OIL AND GAS:

C2ES's Greenwald, AFL-CIO's Baugh make case for enhanced oil recovery tax credit

Is enhanced oil recovery (EOR) the missing link in the United States' energy policy? During today's OnPoint, Judi Greenwald, vice president for technology and innovation at the Center for Climate and Energy Solutions and Robert Baugh, executive director of the AFL-CIO Industrial Union Council, outline the recommendations of the National Enhanced Oil Recovery Institute, a coalition of business and environmental groups. Greenwald and Baugh call on Congress to pass an enhanced oil recovery tax credit to spur innovation and growth in carbon capture and storage. They also address the environmental concerns associated with EOR.

Transcript

Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Judy Greenwald, vice president for technology and innovation at the Center for Climate and Energy Solutions, and Robert Baugh, executive director of the AFL-CIO Industrial Union Council, and also chair of their Energy and Environment Task Force. Thank you both for joining me today.

Robert Baugh: Thank you.

Judy Greenwald: Thank you for having us.

Monica Trauzzi: Judy, oil drilling has been opposed by environmental groups for years, but just last week C2ES launched an initiative that's bringing green groups in industry together on this idea of enhanced oil recovery. How have you managed to bring these groups together? It seems like this would have been something that would have been impossible just a few years ago.

Judy Greenwald: Well, it's interesting. This solution, carbon dioxide enhanced oil recovery, is a solution that a lot of people can come together around for different reasons. I would say that the environmental groups are most interested in the part of the solution which involves capturing the carbon dioxide, and many in industry are probably more interested in the part of the solution that involves taking that captured carbon dioxide, injecting it underground, and bringing up more oil, which increases our domestic production.

So this is a solution that helps on energy security, it helps on environmental protection, and it also helps on our economy, increasing economic development and jobs growth. So there are multiple benefits, and different folks come to this with different emphasis on different objectives, but we can all agree in the solution.

Monica Trauzzi: Bob, AFL-CIO is a participant in the National Enhanced Oil Recovery Initiative. Why is this a good fit for your organization?

Robert Baugh: Well, as Judy pointed out the sides of the equation, we actually fall on both sides of this equation. We were very active in the climate debate in Congress around legislation, and one of the reasons was we looked at an investment portfolio for changing energy infrastructure, and ways in which we can lower our carbon footprint because we think that's important, we believe it's a problem, and we've acted on it. We also have looked at ways you can do this where there's opportunities to retain and generate good employment in the economy, and this is obviously one.

One of the challenges we face for our folks that work in the coal mines and in the utility industry is what do we do with the carbon coming out of those plants and commoditizing this? The ability to do that and capture oil is really a huge environmental opportunity for the nation, but it's a real jobs opportunity for our folks that would retrofit these plants, that would help build these pipelines, and that would maintain these oilfields.

Monica Trauzzi: So, Judy, I want to talk about some of these recommendations that you're making in the report. You'd like Congress to pass a production tax credit for carbon capture and transport. It's a tough time for tax credits overall. Should something like that take precedent over, let's say, a wind or solar production tax credit? Where does this fall in terms of the importance that Congress should be putting on it?

Judy Greenwald: We think this is very important. We have three sets of recommendations in our report. We have some recommendations at the state level, because states also can play a role in encouraging using captured carbon dioxide in enhanced oil recovery. We also have a recommendation to reform an existing tax credit which is referred to as Section 45-Q. This is a tax credit in existing law. It's already been accounted for in the budget, but it's not working very well, and we recommend some good government improvements to it to make it work better, so that industry knows how to get it and can count on it in getting their financing. There's been some administrative problems with it. That one we think actually could be done quite quickly, and we're hoping that is something that could be an early victory.

The larger production tax credit we also think has good potential, but that may take a longer time. It may be that this year we start working on it and that it spills over into the future. But even that one, it's revenue positive. What happens is, you incentivize the capture of CO2 for use in enhanced oil recovery, and then you get more domestic oil production, and that yields more revenues back to the government so that the credit actually more than pays for itself over time. It doesn't pay for itself right away, you have a lag because you first have to give the credit and then there's some lag with the oil production, but our analysis indicates that it's revenue positive within ten years, and that the revenue positive aspect of it keeps growing.

So we think that even in these difficult budgetary times, this is a winner, and this is something that we need to do education on and we need to make sure that we get it right. But we actually do think this has enormous potential and benefits compared to other tax credits that might not have that save profile.

Monica Trauzzi: All right, let's talk about the environmental impacts. How do you ensure that by using this carbon and injecting it into the ground that it stays there and that it also doesn't have adverse environmental impacts once it's down there?

Judy Greenwald: That's an important aspect of this work, and the experience thus far with using CO2 in enhanced oil recovery is excellent. The overwhelming majority of the carbon dioxide stays down. We do think that one has to make sure of that, and there are probably a variety of views about how you actually do that and what rules need to be in place. We do have some rules. I think there are folks who believe that we need some improvement in those rules. Other people are happy with them the way they are. But we do agree that you need rules and that has to be part of this. But we are very optimistic that this carbon dioxide is going to stay underground and protect the environment.

Robert Baugh: If I may join in on that. I think one of the things that's interesting, I'm not a geologist and a scientist, but I spent a lot of time with the scientists that were part of this project. And what's interesting is that we have people from the industry, but we also have the National Resource Defense Council, and several other environmental organizations with their geologists and scientists, and I spend a lot of time talking to them. And they basically said, "We understand the underground formations. We actually know the science works. The real question is, what do we do to monitor stuff on the long term? But in fact, we know this can be done, it has been done." I think that's actually important. That expresses the breadth of the people that came together that agreed upon a common set of facts.

Monica Trauzzi: But, Bob, you're talking about recovering a source of energy that's been labeled as dirty. You were very involved in the climate change debate, once it's above ground and once we put it into use, aren't we emitting even further?

Robert Baugh: Well, I think you have to look at it from this perspective, that our oil usage in this country is primarily for transportation, and we're importing nearly half our oil today, much of it from areas that are frankly quite dangerous in the world. So the idea that you could recover from existing footprints, literally, oil that's already there, that you would be circulating that resource and money that goes into this economy as opposed to shipping it overseas and turning it into trade deficits, it makes sense from a number of points of views.

And the other thing I would point out is that we've actually worked very hard with our unions, the OAW, the autoworkers in particular, around increased fuel efficiency standards that are going to move very high to make our fuel use more efficient, so that it's not as CO2 intensive as it is today. So we're taking the steps in the right direction to make sure we capture the oil that's here, spend the money we spend on that in this economy, and in fact increase our fuel efficiency standards.

Judy Greenwald: I think it's important when you look at this to think about compared to what. If you believe that we're going to continue to use oil, then this is a relatively low-impact way to produce oil. If you think we're going to get off oil, then you probably would prefer some other policy options. But on the oil supply side, this is the best option that we know of to actually reduce the environmental impact, improve our energy security, and get more domestic oil production. In addition to the climate benefits which result from putting the CO2 underground, there's also other benefits, because as Bob said, these are areas where you already have an existing oil field.

By definition, what you do with CO2 EOR is you take carbon dioxide and you inject it into formations that have already been produced as much as they can. So you have oil that's stuck in place. And CO2 has this interesting characteristic that it frees up that oil and allows it to move. So we have abundant domestic oil that we can't get out but for carbon dioxide, that they're willing to pay quite a bit for, that others in the rest of the country are emitting into the atmosphere as waste.

Monica Trauzzi: Judy, we're just about out of time. One last question if you can answer it quickly. Any expectations to actually see legislation on this this year?

Judy Greenwald: We are hopeful that we'll see legislation at least proposed and we're certainly working towards that goal. We got a lot of interest on the Hill the other day, both parties, both houses of Congress, so we're very excited. There are definitely people that want to work with us, and we think we certainly have this near term opportunity with 45-Q reform, and we also think we have a longer-term opportunity with the broader production tax credit.

Monica Trauzzi: All right, we'll end it right there. Thank you both for coming on the show, good to have you on.

Robert Baugh: Thank you, Monica.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]

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