects Facilitator, Clean Air Task Force
John Thompson
Director, Fossil Transition Project, Clean Air Task Force

CCS Is Urgently Needed To Address Climate Change

If anything, fossil fuel use throughout the world is growing, not declining. The use of fossil fuel is not going away, and to pretend otherwise is simply to avoid the facts. Coal provides 40% of the world’s electricity. Since the beginning of the 21st century, it has been one of the fastest-growing energy sources globally. While coal use in OECD countries remained flat over the last decade, coal use has grown exponentially in developing nations, as is shown in Figure 1.

Despite coal’s economic benefits, the environmental impacts for using coal cannot be overlooked, specifically the CO2 emissions that occur from coal use.

Measured CO2 concentrations in the atmosphere exceeded 400 ppm in 2013, a level not seen on Earth in three million years. This measurement is part of an alarming trend. Since the start of the industrial revolution, atmospheric CO2 concentrations have been growing, and the rate has increased even more rapidly in the past few decades. As a result, global temperatures have risen, and nine of the 10 warmest years in the modern meteorological record have occurred since the year 2000.

Without CCS it is projected that CO2 emissions from power plants will double by 2050.

Without CCS it is projected that CO2 emissions from power plants will double by 2050.

Two categories of stationary sources, which are generally operated using coal or natural gas, account for almost 66% of the roughly 30 gigatonnes (Gt) of CO2 released annually from human activity—power plants (11.9 Gt) and industrial facilities (7.4 Gt). Emissions from these two categories are growing. Carbon capture, utilization, and storage (CCUS) and ultimately just carbon capture and storage (CCS) are needed to address these emissions. If no action is taken, by 2050:

  • Power plant emissions will nearly double (24 Gt). A majority of the growth in cumulative power plant CO2 emissions can be attributed to the astounding rate at which coal-fired power plants are being built in developing countries. China has built an average of about one new plant per week for much of the past decade. From this growth, China now has twice the number of coal-fired power plants as the U.S. By 2015, China plans to have more than 900 GW of such plants in operation—three times the size of the U.S. fleet.
  • CO2 emissions from all large, stationary industrial sources (whether fueled by coal or gas) are also rising. Under business-as-usual projections for the year 2050, these emissions will grow from 7.4 Gt to 12.5 Gt.2

For the industrial sector, the International Energy Agency (IEA) concludes that “CCS represents the most important new technology option for reducing direct emissions in industry, with the potential to save an estimated 1.7 to 2.5 Gt CO2 in 2050.”3a

Within the power sector, IEA estimates that around 79 Gt of CO2 can be captured and stored by the power sector from 2010 to 2050, and coal-fired power plants through 2050 will be able to capture 69 Gt, or 87% of cumulative emissions from the entire power sector;3b furthermore, natural gas power plants with CCS will capture 9.2 Gt, or 12% of their total emissions. In the year 2050 alone, 4.4 Gt of CO2 will be captured by the power sector.3c

Advantages of CCS

While CCS in the power sector competes against other low-emission technologies such as nuclear, renewables, and efficiency improvements, it offers several advantages:

  • CCS allows developing nations to use domestic fossil fuels that they may be unwilling to abandon due to energy security or economic concerns.
  • CCS can be retrofitted. About one-third of today’s global power plant capacity is less than 10 years old. These plants are assets with many years of useful life remaining.
  • CCS is a pollution control technology, but with CO2-EOR, it acts as an energy production technology as well. EOR could provide an income stream for very large volumes of CO2 from power plants—much larger than was thought five to 10 years ago. The potential scale of demand can drive down technology costs based on returns to scale. This also opens up additional possibilities for expanding infrastructure.
Figure 1. Growth in global coal consumption

Figure 1. Growth in global coal consumption1

CCS Is Ready To Be Deployed at Scale

Large, integrated CCS projects, driven by CO2-EOR, began in the U.S. in the 1970s and 1980s at industrial facilities. Now this experience is migrating to the power sector. Experience from analogous industrial technologies has shown that the scale-up required for decarbonization of the power sector and industrial sectors by mid-century is achievable.

CCS Is NowGen

A large-scale power plant with CCS can no longer be considered FutureGen, it is “NowGen”. Today, the first commercial power plants with CCS are under construction. In fact, the first proposed design of the U.S. FutureGen project, an IGCC with 90% capture of CO2, is the design incorporated into a proposed commercial power/urea plant—the Texas Clean Energy Project.

Although these first-of-a-kind units are at the top of the cost curve, it’s important to recognize that the technology and commercial risks associated with CCS are well understood based on a long history. Since the 1970s and 1980s, large industrial plants have captured and stored large amounts of CO2 on a per-plant basis. Examples include:

  • Val Verde natural gas processing plant (Texas, U.S.) has captured and effectively stored 1.3 million tonnes CO2/yr since 1972.
  • Shute Creek natural gas processing facility (Wyoming, U.S.) has captured and effectively seven million tonnes CO2/yr since 1986.
  • The Century plant (Texas, U.S.) has captured and effectively 8.4 million tonnes CO2/yr since 2010.

This experience is now benefiting power plants, where CO2 emissions can be reduced by more than 90%. Coal plants in North America that are under construction or are most likely to reach the financial status necessary to move forward plan to have some level of CCS installed when they open. Examples include the 582-MW Kemper plant in Mississippi, the Texas Clean Energy Project, and SaskPower’s retrofit/rebuild of Boundary Dam.

Each of the components of CCS has a long history of use in the U.S. and around the world.

  • Over 850 Mt of CO2 have been geologically trapped and effectively stored underground in Texas from CO2-EOR operations over the last 30 years.
  • There are presently approximately 4000 miles of CO2 pipeline in the U.S.
  • The main pre-combustion capture technologies, Selexol and Rectisol, have been commercially available since the 1950s and 1960s with over 100 applications each across the world.
  • Post-combustion capture has been successfully applied to exhaust gases from both natural gas and coal-fired power plants, with commercial guarantees offered from several vendors.

CCS in a Timeframe that Matters

Experience from various industrial analogs has shown that CCS can be scaled in a timeframe that is meaningful to the climate—by mid-century. China’s power sector is the most recent example of widespread, rapid deployment of energy technologies, with a projected expansion of 900% between 1987 and 2015.1 In the U.S., power generation also saw a period of rapid expansion—growing more than 400%, from 69 GW to 316 GW of installed capacity, between 1950 and 1970. The U.S. also added 150,000 miles of natural gas pipelines between 1960 and 1980. With respect to injection wells, CCS would require several thousand additional injection wells in the U.S., but this will likely be significantly below the number of existing oil-field brine injection wells (i.e., 150,000).4 Figure 2 shows several examples of industrial analogs that scaled up to a level comparable to what would be necessary for decarbonization of coal plants in the U.S. power system over a 20-year period.

Figure 2. Past energy infrastructure over 20-year growth period

Figure 2. Past energy infrastructure over 20-year growth period4

What Can Drive CCS Deployment?

Key Pathways for Reducing Costs

Scale

Deploying CCS will be a crucial part of reducing costs. Some estimates indicate costs will reduce by 50% between a first-of-a-kind plant to an Nth-(4th or 5th)-of-a-kind plant using the same technology.5 Deploying at large scale (e.g., 100 GW) is projected to drop construction costs even further—30% below the Nth-of-a-kind plant level, as is shown in Figure 3.6

New Business and Policy Models

Applying innovative business models to CCS can also make it more economical. For example, NRG’s Washington Parrish coal-fired power plant is developing a 75-MW gas turbine to provide make-up power for the energy needs of the future CCS project. Although the CCS project has not broken ground, the additional generation capacity will sell into the market in the meantime, creating additional value. Such a configuration, under a partial CCS model, could also sell the make-up power into the market at peak demand times and use the power for CCS operations during lower demand, which will improve project profit margins (or reduce costs).

Figure 3. Projected CCS construction cost reduction starting from Nth-of-a-kind projects

Figure 3. Projected CCS construction cost reduction starting from Nth-of-a-kind projects6

This strategy is similar to the flexibility provided for the proposed U.S. New Source Performance Standards (NSPS) on new coal-fired power plants. The NSPS provides up to eight years of flexibility once the power plant is in operation before CCS must begin at the facility. This allows projects to be more profitable by selling the planned make-up power to the grid in the early years of the project, when cash flow is most valuable.

Technology Advancement

Advanced fossil generation technologies are under development that could radically reduce the cost of CCS on both coal and gas power plants while allowing for 100% levels of CO2 capture. These include chemical looping and novel gas-oxy combustion processes that use CO2 as a working fluid. There are also potential cost improvements from technologies targeting post-combustion carbon capture. These include phase-changing absorbents, metal-organic frameworks, and solvent-membrane hybrids.

CO2-EOR May Be Key to Economical CCS

The First Key “U”

CO2-EOR transforms CCS into CCUS, where the “U” stands for utilization. CO2-EOR makes carbon capture and storage an energy technology, rather than just an emission control technology. The difference is profound. Seen through the lens of CCS, capture and compression is a significant parasitic load on a power plant or industrial facility, increasing fuel consumption by as much as 30%. But with CCUS, every joule of energy lost creates up to 4.3 joules of energy in the form of oil.

CCUS adds several tangible benefits, including:

  • Paying some or all of the CCS through oil revenue
  • Justifying capture and compression energy penalties by producing new energy
  • Broadening the rationale for CCS to include energy security
  • Anchoring CO2 storage in a technology with decades of commercial experience

In the past, CO2 prices (historically in the range of $9–26/tonne of CO2 in North America) was sufficient to balance the costs of CCS on the “low-hanging fruit” of some industrial facilities with high-purity CO2 exhaust (e.g., chemical processing plants and natural gas processing projects). High oil prices will create the economic conditions needed for integrated CCS-EOR projects associated with power generation and the steel industry. The Clean Air Task Force estimates the revenue from CO2 used in EOR in the U.S. was $37.83/tonne CO2 in late 2011.7

CO2-EOR accounts for about 6% of the total oil produced in the U.S.,8 but estimates show it has the potential to account for 50% of production and has enormous storage capacity. According to the U.S. National Energy Technology Laboratory (NETL), CO2-EOR could increase domestic oil production by 4.6 million bbl/day (compared with current U.S. production levels of 8.9 million bbl/day).9 This would require 20.8 billion tonnes of CO2, equivalent to capturing 90% of the CO2 emissions from 105 GW of coal-fired plants for 30 years.10

CO2-EOR is not limited to the U.S. Estimates of EOR capacity are less certain in China, but estimates show 43 billion bbl of oil could be produced through consumption of 12 Gt CO2.11 Global CO2 storage estimates for EOR are both less recent and less certain; IEA estimates global capacity at 140 Gt CO2 based on the top 10 oil basins, but total estimates are as high as 320 Gt CO2.12 Note that this is enough to store all anthropogenic CO2 for about 10 years. Thus EOR isn’t a complete storage solution, but it can play a crucial role in building needed pipeline infrastructure, widely spreading CO2 storage know-how, and creating a large demand pull for lower cost and truly zero-carbon technologies.

Other Potential “U”s

There are other opportunities that are not yet fully understood or developed but may be promising for producing zero-carbon fossil energy. CO2-EOR has been applied to conventional oil pay zones and more recently to residual, naturally “water-flooded” oil zones. However, developers of shale oil in the Bakken Formation in the U.S. are actively exploring using CO2-EOR to extend oil production.13 More broadly, the potential for storage in shale plays may be quite large. A recent study by Advanced Resources International indicates that the Marcellus Shale may have the potential to store 160 billion tonnes of CO2.14 Saline may also be an interesting “U” in utilization. Work by Lawrence Livermore National Laboratory indicates that brine produced from geologic formations at pressure may significantly reduce the cost of desalinization while providing additional options for CO2 subsurface pressure management.15

Thinking Outside the Box

CCS Costs in China May Be Lower than in the West

It is important to note that capture costs may be lower in China than in the West, suggesting that Chinese CCUS projects could already be economic, although constrained by some noneconomic factors. Huaneng Power estimates the cost of their CCS technology to be about $39/tonne in the Chinese market, based on their experience with the Shidongkou power plant near Shanghai. Duke Energy and Huaneng are currently undertaking a feasibility study to retrofit Duke’s Gibson 3 power station, which may help clarify the potential cost in a U.S. market.

The Role of Natural Gas

Natural gas prices in the U.S. and Canada are low, relative to the rest of the world, and forecasts of future prices suggest price increases will be low enough to keep new natural gas combined cycle (NGCC) power plants as the cheapest new source of electricity. In the U.S., NGCC-CCUS is expected to be among the lowest cost, low-carbon power alternatives. The U.S. DOE estimates that an NGCC with 90% capture and storage in a saline aquifer has a cost of $90/MWh today,16 and today’s CO2 prices could lower that by as much as $20/MWh.

As a result, niche markets in the U.S. and Canada have the potential to build out an important number of NGCC-CCUS plants. For example, California has a CO2 cap-and-trade program and a standard to restrict carbon intensity of transportation fuels. California regulators have expressed a desire and willingness to recognize CO2-EOR as eligible to earn credits under both programs. If this can be accomplished by adapting existing state policies in the next two years, the revenue from credits would likely make NGCC-CCUS electricity competitive with uncontrolled power sources.

Natural gas can be an advantageous fuel for power generation with CCS for several reasons. First, the capital cost of NGCC turbines are roughly one-third those of conventional coal-fired power plants. Also, NGCC plants produce roughly 60% less CO2 than conventional coal per unit of electricity generated, which results in considerably less CO2 to capture, compress, and store.

Because the post-combustion capture technologies used on NGCC and coal combustion plants are basically the same, the application of CCS on NGCC units will have cross-over benefits to coal-fired power plants. For example, vendors such as Flour and Mitsubishi Heavy Industries initially offered performance guarantees for NGCCs before coal combustion plants due to industrial experience with gas reforming and power settings, which paved the way for technology performance guarantees to coal-fired power plants.

Industrial Sources

Industrial sources of CO2 typically have higher concentrations of CO2, which leads to lower CO2 capture costs. Deployment of CCUS/CCS at such facilities can help create the necessary infrastructure (i.e., pipelines, etc.) for widespread deployment of CCS on power generation.

CCS is considered the only available technology option to systematically reduce CO2 on a large scale in the industrial sector, especially in the production of cement, iron and steel refining, and other chemical and petrochemical applications. The IEA claims that rapid and large-scale deployment of CCS in iron and steel production facilities alone can avoid the emission of 1.1 Gt of CO2 by 2050, while up to 1 Gt of CO2 can be avoided in global cement production if CCS is widely deployed.3d

Many of the current large-scale integrated projects in operation or under construction capture CO2 from gas processing, syngas clean-up (in some cases for power production), fertilizer production, ethanol production, and hydrogen production.3e These projects remove CO2 as a necessary processing step in the manufacture of a product. Many of these projects are storing or will store CO2 through EOR.

Policies as Catalysts for CCS

There are two policy vehicles under consideration in the U.S. to show how targeted policies can begin to move deployment forward.

CO2-EOR Incentives—A Win-Win

As noted above, CO2-EOR has significant potential to increase U.S. oil production with important economic and energy security benefits. In addition, the technology cost reduction from the scale of CCS deployment and the build-out of infrastructure can position the U.S. to have a fully zero-carbon power system.

U.S. federal incentives for CO2-EOR could help close the initial cost gap of capturing CO2 from both industrial and power sources and start the build-out of infrastructure (pipelines to distant power plants). The National Enhanced Oil Recovery Initiative (NEORI) is currently calling for U.S. federal incentives to close that gap. The program will be at sufficient scale to have an impact on technology cost reduction, and competitive bidding for the credits will promote investment in innovation. In addition, because the oil can’t be produced without additional CO2 supply, and it primarily displaces foreign oil consumption, the incentive can be self-financing from a fiscal perspective. CATF is participating in this collaborative effort, which includes coal companies, power companies, other environmental NGOs, labor unions, and state officials, and is led by the Center for Climate and Energy Solutions and the Great Plains Institute.

The Proposed EPA Rule Doesn’t End U.S. Coal, It Starts CCS

On 20 September 2013, EPA concluded for the first time that partial CCS is the Best System of Emissions Reductions (BSER) for new coal plants. If finalized as proposed, the rule will require that all new coal plants meet an emission rate between 1050 lb CO2/MWh and 1100 lb CO2/MWh, a reduction that is approximately 40% below uncontrolled emission levels.

At the Clean Air Task Force, we believe that this rule will help the coal industry. We think the rule provides the certainty that is needed with respect to future carbon liability. Most proposed coal-fired power plants in the U.S. in the last five years already included CCS in order to limit this uncertainty facing investors. Second, the rule’s flexibility and partial capture requirement reduce CCS cost of electricity to only 13% above that of an unconventional coal plant.17 Finally, we believe that this rule sends a signal that CCS deployment is helping CCS move down the cost reduction curve. Certainty, flexibility, and cost reduction will help position coal globally with respect to other low-carbon technologies (e.g., nuclear) and in the U.S. if and when rising gas prices allow new coal power to become more competitive.

What Does Success Look Like?

Getting to “Critical Mass”

If a “critical mass” of CCS projects can be built across the world by 2035, CCS becomes a real option that enables governments to adopt regulations, laws, treaties, and other policies that mandate deep cuts and near-zero CO2 emissions by mid-century. What does critical mass look like? It is enough projects to:

  • Reduce costs.
  • Improve performance.
  • Expand pipeline and storage infrastructure.
  • Distribute CCS/CCUS projects and infrastructure globally, including in developing countries.

Milestones

At the Clean Air Task Force we see certain milestones which, if met, would allow for worldwide deployment of CCS projects within the next three years.

In China

  • Establish the initial CO2-EOR infrastructure (primarily from industrial sources).
  • Establish the first commercial-scale CCS power plant projects using Chinese capture technology.
  • Establish strong CCUS goals within the next five-year plan framework.

In North America

  • Establish a first wave of large-scale CCUS power plants.
  • Expand EOR infrastructure through high-purity, low-cost industrial sources.
  • Finalize meaningful U.S. EOR incentives and EPA CO2 NSPS regulations.
  • Expand state and provincial incentive programs that drive CCUS first commercial plants.

Note that California has laid a promising foundation by recognizing CO2-EOR in key climate policies.

Broadly

  • Companies and governments in China and North America must understand and act on the power and industrial
    sector/EOR opportunity.
  • Establish significant partnerships between Chinese-Western companies that speed both CCS innovation and early projects.
  • Advance key early-stage CCS technologies to higher stages of development.

 

REFERENCES

  1. U.S. Energy Information Administration, Countries, International Energy Statistics, 2013, www.eia.gov/countries/data.cfm
  2. International Energy Agency, Technology Roadmap: Carbon Capture and Storage in Industrial Applications, 2011: Paris: IEA/UNIDO, p. 11.
  3. 3a. International Energy Agency, Energy Technology Perspectives 2010 – Scenarios and Strategies to 2050. Paris: OECD/IEA, 2010, p. 161; 3b. Ibid, p. 119; 3c. Ibid, p. 110; 3d. Ibid., p. 184; 3e. Ibid., p. 172.
  4. Cohen, M. Fowler, K. Waltzer, “NowGen’’: Getting Real about Coal Carbon Capture and Sequestration, Electricity Journal, 2009, 22 (4), 28–29.
  5. M. Al-Juaied, A. Whitmore, Realistic Costs of Carbon Capture, Discussion Paper 2009-08. Cambridge, MA: Belfer Center for Science and International Affairs, July 2009, pp. 12, 16.
  6. B. Phillips, De-Carbonizing the U.S. Coal Fleet. Prepared by The NorthBridge Group for the Clean Air Task Force, November 2010.
  7. M. Fowler, J. Thompson, B. Phillips, D. Cortez, How Much Does CCS Really Cost? White Paper, Clean Air Task Force, 2012, p. 5.
  8. Improving Domestic Energy Security and Lowering CO2 Emissions with “Next Generation” CO2 Enhanced Oil Recovery (CO2-EOR). Prepared by ARI of NETL/DOE, 20 June 2011, www.netl.doe.gov/energy-analyses/pubs/storing%20co2%20w%20eor_final.pdf
  9. British Petroleum, Statistical View of World Energy, 2013, www.bp.com/en/global/corporate/about-bp/statistical-review-of-world-energy-2013.html
  10. V. Kuuskra, P. Depietro, CO2 Enhanced Oil Recovery: The Enabling Technology for CO2 Capture and Storage, Cornerstone, 2013, 1 (4).
  11. V. Kuuskra, Screening-Level Assessment of CO2 Enhanced Oil Recovery Opportunities In China. Prepared for Powerspan Corp., August 2009.
  12. IEA Greenhouse Gas R&D Programme (IEA GHG), CO2 Storage in Depleted Oilfields: Global Application Criteria for Carbon Dioxide Enhanced Oil Recovery, 21 December 2009, www.globalccsinstitute.com/publications/co2-storage-depleted-oilfields-global-application-criteria-carbon-dioxide-enhanced-oil
  13. K. Cashman, Bakken Explorers 2013: EOR to Improve Recovery to more than 25%, Petroleum News Bakken, 11 August 2013, www.petroleumnewsbakken.com/pntruncate/244464591.shtml
  14. M. Godec, Assessment of Factors Influencing Effective CO2 Storage Capacity and Enhanced Gas Recovery in the Marcellus Shale, Energy Procedia, 2013, 37, 6644–6655.
  15. R Aines, T. Wolery, W. Bourcier, T. Wolfe, C. Hausmann, Fresh Water Generation from Aquifer-Pressured Carbon Storage: Feasibility of Treating Saline Formation Waters, Energy Procedia, 2011, 4, 2269–2276.
  16. M. Woods, L.R. Pinkerton, E. Varghese, Updated Costs (June 2011 Basis) for Selected Bituminous Baseline Cases. Washington, DC: DOE/NETL, 2012, p. 49. Available for download at: www.netl.doe.gov/energy-analyses/refshelf/PubDetails.aspx?Action=View&PubId=455
  17. M. Fowler, J. Thompson, B. Phillips, D. Cortez, How Much Does CCS Really Cost? White Paper, Clean Air Task Force, 2012.

 

The authors can be reached at kwaltzer@catf.us, phardwicke@catf.us, and jthompson@catf.us.

The content in Cornerstone does not necessarily reflect the views of the World Coal Association or its members.

Mission Possible: An Environmentalist Looks at Coal and Climate

By Armond Cohen
Executive Director, Clean Air Task Force

Most of my thirty-year professional career as an environmental organization lawyer and then environmental group CEO has been focused on reducing the environmental impact of the global energy system. Yet much of the last ten years of my career has been focused on demonstrating and deploying coal power generation technologies utilizing carbon capture and storage (CCS). What’s wrong with this picture?

Nothing. It’s actually quite simple. Coal will be central to economic modernization in the developing world, where most energy supply will be built in the next three decades. Coal will also have a significant residual role in much of the OECD. Coal is not going away. We need to begin to use it without emitting significant carbon dioxide, and quickly. If we don’t, the risk to global climate is immense, and likely irreversible. It’s that straightforward. People who wish otherwise, and simply hope for the demise of coal, are not facing the facts.

Mission Possible

“The first fact is that coal is projected to be the fastest growing electric power source on the planet from 2010–2015.”

The first fact is that coal is projected to be the fastest growing electric power source on the planet from 2010–2015, measured by actual additional energy production per year. Yes, a lot of gas-fired capacity is going to be built or utilized in the United States to displace some retiring coal plants, and in Germany and Japan to replace shut-down nuclear plants. Even Germany, however, is building a medium-sized fleet of new coal plants (in addition to gas plants) to help plug the nuclear gap. And, in the United States, announced coal retirement due to new environmental regulations amount to only about 5% of annual U.S. coal generation; the remaining coal fleet will dispatch more as gas prices return from their current unsustainable low levels.

Yet, in the end, the OECD is largely a sideshow. The real action is in Asia. Electric power demand in the developing world will grow by threefold in the next few decades, while OECD demand will grow only modestly, if at all. China already has built a fleet of some 600 GW of new coal-fired power plants in the last seven years, twice the amount of coal capacity that it took the United States seventy years to build. China’s 12th Five Year Plan calls for doubling that capacity to 1200 GW by 2035. With their capital costs sunk, none of these plants will be bulldozed anytime soon. Substantial coal expansion is planned in Indonesia and elsewhere in the region. Meanwhile, India’s coal development, although presently stymied by bureaucratic and political gridlock, could also explode if political conditions change in response to this past summer’s grid failure and the ongoing lack of reliable power.

Let me be clear: But for the environmental challenges, this expansion of coal-fired power boom is a good thing; reliable energy is a correlate of economic growth and human development. But let me be equally clear: The carbon associated with this expansion is unacceptable and puts us on a collision course with our global climate. We’ll get back to the environmental challenges in a minute.

The second fact is that the major global competitors to coal – gas, wind, solar, nuclear, and energy efficiency – are likely to gain ground but not seriously challenge coal’s market share for some time. Although North American gas is presently enjoying a “golden age” of production due to the explosion of fracking for unconventional gas, this will likely be a predominantly North American phenomenon for some time. Shale gas exploration is just beginning in Europe and China, and will probably take decades to reach maturity, even if the shale deposits prove to be as recoverable as they are in North America. For example, China hopes to be producing just a little over 2 trillion cubic feet of shale gas by 2020, or about 40% of current U.S. shale production, for a population five times larger. And this gas will almost certainly be more expensive than in the United States; the International Energy Agency projects that, even with abundant shale gas, it will still be less expensive to build a new coal plant in China than a gas plant.

Ditto renewables, energy efficiency, and nuclear energy. Despite the enormous recent growth in wind and solar, they are growing from a very small base and represent less than 3% of the planet’s power supply. Serious challenges to expansion loom in terms of cost, variability, intermittency, and land use. Even the International Energy Agency’s most aggressive climate-driven power scenario for 2035 sees less wind and solar power production than coal. And China, which presently leads the world in annual solar and wind capacity additions, projects that two thirds of its power will still come from coal in 2035.

Improved energy efficiency is a good thing, but is unlikely to do more than moderate an otherwise expected twofold energy demand growth in the world by 2035. Indeed, a decades-long trend toward lower energy intensity has reversed and global energy intensity has increased. California, which is perhaps the world’s leader in energy efficiency policy, chopped off about 15% of its business-as-usual electric demand after two decades of work, but still sustained 40% net growth. Faster industrializing countries will experience much higher net growth even with aggressive efficiency policies.

And, finally, nuclear energy is far from dead – with more than 30 new units under construction or planned today – but also faces cost and public acceptance challenges. Moreover, the planet’s existing nuclear fleet is aging, and much of it will be either forcibly retired (as in Japan and Germany) or age out naturally – making it likely that net nuclear generation will grow modestly. A new generation of advanced reactor technologies – pebble bed, thorium, and small modular units – promises safety and cost improvements but will probably take a decade or two to be fully commercial.

So we are left with coal as the planet’s electric backbone, with possibly 2100 GW of installed capacity worldwide by 2020. These plants will put out about four billion tons of carbon each year if nothing is done to control them. This puts us on a direct collision course with climate stability. The best recent models suggest we may be able to emit only 500 billion tons of carbon this century if we are not to go well beyond temperatures experienced by human beings, which means effectively getting to zero carbon emissions from our energy system by mid-century. How can we square this limit with expanded coal use?

There is only one way: to scrub the carbon out of coal. Carbon capture and storage (CCS) is a combination of technologies which have been proven over the last two to three decades. The challenge is to move forward with the dozen or so global demonstration projects that integrate these technologies and that are in early stages or in planning, expand that number by tenfold, and begin the process of managing costs down through in situ learning and further technical innovation. Examples of current demonstration projects that show great promise in the United States alone are the Kemper project in Mississippi now under construction, a 582 MW coal plant with 65% carbon removal, and the Texas Clean Energy Project, a 245 MW project with 90% carbon removal. In both cases, the projects will garner revenue by selling the CO2 for enhanced oil recovery (EOR). The increasing understanding of the favorable economics of using CO2 for EOR may give a boon to other new projects of this type. Meanwhile, projects around the world are injecting millions of tons per year of CO2 to demonstrate the stability of carbon sequestration deep underground in a different way, using saline aquifers. Many more such CCS projects stand in the wings, waiting government funding.

Texas Clean Energy Project

Visualization of Texas Clean Energy Project to be built in Odessa, Texas. The plant will use integrated gasification combined cycle technology to produce 200 MW of power, with 90% carbon capture; the captured carbon will be injected into nearby oil fields for enhanced oil recovery.

There is plenty of physical room globally for carbon storage (Florida disposes of more wastewater brine each year than the CO2 that U.S. coal plants put out); the principal barrier is the cost of removing and injecting carbon in the absence of a requirement or incentives to do so. In April 2012, the U.S. EPA proposed a first-ever rule requiring new coal plants to sequester at least 60% of their carbon; eventually, CO2 emission limits would be applied to existing coal plants as well. And a coalition of U.S. business, labor, and environmental organizations recently proposed a tax incentive to cover the difference between the cost of carbon capture and the value of EOR revenue – resulting in a positive flow to the U.S. Treasury as a result of tax revenue from additional oil recovery. Meanwhile, China is currently demonstrating its version of retrofit CCS technology that may be able to remove carbon at considerably below the cost of current Western technology. Finally, underground coal gasification (UCG), a process that gasifies coal in the seam, avoiding the need to mine and burn it, holds promise for lower CCS costs, potentially making a new near-zero carbon coal plant competitive with a new uncontrolled coal plant. UCG projects are now underway in China and South Africa.

Can we reconcile the irresistible force of coal power and the immovable object of climate limits to CO2? We can indeed, if we apply our technological innovation capability and political willpower to deploy the commercially available technology we have today, and improve upon it – just as we began to do with sulfur scrubbers in the late 1980s, which are now widespread on the planet only two decades later. Environmental groups such as the Clean Air Task Force – and a growing number of our peers around the world – are willing to work with the coal and power industries and governments to make this happen. Let’s get on with it: There is no time to waste, and we have a planet to protect.

 

The content in Cornerstone does not necessarily reflect the views of the World Coal Association or its members.