enhanced oil recovery

Exceeding Expectations: Recent developments in U.S. Carbon Capture Policy

By Fatima Maria Ahmad, Solutions Fellow, Center for Climate and Energy Solutions

A version of this article first appeared in the Sep./Oct. 2016 edition of the Carbon Capture Journal

Introduction

Even in an election year, there are areas of energy policy where leaders of both parties and stakeholders from diverse sectors of the economy can find common ground. Encouraged by the landmark Paris Agreement in December 2015 and motivated by the need to avoid stranded assets and preserve jobs in the power sector, policymakers took seriously the challenge of accelerating deployment of carbon capture, use and storage (CCUS or carbon capture). Midway through the year, the International Energy Agency issued a report concluding that financial and policy support for carbon capture is not at a sufficient level to ensure an adequate pipeline of carbon capture projects that will enable the world to stay on track to meet mid-century goals of keeping global warming within 2 degrees Celsius of pre-industrial levels.[1] Bipartisan proposals that are before Congress this year would encourage CCUS technology. State political leaders also supported carbon capture in notable ways this year.

H.R. 4622, the Carbon Capture Act

On Feb. 25, 2016, Rep. Mike Conaway (D-Texas) introduced H.R. 4622, the Carbon Capture Act, a bill to extend and expand Section 45Q, which is the primary tax credit for the use of carbon dioxide in enhanced oil recovery (CO2-EOR), a form of tertiary production.[2] In the United States, carbon dioxide has been safely used in commercial enhanced oil recovery for more than 40 years. The United States produces about 4 percent of its oil through CO2-EOR. However, most of the carbon dioxide used is from naturally occurring underground reservoirs instead of from man-made sources. In addition to the climate benefits of reducing the amount of carbon dioxide vented into the atmosphere, CO2-EOR maximizes production from existing oil fields and may displace more carbon-intensive imported crude oil.

Rep. Conaway’s bill has 45 co-sponsors: 30 Republicans and 15 Democrats. These co-sponsors hail from 24 states and all regions of the country. This broad support challenges the notion that energy policy debates must be polarized and partisan.

H.R. 4622 provides four changes to 45Q. First, it would remove the existing cumulative cap of 75 million tons of CO2 and make the tax credit permanent. With less than half of the credits left for new projects to use, there is too much uncertainty for carbon capture project developers to secure financing.[3] By making the tax credit permanent, the bill aims to establish certainty that would enable carbon capture project financing.

Second, the bill would increase the value of the credit per ton of CO2. Under current law, there is a credit of $10 per ton of CO2 for EOR and $20 per ton of CO2 for saline storage. Rep. Conaway’s bill would increase these values to $30 for both EOR and saline storage. These increases would ramp up over time reaching their full value in 2025. 

Third, the bill would lower the threshold for qualifying facilities to 150,000 tons of CO2 for both power plants and industrial facilities. Industrial facilities that emit CO2 include ethanol plants; natural gas processing facilities; steel, cement, fertilizer and chemical plants; hydrogen production plants, and refineries.[4] Capture of industrial CO2 emissions is critical because the sector accounts for almost 25 percent of global greenhouse gas emissions.[5]

For these industrial sources, the cost to capture CO2 is often lower than for power plants.  Technology to separate the CO2 stream has been used in natural gas processing for decades.  The by-product CO2 stream is often of higher purity, i.e. less mixed with other gases, than power plant emissions. Importantly, there is no alternative to CCUS to achieve deep decarbonization in the industrial sector because production of CO2 is often an inherent part of the chemical or industrial process. By lowering the threshold for industrial sources of CO2, the bill aims to incentivize investment in industrial carbon capture projects. 

Finally, the bill would allow transferability of the credit within the chain of CO2 custody. This change would allow entities with little or no tax liability to benefit from the incentive by transferring it to entities with the ability to use the credit.   

In the Senate, companion legislation was offered on April 12, 2016, by Sens. Heidi Heitkamp (D-ND) and Shelly Moore Capito (R-WV) in the form of an amendment to the Federal Aviation Administration (FAA) reauthorization bill.[6] The amendment had bipartisan support from two Democrats and five Republicans.[7] While the amendment was voted into the tax title of the FAA bill, the tax title was ultimately dropped for other reasons.[8]

S. 2012, Energy Policy Modernization Act

On Apr. 20, 2016, the Senate passed a broad energy bill authored by Senate Energy Committee Chairwoman Lisa Murkowski (R-Alaska) and Ranking Member Maria Cantwell (D-WA).[9] The bill was approved 85-12, demonstrating bipartisan support. Section 3403 of the bill authorizes a new research, development and demonstration program at the U.S. Department of Energy (DOE) on CCUS technology.[10] Section 3404, added by Sens. Heitkamp and Capito and co-sponsored by six Democrats and four Republicans,[11] directs the DOE to report on long-term contracts to provide price stabilization support for carbon capture projects, a mechanism that is often referred to as a Contract for Differences (CfD).[12] The DOE report would identify the costs and benefits of entering into CfDs and would outline options for how such CfDs could be structured and describe regulations that would be necessary to implement such a program.[13]

North American Climate, Clean Energy, and Environment Partnership

On Jun. 29, 2016, President Barack Obama, Canadian Prime Minister Justin Trudeau, and Mexican President Enrique Peña Nieto announced the North American Climate, Energy, and Environment Partnership.[14] The three nations aim to achieve 50 percent clean power generation by 2025, including through CCUS technology. One of the goals identified in the White House Action Plan is leveraging participation in Mission Innovation[15] by identifying joint R&D initiatives to advance CCUS technology. By highlighting the role of CCUS in achieving deep decarbonization in North America, there is a renewed opportunity to focus on how the three nations can work together.  

S. 3179, the Carbon Capture Utilization and Storage Act

On July 13, 2016, Sens. Heitkamp and Sheldon Whitehouse (D-RI) introduced S. 3179, the Carbon, Capture, Use and Storage Act, along with co-sponsoring Sens. Jon Tester (D-MT), Brian Schatz (D-Hawaii), Cory Booker (D-NJ), Tim Kaine (D-VA), and Bob Casey (D-PA).[16] Republican co-sponsors include Sens. Capito and Blunt and Senate Majority Leader Mitch McConnell, putting the Kentucky Republican and some of the Senate’s leading advocates for climate action on the same side.

The Senate bill allows forms of CO2 utilization beyond EOR to be eligible for the tax credit.  Under the bill, utilization is expanded to include the fixation of CO2 “through photosynthesis or chemosynthesis, such as through the growing of algae or bacteria,” chemical conversion of CO2 to a material or chemical compound in which CO2 is securely stored, or the use of CO2 for “any other purpose for which a commercial market exists.”[17] A leading example of carbon dioxide use beyond EOR is algae biofuels. 

The Senate bill would extend the tax credit for seven years and would allow the credit to be claimed for 12 years.[18] For new facilities, the Senate bill increases the value per ton of CO2 of the tax credit to $35 for EOR and $50 for geologic storage.[19] The bill lowers the threshold for qualifying facilities to 100,000 tons for industrial facilities.[20] Finally, the Heitkamp-Whitehouse bill provides the tax credit to the owner of the carbon capture equipment.[21]

Other Federal Efforts:  H.R. 2883, the Master Limited Partnerships Parity Act and S. 2305, the Carbon Capture Improvement Act.

Developments this year build on previous efforts to promote carbon capture. On June 24, 2015, Rep. Ted Poe (R-Texas) and Rep. Mike Thompson (D-CA) re-introduced H.R. 2883, the Master Limited Partnerships Parity Act, which would extend the publicly traded partnership ownership structure available for certain oil and gas activities to renewable energy development.[22] The bill would also extend the tax treatment to carbon capture for EOR or other secure geologic storage. The bill was co-sponsored by six Democrats and six Republicans.[23]

Additionally, on Nov. 19, 2015, Sens. Michael Bennet (D-CO) and Rob Portman (R-OH) introduced S. 2305, the Carbon Capture Improvement Act, which would allow the use of tax-exempt private activity bonds (PABs) issued by state or local governments to finance carbon capture projects.[24]

From the perspective of project developers, the extension and expansion of Section 45Q will do the most to accelerate the deployment of CCUS technology, although the MLP and PAB efforts will play a critical role.[25] Like with other low- and zero-carbon energy technologies such as wind and solar, multiple and complementary incentive policies are often more effective in enabling investment to drive deployment than any single incentive policy.

State Policy

A number of states have demonstrated leadership on carbon capture policy in 2016 by voicing growing support for federal incentives. In February, the National Association of Regulatory Utility Commissioners (NARUC) adopted a resolution urging Congress and the Obama Administration to support state efforts on CCUS including CO2-EOR.[26] In June, the Western Governors’ Association followed up on a June 2015 resolution supporting CO2-EOR[27] with a letter of support for federal incentives for this technology.[28] In July, Montana Governor Steve Bullock released Montana’s Energy Future Blueprint, which highlights the need for federal and state support of accelerated commercial deployment of CCUS technology.[29] Last fall, the Southern States Energy Board also issued a resolution supporting federal incentives for CO2-EOR.[30]

Conclusion

Despite encouraging progress at the federal and state levels, formidable challenges lie ahead. Developers of carbon capture projects face serious obstacles in obtaining financing. Deployment of carbon capture technology is not on track to meet our climate goals. Fewer than half of the Intergovernmental Panel on Climate Change models were able to stay within a 2-degree scenario without CCUS.[31] Without carbon capture, the costs of climate change mitigation increase by 138 percent.[32] Carbon capture projects are capital-intensive and require long lead times to reach commissioning. In this context, the need for action is urgent. 

What we have seen this year is that U.S. political leaders are able find common ground on energy policy where the goals of emissions reduction, energy security, and economic development converge. Looking forward, there is reason to hope that through working together on carbon capture policy this year, elected officials on both sides of the aisle have developed working relationships and built bridges that will enable continued action on climate in the next administration.



[1] International Energy Agency, Tracking Clean Energy Progress 2016 11, 30-31, available at https://www.iea.org/etp/tracking2016/

[2] See H.R. 4622, 114th Cong. (2016) available at https://www.congress.gov/bill/114th-congress/house-bill/4622

[3] The IRS announced that almost half of the credits available under the cumulative cap have been claimed. U.S. Internal Revenue Service, Notice 2015-44, Credit for Carbon Dioxide Sequestration:  2015 Section 45Q Inflation Adjustment Factor (2015), available at https://www.irs.gov/pub/irs-drop/n-15-44.pdf

[4] In the U.S., there are states and regions that will have candidates for carbon capture at lower-cost industrial facilities before they do in the power sector.

[5] Global CCS Institute, Global Status of CCS: Special Report – Introduction to Industrial Carbon Capture and Storage 4 (2016), available at https://www.globalccsinstitute.com/publications/industrial-ccs

[7] Senators Joe Donnelly (D-IN), Jon Tester (D-MT), Roy Blunt (R-MO), John Barrasso (R-WY), Dan Coats (R-IN), Steve Daines (R-MT), and Mike Enzi (R-WY).

[8] Geof Koss, Blame Game Follows Collapse of Senate Tax Talks (E&E News PM, Apr. 12, 2016).

[9] S. 2012, 114th Cong. (2016), available at https://www.congress.gov/bill/114th-congress/senate-bill/2012

[10] Section 3403 establishes a new coal technology program, which includes programs for research and development, large-scale pilot projects, demonstration projects, and co-fired biomass-coal projects.  Id.  The section authorizes $632 million annually from 2017 – 2020, and $582 million in 2021.  DOE continues to do substantial work and focus domestic and international policy efforts on CCUS.  An important domestic DOE initiative is the creation of seven Regional Carbon Sequestration Partnerships to help develop infrastructure and regulations for CCUS technology and sequestration.  An important international DOE initiative is the Carbon Sequestration Leadership Forum, a ministerial-level panel that meets to advance CCUS RD&D worldwide.

[11] Senators Joe Manchin (D-WV), Cory Booker (D-NJ), Sheldon Whitehouse (D-RI), Jon Tester (D-MT), Roy Blunt (R-MO), Al Franken (D-MN), Joe Donnelly (D-IN), John Barrasso (R-WY), Dan Coats (R-IN), and Mike Enzi (R-WY).

[13] As context, carbon capture projects often face steep financing challenges. This is because one of the main uses of CO2 that is in commercial operation today is CO2-EOR and the revenue from the sale of CO2 for EOR is dependent on volatile oil prices. The futures market for oil prices does not enable the type of commercial hedge that is needed to finance these projects. A CfD would address that market weakness by providing a reference oil price that would remain the same over the duration of the contract. When oil prices are above the reference oil price, the developer would pay the U.S. Treasury. When oil prices fall below the reference oil price, the Treasury would pay the developer. By providing certainty, a Federal CfD would make it easier for carbon capture projects to reach financial close.

[14] The White House, North American Climate, Clean Energy, and Environment Partnership Action Plan (Jun. 29, 2016), available at https://www.whitehouse.gov/the-press-office/2016/06/29/north-american-climate-clean-energy-and-environment-partnership-action

[15] Mission Innovation is an initiative that was launched in Paris in November 2015. Through this initiative, 20 nations have committed to doubling their clean energy R&D investments over five years.  The Breakthrough Energy Coalition is an independent initiative spearheaded by Bill Gates that launched simultaneously with Mission Innovation.  Through the Breakthrough Energy Coalition, a global group of private investors have committed to commercializing the research that is funded by Mission Innovation. 

 

[17] S. 3179, 114th Cong. § 2 (2016), providing a new Section 45Q(e)(7)(A).

[18] S. 3179, 114th Cong. § 2 (2016), providing a new Section 45Q(a)(3) and 45Q(d)(1)(A).  The determination of eligibility is based on the date that a project commences construction.  This provides greater certainty for investors than the existing cumulative cap of 75 million tons of CO2 but not as much certainty as a permanent tax credit. 

[19] S. 3179, 114th Cong. § 2 (2016), providing a new Section 45Q(b)(1).  The value of the credit ramps up over time.  The Senate bill does not increase the value of the credit for existing facilities.  S. 3179, 114th Cong. § 2 (2016), providing a new Section 45Q(a)(1)-(2).

[20] S. 3179, 114th Cong. § 2 (2016), providing a new Section 45Q(d)(1)(B).  For power plants, the threshold for power plants remains at 500,000 tons.  This would exclude some smaller demonstration carbon capture projects at power plants.  The threshold is 25,000 for projects that utilize CO2.     

[21] S. 3179, 114th Cong. § 2 (2016), providing a new Section 45Q(e)(5).  Like H.R. 4622, this would enable rural electric cooperatives without tax liability to benefit from the incentive because the incentive could be claimed by a third-party that puts up the investment funds in the equipment.  This would reduce the cost of capital for these projects. 

[22] H.R. 2883, 114th Cong. (2016), available at https://www.congress.gov/bill/114th-congress/house-bill/2883

[23] Representatives Mark Amodei (R-NV-2), Peter Welch (D-VT-At Large), Paul Gosar (R-AZ-4), Earl Blumenauer (D-OR-3), Mike Coffman (R-CO-6), Jerry McNerney (D-CA-9), Mia Love (R-UT-4), Tammy Duckworth (D-IL-8), Carlos Curbelo (R-FL-26), John Delaney (D-MD-6), Chris Gibson (R-NY-19), and Scott Peters (D-CA-52).

[24] Access to tax-exempt private activity bonds will provide project developers an important tool in a broader toolkit of measures needed to help attract private investment and finance carbon capture projects.  The benefits to consumers and businesses of PABs include their tax-exempt status and the fact that they can be paid back over a longer period of time.  S. 2305, 114th Cong. (2016), available at https://www.congress.gov/bill/114th-congress/senate-bill/2305

[25] MLPs and PABs will be especially helpful for electric power generation and some industrial sectors where the costs of carbon capture remain high.

[26] National Association of Regulatory Utility Commissioners, ERE-1: Resolution on Carbon Capture and Enhanced Oil Recovery (Feb. 17, 2016), available at http://pubs.naruc.org/pub/66436AF7-DFB2-C21E-43B2-1AE83A02D8F5

[27] Western Governors’ Association, Policy Resolution 2015-06 (Jun. 25, 2015), available at http://westgov.org/images/images/RESO_EOR_15_06.pdf

[28] Letter from Matthew Mead, Governor, State of Wyoming, and Steve Bullock, Governor, State of Montana to Rep. Mike Conaway (R-TX-11) and Sens. Heidi Heitkamp (D-ND) and Shelley Moore Capito (R-WV) (Jun. 3, 2016), available at http://westgov.org/letters-testimony/343-energy/1195-letter-governors-support-enhanced-oil-recovery-technology

[29] State of Montana, Montana’s Energy Future (Jun. 21, 2016), available at https://governor.mt.gov/Newsroom/ArtMID/28487/ArticleID/4325

[30] Southern States Energy Board, Resolution Supporting Carbon Capture and Storage and Enhanced Oil Recovery (Sep. 28, 2015), available at http://www.sseb.org/wp-content/uploads/2015/09/6.2015.pdf

[31] Intergovernmental Panel on Climate Change, Working Group III Contribution to the Fifth Assessment Report (2014), available at https://www.ipcc.ch/pdf/assessment-report/ar5/wg3/ipcc_wg3_ar5_full.pdf

[32] Id.

 

SaskPower unveils first commercial-scale, coal-fired power plant to capture carbon

For the first time ever, a large-scale, coal-fired power plant is capturing carbon dioxide to keep it from being released into the atmosphere – a milestone for a technology critical to addressing climate change.

Canadian electric utility SaskPower has switched on unit 3 at its Boundary Dam power plant, about 10 miles from the North Dakota border, and will hold an official grand opening Oct. 2. Following a $1.2 billion retrofit, the 46-year-old, 110-megawatt coal unit is now on course toward capturing 90 percent of its carbon emissions. Other upgrades reduce nitrous oxide emissions and capture 100 percent of the unit’s sulfur dioxide emissions.

Numerous commercial-scale carbon capture and storage (CCS) technology projects have been deployed in the industrial sector. In the power sector, demonstration-scale projects have been deployed, but this is the first commercial-scale project.

We will need to construct hundreds of such projects (along with other zero- and lower-emitting technologies) if greenhouse gas emissions are to be reduced to levels that avoid the worst effects of climate change. According to the International Energy Agency, more than 440 terawatt-hours (TWh) of CCS must be generated between 2020 and 2035 to give us a chance of limiting global temperature rise to 2 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels. To get a sense of that scale, SaskPower’s unit 3 can produce up to 1 TWh of electricity per year.

The Boundary Dam project is important not just because it’s the first of its kind, but because it demonstrates a way to help make carbon capture technology economically viable -- by turning unwanted pollutants into valuable commodities. SaskPower has agreed to transport and sell its captured carbon dioxide (CO2) to an oilfield operated by Cenovus for use in enhanced oil recovery (EOR) operations. The captured CO2 helps coax additional production from declining oil fields and results in the permanent storage of the CO2 underground. (In addition, captured sulfur dioxide emissions will be used to produce 50 tons per day of sulfuric acid for industrial customers, and SaskPower will sell the plant’s coal combustion residuals, also known as coal ash, for use in construction products like drywall and concrete.)

Incentive to capture carbon emissions would spur needed technology

If carbon dioxide were a valuable commodity instead of a waste product, there would be a lot more incentive to capture it.

It turns out some oil producers already find carbon dioxide so useful, they’re willing to pay for it. In fact, they pay upwards of $30 per ton of CO2, which they then inject underground to coax oil from declining wells.

U.S. oil producers have been practicing carbon dioxide enhanced oil recovery (CO2-EOR) for four decades. Historically, they’ve relied mostly on CO2 from naturally occurring underground reservoirs. A better idea is to use man-made carbon emissions that would otherwise go into the atmosphere and contribute to climate change.

Congressional Testimony of Judi Greenwald on the Future of Coal: Carbon Capture, Utilization and Storage

Testimony of Judi Greenwald, Vice President for Technology and Innovation
Center for Climate and Energy Solutions
Subcommittee on Energy
Committee on Science, Space, and Technology
U.S. House of Representatives
July 25, 2013

Click here to view video of the testimony.

Hearing on The Future of Coal: Utilizing America's Abundant Energy Resources

Carbon Capture, Utilization and Storage

Madam Chairman, Rep. Swalwell, and members of the Subcommittee, thank you for the opportunity to testify on carbon capture, utilization, and storage. My name is Judi Greenwald, and I am Vice President for Technology and Innovation at the Center for Climate and Energy Solutions (C2ES – formerly known as the Pew Center on Global Climate Change).

My testimony today will focus on the most important climate and energy solution that no one knows about. I will emphasize two main points:

  • Carbon capture and storage (CCS) is a critical technology for solving climate change, while allowing continued reliance on fossil fuels.
  • Carbon dioxide enhanced oil recovery (CO2-EOR) can advance CCS, while boosting domestic oil production and generating net federal revenue.

C2ES is an independent, nonprofit, nonpartisan organization dedicated to advancing practical and effective policies and actions to address our global climate change and energy challenges. We perform multifaceted research and analysis of the scientific, technological, economic, and policy aspects of these issues. Our work is informed by our Business Environmental Leadership Council (BELC), a group of 34 major companies, most in the Fortune 500, that work with C2ES on climate change and energy risks, challenges, and solutions. The views I am expressing, however, are those of C2ES alone.  

C2ES has been analyzing CCS for over a decade and has recently focused on how CO2-EOR can advance CCS. With the Great Plains Institute, C2ES co-convenes the National Enhanced Oil Recovery Initiative, or NEORI, a coalition of businesses, environmental NGOs, labor representatives, and state officials advocating for incentives to use captured CO2 in EOR. You can find more information on NEORI at www.neori.org. I would like to submit NEORI’s CO2-EOR analysis and consensus recommendations for the record. In addition, C2ES serves as the advisor and facilitator to the Sequestration Working Group of the North America 2050 Initiative, a collaborative of states and provinces exploring options for CCS regulations and incentives. C2ES recently completed a summary of state-level regulations and incentives that can be found at www.na2050.org/sequestration.[1]

C2ES also has authored research and publications related to CCS and CO2-EOR. For example, C2ES developed a comprehensive framework for calculating CO2 emissions from CCS based on input from experts in industry, academia, and the environmental community.[2] C2ES also publishes a CCS Climate TechBook,[3] a brief report that explains in layman’s terms how CCS technology works, why its development is needed to address climate change, and how it might be advanced.  

CCS is a critically important technology

The United States and the rest of the world are getting 80 percent of our energy from coal, oil and gas, and our dependence on, and overall use of, these fossil fuels globally is growing rapidly. Under a business-as-usual scenario, the Energy Information Administration expects fossil fuels will continue to provide more than 65 percent of U.S. electricity in 2040 – with 35 percent coming from coal-fired generation. Globally, coal consumption is expected to increase nearly 60 percent over the next two decades, led by developing countries like China and India, which together will comprise 62 percent of the total global coal demand in 2035. This poses an enormous challenge, because the CO2 emissions from the combustion of these fossil fuels are the major contributor to global climate change. While we can and should become more energy-efficient and shift our energy mix toward inherently zero-emitting sources like nuclear power and renewables, it will be difficult to do that fast enough and at a reasonable enough cost to avoid the worst climate impacts.

Hence the critical need for CCS, a suite of technologies that captures CO2 and stores it deep underground in geological formations. CCS can capture up to 90 percent of emissions from stationary sources, such as power plants and industrial facilities, thereby allowing coal and natural gas to remain part of our energy mix. The International Energy Agency (IEA) and others have demonstrated through detailed technology and economic scenario analyses that CCS is likely an essential component of an affordable and effective response to global climate change. In fact, IEA estimates that CCS could provide one-sixth of the requisite GHG emissions reductions by 2050.

What is needed to advance CCS?

CCS has been established and commercialized for the capture of CO2 from some industrial processes such as natural gas processing, chemical, fertilizer and ethanol production, and the gasification of coal. The use of man-made CO2 in EOR has been practiced for several decades. However, CCS in other contexts – for example, coal- and natural gas-powered electricity generation – is a relatively expensive technology that is just reaching maturity. Further R&D is important, but the key challenge for CCS is to get a sufficient number of commercial-scale projects up and running to demonstrate the emerging technologies at scale and bring down their costs. The first large-scale commercial CCS power projects are under construction. Yet, it is still unclear whether more commercial-scale CCS projects will be built after these initial projects are completed. After the collapse of climate legislation in the United States in 2010, a number of CCS projects were cancelled.

CCS is being increasingly thought of as carbon capture utilization and storage, or CCUS. Instead of seeing CO2 as a waste, utilizing and selling captured CO2, primarily for EOR, improves the economics of CCS projects and is an important market driver. Almost all of the existing or planned CO2 capture projects in the United States have been developed with the intention of marketing captured CO2 for use in EOR. Still, in many cases, additional drivers are needed. Those projects operating or underway today are being financed though some combination of U.S. Department of Energy (DOE) grants, utility cost recovery from ratepayers, private finance, sales of CO2 for EOR, other revenue streams from chemical production, and existing tax credits.

DOE’s role in CCS development has been and will remain critical. DOE is working with the private sector on the leading innovative CCS projects in the United States today. This collaboration is beginning to yield results. In late 2012, the DOE-supported Air Products’ Port Arthur CCS project, where CO2 is captured from refinery-based hydrogen production and sent for use in EOR, began operations. Through its Industrial Carbon Capture and Storage (ICCS) Program and with funding from the American Recovery and Reinvestment Act of 2009 (ARRA), DOE agreed to fund $284 million of the Port Arthur project’s $430 million total investment cost. The Port Arthur project is expected to capture up to 1 million tons of CO2 per year and enable EOR production of 1.6 million to 3.1 million barrels of domestic oil a year in East Texas. 

DOE is also working on applying CCS to the power sector. Southern Company’s coal-fueled Kemper County energy facility in Mississippi is now under construction and will be the first commercial-scale CCS power project in the United States. DOE selected the Kemper project to receive more than $290 million through its Clean Coal Power Initiative (CCPI). A later round of the CCPI made possible through ARRA funding selected three additional coal-fired CCS power projects for funding. They are Summit Power’s Texas Clean Energy Project (TCEP), NRG Energy’s Washington Parish Project, and SCS Energy’s Hydrogen Energy California project. TCEP is nearing financial close and, when completed, will capture 90 percent of its emissions and supply approximately 2.5 million tons of CO2 for use in EOR.

Given the high costs and uncertainties of CCS investment for the private sector and the urgent need for CCS, it is extremely important that the federal government continue to support CCS research, development, demonstration, and deployment. Beyond DOE’s pivotal role, other forms of federal financial support, such as tax credits, should be reformed and expanded. States too can play a key role in advancing CCS through incentives and well-informed regulation.

Background on CO2-EOR

CO2-EOR is a means of commercial oil production that could play a key role in the development of CCS and in increasing our domestic energy security. CO2-EOR has the potential to increase American oil production by tens of billions of barrels, while displacing imported oil and safely storing billions of tons of CO2 underground.

How does CO2-EOR work? Even after conventional primary and secondary oil recovery, most of the oil in a typical oil field is left in the ground. When injected deep underground, CO2 can make it possible to recover more oil and extend an oil field’s life. The best available evidence indicates that by using best EOR industry practice and existing rules governing underground injection, the overwhelming majority of the injected CO2 remains underground, incidentally and safely storing CO2. Commercial injection of CO2 for EOR is regulated under EPA’s Underground Injection Control Program, and under current federal greenhouse gas reporting rules for air emissions, EOR operators may document this incidental CO2 storage through additional monitoring, reporting, and verification requirements to qualify as geologic sequestration. There is a range of views as to what additional state or federal rules are needed to ensure that CO2 is stored permanently.

The United States has been a global leader in CO2-EOR for 40 years. We currently obtain six percent of our domestic oil production through this method. While most CO2-EOR activity occurs in the Permian Basin of Texas, there are also projects in the Gulf Coast, the Rocky Mountains, Oklahoma, and even Michigan. Estimates of the potential for CO2-EOR to increase oil production and store CO2 have been increasing in recent years. According to the National Energy Technology Lab, using existing techniques, CO2-EOR could double or triple U.S. oil reserves and store 10 to 20 billion tons of CO2, which is equivalent to between five and 10 years of emissions from all U.S. coal-fired power plants. More advanced techniques could yield much higher oil production and CO2 storage.

The key role of CO2-EOR in advancing CCS

For those CO2 capture technologies that have not reached full commercialization, especially in electric power generation, selling captured CO2 for use in EOR can provide a revenue stream that helps reduce the financial risks and uncertainty of investing in emerging technology. About 75 percent of the CO2 used in EOR currently comes from naturally occurring CO2 reservoirs. The rest comes from man-made CO2 sources. Somewhat oddly, the EOR market lacks sufficient CO2. By expanding carbon capture from man-made sources, we can increase domestic oil production, promote economic development, create jobs, reduce CO2 emissions, and drive innovation in CCS technology.

It is because of these multiple benefits that we have been able to bring together the National Enhanced Oil Recovery Initiative, or NEORI, a diverse coalition favoring the reform and expansion of existing tax incentives to use captured CO2 in EOR. Among the members of NEORI are Arch Coal, Summit Power, Tenaska, the Natural Resources Defense Council, AFL-CIO, and The Wyoming Outdoor Council. Some of NEORI’s participants are primarily interested in job creation, others in increasing domestic oil production, and others in protecting the environment. But all agree that advancing the capture of man-made CO2 for use in EOR makes sense. NEORI has been briefing members on both sides of the aisle in both houses of Congress on its proposals.

EOR operators in some regions are willing to pay upwards of $30 per ton for CO2. At the same time, industrial facilities and power plants are emitting billions of tons of CO2 into the atmosphere as a waste. CO2-EOR therefore offers the opportunity to transform this waste into a marketable commodity and transform an environmental problem into an energy production solution. 

In a few cases, revenue from selling CO2 for enhanced oil recovery is sufficient to pay for CO2 capture and transport. Thanks to the efforts of the private sector and DOE, many CO2 capture technologies are already commercially proven, and only a modest incentive is needed to help close the gap between the market price of CO2 and the costs to capture and transport it. In the case of emerging technologies, however, companies need a larger incentive to help shoulder the additional financial and operational risk of deploying new, pioneering capture projects for the first few times at a commercial scale. 

By combining private EOR operators’ willingness to pay for CO2 with a tax incentive, society leverages its public investment. Perhaps most importantly, according to our analysis, such tax incentives would more than pay for themselves by driving increased domestic oil production and associated taxable oil revenues. Increased CO2-EOR production will generate federal revenue that more than pays for the cost of new incentives within a 10-year timeframe. Under existing tax treatment, CO2-EOR directly yields revenues from three main sources: corporate income taxes, individual income taxes on royalties from production on private land, and royalties from production on federal land. Our analysis indicates that federal revenues from incremental CO2-EOR production would exceed the fiscal cost of new incentives by more than $100 billion over 40 years.

Conclusion

CCS is a critical technology for reconciling our continued dependence on fossil fuels with the imperative to protect the global climate. Our best hope at the moment for CCS advancement is carbon capture, utilization, and storage, or CCUS. The best example of CO2 utilization we know of is enhanced oil recovery (CO2-EOR). Solving our climate and energy problems will require a portfolio of technologies, and all must be pursued vigorously. But we are focusing here today on CO2-EOR, because it is the most important climate and energy solution that no one knows about.                                                               

 

An energy solution with true bipartisan support

Two out of three respondents in a new University of Texas poll said energy issues are important to them. But the harsh rhetoric of campaign season makes it seem like politicians can never agree on important policies needed to provide safe, reliable and affordable energy while also protecting the environment.

Well they can, and they did. Right now in Washington, D.C., we have a bipartisan bill that would reduce carbon emissions and develop domestic energy resources.

Putting the "U" in CCUS

I spent the last few days at the eleventh annual Carbon Capture Utilization & Sequestration Conference (CCUS) in Pittsburgh.  

For its first 10 years, it was the CCS conference, focused primarily on advancing efforts to capture and permanently sequester carbon emissions underground. This nascent technology is absolutely critical if we are going to continue burning fossil fuels and have any hope of averting dangerous climate change.

This year the conference organizers added “Utilization” to the title. This addition reflects a new reality: in the absence of strong climate policy, the key driver of CCS innovation is the utilization of CO2 for enhanced oil recovery (CO2-EOR). This is a little-known technique in which CO2 (usually drawn from naturally occurring underground reservoirs) is injected into declining oil fields to boost their output. It now accounts for about 6 percent of domestic U.S. oil production.

Capturing CO2 Emissions to Produce Domestic Oil: NEORI and CO2-EOR’s Unique Solution

Bloomberg editors endorse NEORI's production tax credit recommendations

Few policy options can be a win-win for both political parties, as well as industry, environmental advocates, and labor. Similarly, increasing oil production and decreasing carbon emissions are thought of as conflicting goals. Yet, a solution may be on the horizon. On February 28, the National Enhanced Oil Recovery Initiative (NEORI) released its recommendations for advancing enhanced oil recovery with carbon dioxide (CO2-EOR). NEORI is a broad coalition of industry, state officials, labor, and environmental advocates

While NEORI participants might not agree on many energy and environmental issues, each participant recognizes the vast potential of CO2-EOR and worked toward producing a set of policy recommendations for its expansion. CO2-EOR already produces 6 percent of U.S. oil, and it could potentially double or triple existing U.S. oil reserves. In comparison to other options, CO2-EOR offers an extraordinarily large potential expansion of domestic oil production, while also advancing an important environmental technology.

National Enhanced Oil Recovery Initiative Looks for Progress in Energy Policy

Recently, I had the opportunity to attend as an observer the launch of the National Enhanced Oil Recovery Initiative, facilitated by the Center and the Great Plains Institute.  In the short time since the launch, the EOR Initiative has generated notable

Carbon dioxide enhanced oil recovery (CO2-EOR) works by injecting CO2 into existing oil fields to increase oil production.  It is not a new concept. In fact, around 5 percent, or 272,000 barrels per day, of all domestic oil produced comes from oil recovered using this technique, which was first deployed in West Texas in 1972.  Decades of monitoring CO2-EOR sites have shown that in properly managed operations the majority of CO2 is retained in the EOR operation and not released to the atmosphere.  One of the initiative’s goals is to better understand the role of CO2-EOR for carbon storage as this industry grows to produce more than 1 million barrels per day, or around 17 percent of domestic oil supply in 2030.

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