Waxman-Markey dangles cash to lure CCS 'first movers'

The sweeping House-passed climate and energy bill has a message for companies trying to develop and use "clean coal" technology: If you snooze, you lose.

The legislation lays out billions of dollars in incentives to entice owners of coal-fired power plants to try carbon capture and sequestration (CCS), technology considered vital to keeping the abundant fossil fuel in play as an energy source while curbing emissions of heat-trapping gases.

The measure sponsored by Democratic Reps. Henry Waxman of California and Ed Markey of Massachusetts makes the first 6,000 megawatts of new or retrofitted power plants eligible for up to $90 in allowances for every ton of carbon dioxide that they capture and store. Such bonus allowances for "first movers" far exceed most predictions of what carbon will cost on the open market if a climate bill becomes law. It is more than triple the $24-per-ton price that was U.S. EPA's top-line estimate in a May report to Congress.

"Lawmakers are realizing that a $30-per-ton allowance price will not induce commercial-scale CCS projects," said Paul Bledsoe, spokesman for the bipartisan National Commission on Energy Policy. "The incentive structure for CCS deployment included in the House bill, and now contemplated by the Senate, would give utilities strong motivation to get this critical technology up and running."

In addition to bonus allowances being offered to early CCS users, the House legislation would make additional allowances available for the next 66,000 megawatts from plants with CCS by way of a reverse auction that would allow qualifying developers to bid for bonus permits.


And that is not all. The bill also makes power companies that dive into CCS eligible to raise $1.1 billion a year from electricity customers for the proposed Carbon Storage Research Corp. that would fund CCS research and development projects.

The Waxman-Markey proposals follow passage of the economic stimulus law that provides $2.4 billion for CCS research and development. Energy Secretary Steven Chu said that cash would "position the United States to lead the world in CCS technologies, which will be in increasing demand in the years ahead."

But some environmental groups are decrying the CCS incentives, calling them crutches for the coal industry that will cost taxpayers as much as $160 billion. Even if CCS proves effective, they say, the incentives will merely perpetuate use of an unsustainable fuel source whose production and combustion harms the environment and public health. The money would be better used, they say, to promote development of renewable energy sources.

"CCS is a Hail Mary pass for a game that will probably already be over," said Erich Pica, policy director for Friends of the Earth in Washington. He described Waxman-Markey's CCS provisions as a "political bribe" to win the votes of coal-state lawmakers.

Industry views

Of course, coal plant developers have another view of government CCS incentives.

"The value of these allowances will be used to drive down the cost of clean electricity," said Maha Mahasenan, senior policy adviser for Hydrogen Energy International LLC, a petcoke- and coal-plant developer that could qualify for the first tranche of CCS allowances under the Waxman-Markey bill.

Hydrogen Energy International says its 250-megawatt Hydrogen Energy California plant in Kern County promises to capture more than 2 million tons of CO2 a year for storage in an oil field. The plant recently received a $308 million stimulus grant from DOE.

Allowances would be adjusted to reflect revenues the plant receives from selling CO2 to Occidental Petroleum for enhanced oil recovery. HEI says it still expect to receive "several tens of dollars" per ton of CO2 stored from the government.

A Harvard study released this week underscores the risk that early adopters of CCS technology will face to keep their power plants compliant with carbon curbs (E&ENews PM, July 20, 2009).

Researchers found that the first plants using CCS would pay between $120 and $180 per ton of captured CO2 until the technology is fully scaled up. After that, the study says, costs are expected to fall dramatically to between $20 and $50 per ton of avoided emissions.

"At the moment, there is really no proven technology for CCS," said Pat Hemlepp, spokesman for American Electric Power Co. Inc. in Columbus, Ohio. "There's going to have to be some sort of funding assistance from the government."

Hemlepp pointed to American Electric Power's 1,300-megawatt Mountaineer Plant in New Haven, W.Va., as an illustration of the challenges to bringing CCS technology to prime time.

The company is diverting a small percentage of the plant's flue gas through a tower of chilled ammonia that will capture about 100,000 tons of carbon dioxide per year, or about 2 percent of the plant's total emissions. The scaled-down version of the technology involves construction of a five-story tower and is expected to cost $130 million.

"You can see that this isn't an inexpensive venture," Hemlepp said. "Unless there are incentives to do it, no one is going to push the technology."

Senate push

At a meeting last week with Sens. Tom Carper (D-Del.) and George Voinovich (R-Ohio), coal industry executives and lobbyists said House climate legislation does not do enough to ensure that CCS technology will be ready to meet the bill's emission reduction timeline (ClimateWire, July 16, 2009).

The House measure aims to trim greenhouse gas emissions 17 percent by 2020 from 2005 levels, reaching an 83 percent reduction by 2050.

Ben Yamagata, executive director of the Coal Utilization Research Council in Washington, D.C., urged the senators to expand the number of first CCS plants allowed to get bonus allowances to 10,000 megawatts from 6,000 megawatts. He also said regulatory and liability issues around CCS deserve Senate attention.

"Ultimately, the lack of resolution to the legal and liability questions are truly 'showstoppers' to the widespread adoption of CCS," he said in a written statement.

The Senate is also being asked to consider adding money to its climate bill to build pipelines to carry captured greenhouse gases from power plants to storage sites.

Joe Chaisson, technical director of the nonprofit Clean Air Task Force, suggested that the Senate bill should increase funding for pipeline construction and establish a new agency to oversee CO2 transport. The massive network needed to carry captured gas could require more than 23,000 miles of pipeline (ClimateWire, Nov. 18, 2008).

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