As the House and Senate begin to consider options for an energy package, what is the best policy tool to spur the development and construction of new clean coal power plants? During today’s OnPoint, Bob Sussman, a partner at Latham & Watkins and a former deputy administrator at EPA, and Ken Berlin, head of the environmental practice at Skadden, Arps, Slate, Meagher & Flom, discuss their new report, "Global Warming and the Future of Coal: The Path to Carbon Capture and Storage." Sussman and Berlin suggest an emissions performance standard for coal plants as the most effective way to expand the use of carbon capture and storage technology. The authors say a cap-and-trade plan, although a positive step, would not be sufficient in bringing clean coal to the forefront. Sussman and Berlin also urge Congress to consider offering more incentives for the construction of new clean coal plants.
Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today are Ken Berlin, head of the environmental practice at Skadden, Arps, and Bob Sussman, a partner at the D.C. law firm of Latham & Watkins and a former deputy administrator of the EPA. Thanks for coming on the show.
Bob Sussman: Our pleasure.
Ken Berlin: Our pleasure.
Monica Trauzzi: Bob, you and Ken just released a new report on clean coal along with the Center for American Progress and it's called "Global Warming and the Future of Coal: The Path to Carbon Capture and Storage." Why did you set out to write this report? We've see many reports on clean coal recently. The MIT clean coal report is probably the most well-known. How does this report contribute to the overall discussion?
Bob Sussman: This report addresses an important issue that none of the other reports have really addressed, which is what are the best policy tools to achieve deployment of carbon capture and storage technology as soon as possible? There's been a lot of discussion of the technology itself, a lot of interest in the technology. But nobody really has asked, what's the best way to get this technology in place? Particularly on new coal plants where we're expecting to see an increase in new plant construction and a corresponding increase in CO2 emissions.
Monica Trauzzi: And I want to walk through the different policy tools that you analyze in the report. Ken, which policy would you consider to be the most effective in spurring wide-scale implementation of clean coal?
Ken Berlin: We looked at a series of policies, most of which involve a fair amount of uncertainty about what the price of coal would be. We looked at the cap and trade system, which we can talk about, we looked at a carbon tax, and in each of those cases we had concluded that we would not be able to effectively address the question of getting companies to build plants that capture and sequester unless the price of coal got up to $30 a ton, the price of CO2 got up to $30 a ton. That's possible in a cap and trade system, it's possible with a carbon tax, but we felt it was very, very unlikely, under those systems that we would get to that level. So, what we recommend on this, to ensure that new plants are built with carbon capture and sequestration is that companies be mandated, required to build all of their new coal plants with the ability to capture and sequester and to actually start capturing and sequestering by a date certain. So we say that all plants should be built, starting next year, with the requirement that they capture and sequester, that they should be able to have their capture technology in place by 2013 and they should be sequestering by 2016. This ensures that all new plants do this. And we felt this was the only mechanism, well, one of the only mechanisms that ensures that going forward.
Monica Trauzzi: It really looks like the Hill is sort of leaning towards implementing a cap and trade system, so how is that going to affect clean coal technology?
Bob Sussman: We're not opposed to cap and trade systems. In fact, we think they have a very important role to play. I guess the phrase I would use would be they're necessary, but not sufficient to deal with new coal plants. Just as they're necessary, but not sufficient to deal with a number of other specific issues, such as vehicle emissions. So in our framework we would have a cap and trade program, that it would be limited to existing coal plants. And instead we would have an emission performance standard, which is basically a technology forcing emission reduction goal for new plants. And as Ken said, the reason for that is new plants represent a very significant source of additional emissions, particularly new coal plants. On the other hand, the price of carbon that we envision under a cap and trade program is not going to be high enough to cause new coal plants to install carbon capture and storage. And that's why we think we need an emission performance standard to get us there.
Monica Trauzzi: And another policy that you discuss is a low carbon portfolio. How would that come into play with clean coal?
Bob Sussman: Well, there are two different types of low carbon portfolio standards. There is one which has been advocated by Xcel Energy and Senator Norm Coleman of Minnesota. And basically the idea would be that all retail distributors of electricity would have to purchase a certain proportion of the power that they sell from low carbon emitting sources. And this is an interesting idea that may have a role to play, but there's really no certainty or even likelihood that under a low carbon portfolio standard developers of new coal plants will, in fact, install carbon capture and storage. They may do a number of other things to comply with the standard and yet still build uncontrolled coal plants.
Monica Trauzzi: The report says that building new coal-fired power plants would threaten all other efforts to combat global warming. Clean coal technology isn't exactly at a point where it could be implemented tomorrow, say IGCC. It still needs a lot of work. So how do we meet the U.S.'s increasing energy demands without damaging our efforts to reduce emissions?
Ken Berlin: We think that, after studying this very, very carefully, we think that clean coal technology for new plants is far enough along so that you can start saying that all new plants, starting next year, have to be built so that they adopt capture technology and that they can sequester. We recommend that plants that start construction, that it start construction next year, which means they'll be ready a number of years down the line. And we think that by 2013 or 2016 these plants will be able to capture and then sequester their CO2 emissions. So we think that you can build these plants. There will be a couple of years where they're sort of experimenting with getting everything exactly right, but they'll have it right by 2016. So we think that, in fact, they are ready to go forward and we think the evidence shows that. And we go into great detail on that in our report.
Monica Trauzzi: You're saying next year, is that feasible?
Bob Sussman: Well, that depends on Congress, obviously. I mean our goal would be to get an emission performance standard in place as soon as possible in order to send a very strong and a very clear signal to plant developers that carbon capture and storage is going to be required equipment and required technology on new coal plants. To come back to your question, I think, we feel the only way we're going to get to widespread deployment of carbon capture and storage technology is to set a very aggressive goal, to put in place a very clear timeframe, to provide a phased process and some flexibility in when we start capturing, but to leave no doubt that we're committed to capturing and storing CO2. And we think that will get the attention of the industry and it will focus the resources on putting in place the foundation for a carbon capture regime sooner rather than later.
Monica Trauzzi: Currently, what kind of incentives exists for companies to implement IGCC? I mean there's still reliability and efficiency drawbacks. The cost is 20 to 25 percent more. So why would companies want to do it?
Ken Berlin: I think there are a couple of reasons why they'll do it, and a lot of companies are doing it. There are 34 proposed IGCC plants now on the drawing board. That's only 20 percent of all the plants, so we don't think that's adequate, but there are 34 proposed plants. Some of those will capture and sequester, some of those are not planning to do that, but can be retrofitted to do it. The reason, I think, companies are building these plants now fit into several categories. One is that they're really hedging their bets against the future. I mean that's looking at it and saying, "We're going to be required to do this. Let's go ahead and do that now." There are some congressional incentives on it if you build these plants. They are not adequate for 35 plants. They'll work on a number of plants going forward, but they won't cover 35 plants out there. So, essentially, you're getting what you always get in the brand-new technology. You're getting early adopters essentially saying, "We're going to go ahead. We're going to take the risk with this technology. We're going to make the bet that there will be carbon controls down the line and, therefore, this will pay for itself." Again, the 20 to 25 percent additional costibility of the plant and there's additional costs in operating it also would go away, for example, if the price of carbon gets high enough, if it gets to $30 a ton. So on some of the plants some of the people are taking the bet. The problem is that not enough companies are doing that, we think, to really deal with the question of new plants and that's why we're proposing a mandate that they do it.
Monica Trauzzi: On congressional incentives, what more should we be seeing from the government?
Bob Sussman: Well, if we go ahead and commit to large-scale deployment of carbon capture and storage technology there's no doubt that we're going to be adding significant cost to the construction of coal plants and, therefore, significant increases in electricity rates for those ratepayers who receive power from those plants. That's a situation we need to address up front if we want to create a secure foundation for this technology going forward. The incentives and financial supports that are available now are not large enough, nor are they focused enough, to really mitigate the cost increases and the electricity cost hikes that we can expect when we start deploying carbon capture and storage technology on a large number of plants. So, what we need to do is we need to have a new incentive program which is specifically focused at mitigating those costs. The programs that we have now on clean coal technology do a number of things, but they don't really achieve that fundamental goal.
Ken Berlin: And there are two fundamental advantages of giving these kinds of incentives. One is that it will make it much more likely that people will be willing to build these plants going forward, rather than building traditional coal plants. And we're looking at an incentive that really covers the current price difference between building the two types of plants. The other advantage is, is that coal plants are concentrated in different parts of the country and there'd be disparate regional impacts from building these new coal plants unless there's some sort of national incentive out there. And we think, both for reasons of equity, because this is a nationwide program, and for political reasons, that we can't let these disparate regional impacts become significant going forward. And we would propose incentives that eliminate those essentially.
Monica Trauzzi: All right. We are out of time unfortunately, so we're going to end it right there. Thanks for coming on the show.
Ken Berlin: Thank you very much.
Monica Trauzzi: This is OnPoint. I'm Monica Trauzzi. Thanks for watching.
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