Abby L. Harvey
GHG Monitor
11/13/2015
A coal industry advisory board to the secretary of energy this week presented a report laying out recommendations to deliver on policy parity for carbon capture and storage technology. The National Coal Council (NCC) has noted the many ways in which financial and regulatory support for renewable energy sources dwarfs that for CCS, and Secretary of Energy Ernest Moniz requested the group develop a report addressing the issue.
“Policies that disproportionately advantage one resource and erect hurdles for others impede our nation’s economic and environmental objectives while imposing undue hardship on our citizens. Incentives for renewables will persist. CCS, which has greater carbon reduction significance but is not yet commercially available in the power sector, requires additional policy support in order to level the playing field,” the group said in the report.
The document calls for improvements in several key areas: financial incentives, regulatory improvements, research development and demonstration (RD&D), and communication and collaboration.
One of the group’s main suggestions is the development of a “Contracts for Difference” (CfD) mechanism similar to that currently used in the United Kingdom. The CfD subsidy is a private law contract between a low-carbon electricity generator and the government. “The CfD structure may be the single most important mechanism to spur CCS development and deployment, but only if the incentives underlying it are sufficient,” the report says.
The CfD mechanism should be available for a limited number of projects, which would bid for financial support in the form of a combination of the proposed incentives, the report says. “By way of example, a CFD structure could provide a power plant contract recipient with a [DOE Clean Coal Power Initiative] grant to reduce capital cost, provide a loan guarantee to reduce borrowing cost, and make use of tax credits to reduce the cost of electricity over time. Another applicant may prefer to request variable price support for electricity, as offered in the U.K, or variable price support for CO2 sold from the facility, in place of other incentives,” the report explains.
The report also notes significant disparity between government subsidies for renewables and CCS, stating that in 2013 renewables received more than 12 times the subsidies coal did. The gap in support is also seen in funding within DOE, the report says. “DOE’s CCS R&D program has grown to a $200+ million annual program with a portfolio of nearly 200 projects across the CCS chain in varying stages of development. As a point of contrast, the DOE Office of Energy Efficiency and Renewable Energy has a 2014 budget of $1.9 billion, of which $775 million is in direct support of renewable energy projects,” it notes. It is worth noting, though, that the DOE Office of Energy Efficiency and Renewable Energy oversees R&D of numerous forms of low-carbon energy.
Beyond funding, renewables also face a more favorable regulatory regime than CCS, the group asserted. “Renewable Electricity Standards (RES) obligate utilities to produce a specified percentage of their electricity from renewable energy sources. The Public Utility Regulatory Policies Act (PURPA) mandates the purchase of renewable energy from qualifying facilities (QFs) of 20 MW or less,” the report says.
This positive policy support should also be applied to CCS, but instead the opposite is happening – policy is being drafted that discourages the development of the technology, the report says. The group took aim at the Environmental Protection Agency’s carbon emissions standards for new and existing coal-fired power plants.
The New Source Performance Standards (NSPS), drafted under Section 111(b) of the Clean Air Act, essentially mandate the use of partial carbon capture and storage on all new-build coal-fired power plants. Meanwhile, the Clean Power Plan (CPP), drafted under Section 111(d) of the Clean Air Act, requires states to develop action plans to meet state-specific carbon reduction goals.
“Cart-before-horse policies that appear to be mandating CCS technologies (i.e., EPA’s 111(d) existing power plant and 111(b) new power plant rules) will not incent CCS development or deployment. People will turn instead to mature alternatives. CCS needs policies recognizing it as a still immature, not commercially available carbon reduction technology. These policies need to account both for cost factors and still uncertain technical performance risk,” the report says of the regulations.
Furthermore, the report asserts that the 111(b) and 111(d) regulations discourage the use of enhanced oil recovery. EOR can provide some monetary relief to costly CCS projects through the sale of captured CO2. However, in the regulations, CO2 captured from power plants and injected into oil wells must be reported under more stringent greenhouse gas reporting rules than is currently required. “Federal policy should encourage and facilitate reuse of CO2 from CCS operations, not discriminate against it,” the report says.