CCS must clear financial obstacles to move beyond EOR, witnesses say

Carbon capture and storage (CCS) faces bigger financial obstacles than environmental ones if it is to spread beyond enhanced oil recovery (EOR) in the US, witnesses agreed at a Sept. 13 US Senate Environmental and Public Works Committee hearing.

Carbon capture and storage (CCS) faces bigger financial obstacles than environmental ones if it is to spread beyond enhanced oil recovery (EOR) in the US, witnesses agreed at a Sept. 13 US Senate Environmental and Public Works Committee hearing.

“Financing for CCS projects is bumpy,” said S. Julio Friedmann, formerly principal deputy assistant secretary for fossil energy at the US Department of Energy who now is chief executive at Carbon Wrangler LLC in Livermore, Calif. “Somebody has to write a very large check, and there are no credits to help them recover any of the money.”

Policymakers and consumers also can see how wind and solar projects work more easily than CCS, Friedmann said. “Fundamentally, we need to close the financial gap between project costs and market prices, along with tariffs that prevent capital from flowing into projects. The production tax credit for wind is about $60/ton. That should close the gap,” he said.

“Far and away, the up-front capital cost is the biggest barrier. Incentives for pipelines also were a problem. We found a number of like-minded companies that came in with us,” said David Greeson, vice-president of development at NRG Energy Inc., which operates the Petra Nova Carbon Capture and EOR project southwest of Houston. It has been in full commercial operation for 8 months and all systems are working well with oil production rising sharply, he said.

Matt Fry, policy advisor to Wyoming Gov. Matt Mead (R), also said that minimal financial certainty probably is the single biggest problem for getting US CCS projects built and operating. So are the lack of state and federal incentives, and rigorous and costly regulatory processes which discourage potential pipeline developers, he told the committee.

The state government has developed the Wyoming Pipeline Corridor Initiative, which would make state resources available to satisfy federal requirements under the National Environmental Policy Act (NEPA), leaving qualified developers free to develop the necessary intrastate pipelines, Fry said.

Reducing regulatory challenges

“We’re hoping to do the bulk of the work to get the NEPA permits and leave specific details to companies which want to participate,” Fry said. “Wyoming does not have all of the answers, but based on our work, I believe we can present several opportunities to reduce regulatory challenges,” he said.

Greeson said, “If you can solve the financing problems, you can focus on others. New Source Review rules are one of those.” Carbon capture projects need steam, he said. The best supply source is to modify a coal plant and extract the steam that is needed. “In some cases, where a company wants to install a carbon capture system onto an existing unit, that may not be the best approach,” he said.

Greeson said, “Environmental control technology continues to progress, and the NSR rules can trigger a requirement to bring older control system up to modern stands. That can add significant costs for minimal environmental benefits.” Ironically, while NSR rules are meant to improve air quality, they actually can discourage plant owners from consider major environmental and other improvements, he said.

In his opening statement, committee chairman John A. Barrasso (R-Wyo.) said CCS and EOR should play an important role in a true “all of the above” energy strategy. “We have a win-win situation with CO2-enabled oil recovery. We have the potential to make it economical to extract more than 60 billion bbl of oil in this country,” he said.

But Ranking Minority Member Thomas R. Carper (D-Del.) said barriers to CCS are more financial than environmental. “Investors have shied away from expensive, large-scale carbon capture projects in part because energy prices are low, and this country has struggled to put a price on carbon usage,” he said. “Walking away from climate and clean air protections has only compounded the problem. As a result, we are well on the way to ceding the economic opportunities of carbon capture technology to other countries, such as China.”

Committee member Sheldon Whitehouse (D-RI) said, “Everywhere I’ve gone, I’ve been told that the hardest thing is to find a revenue stream to finance this. Right now, nearly everything that isn’t near an oil field isn’t getting financing.”

Enormous opportunities

Friedmann said, “It’s clear to me that there are enormous opportunities in North American to develop CCS projects. I believe there are larger opportunities abroad in countries which could use it to help meet their climate goals. Norway unquestionably is the leader with the world’s largest carbon tax.”

Like Greeson and Fry, Friedmann identified financial obstacles and lack of pipelines as the main US CCS deployment barriers. “We also need an innovation agenda to provide incentives and lower costs,” he said.

Friedmann also noted that a bill introduced by Sen. Heidi Heitkamp (D-ND) in July is a good opportunity to close the CCS financing gap. S. 1535 would extend the 45Q federal tax credit to encourage development and use of CCS technologies and processes while spurring adoption of low-carbon technologies to transform carbon pollution into useable products.

A companion bill was introduced in the House on the same day as the Senate Environment and Public Works Committee’s hearing. House Agriculture Committee Chairman K. Michael Conaway (R-Tex.) introduced H.R. 3761, the Carbon Capture Act, with 20 Republicans and 8 Democrats as cosponsors.

“The outpouring of bipartisan support for CCS projects is overwhelming,” said Conaway. “It’s rare that we have the opportunity to support a policy that moves America towards energy independence while reducing emissions from traditional fuel sources. This legislation does just that by encouraging the use of CCS technologies.”

Contact Nick Snow at nicks@pennwell.com.

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