The Center for Climate and Energy Solutions seeks to inform the design and implementation of federal policies that will significantly reduce greenhouse gas emissions. Drawing from its extensive peer-reviewed published works, in-house policy analyses, and tracking of current legislative proposals, the Center provides research, analysis, and recommendations to policymakers in Congress and the Executive Branch. Read More
Analysis for Carbon Dioxide Enhanced Oil Recovery: A Critical Domestic Energy, Economic, and Environmental Opportunity Detailed Methodology and Assumptions
The Center for Climate and Energy Solutions (C2ES) and the Great Plains Institute (GPI) conducted an analysis, with extensive input from the participants of National Enhanced Oil Recovery Initiative (NEORI), to inform NEORI’s recommendations for a federal production tax credit to support enhanced oil recovery with carbon dioxide (CO2-EOR). In particular, C2ES and GPI explored the implications of the recommendations for CO2 supply, oil production and federal revenue. This document describes the research, assumptions, and methodology used in the analysis.
C2ES and GPI compared the likely cost of a federal tax credit for greater CO2 capture and supply with the federal revenues expected from applying existing tax rates to the resulting incremental oil production. C2ES and GPI quantified two key relationships for CO2-EOR develop-ment and a related tax credit program:
- Cost gap – the difference between CO2 suppliers’ cost to capture and transport CO2 and EOR operators’ willingness to pay for CO2. The goal of the tax credit is to bridge the cost gap. Thus, the cost gap determines the expected level of the tax credit in a proposed competitive-bidding process.
- Revenue neutrality/revenue-positive outcome - the federal government will bear the cost of a CO2-EOR tax credit program, yet it will enjoy increased revenues from the expansion of CO2-EOR oil production when existing tax rates are applied to the additional production. C2ES and GPI analyzed when the net present value of expected revenues would equal or exceed the net present value of program costs.
C2ES and GPI calculated the tax credit required to bridge the cost gap, and the cost and revenue implica-tions. C2ES and GPI developed input assumptions based on real-world physical and market conditions after consulting with NEORI participants and other industry experts and reviewing available literature. C2ES and GPI developed a core scenario based on “best guess” inputs and conducted several sensitivity analyses of key inputs. C2ES and GPI demonstrated that a program can be designed that will become “revenue positive” (defined as when the federal revenues from ad¬ditional new oil production exceed the cost of a carbon capture tax credit program after applying a discount rate to both costs and revenues) within ten years after tax credits are awarded. Sensitivity analysis reveals that the program remains revenue positive using a realistic range of likely assumptions.
My C2ES colleague, Judi Greenwald, will be testifying on Thursday at a hearing of the Senate Energy and Natural Resources Committee on the Clean Energy Standard Act of 2012, a bill written by Sen. Jeff Bingaman (D-NM), the committee chairman. As mentioned in my previous blogs (The Bingaman Clean Energy Standard: Let the Conversation Begin and The Bingaman Clean Energy Standard: What is "Clean"?) and in our primer on the design of a clean energy standard (CES), we think a CES holds a lot of potential for maintaining a diverse energy mix, advancing clean energy technology and associated industries, and reducing the environmental footprint of the electric power sector—including the sector's greenhouse gas emissions, which account for about one third of the U.S. total.
As Judi will attest, we also think Sen. Bingaman's bill is a great start, and balances the multiple objectives we would have for such a measure. On Thursday, we get to hear what a few other people think.
Watch this space Thursday morning as I live blog from the hearing and post updates below.
Update May 17, 11:58 am: It’s a standing-room-only crowd at this morning’s hearing before the Senate Energy and Natural Resources Committee on Senator Jeff Bingaman’s proposal for a federal clean energy standard.
Senators in attendance: Committee chairman Sen. Bingaman (D-NM), top committee Republican Sen. Murkowski (R-AK), Barrasso (R-WY), Cantwell (D-WA), Coons (D-DE), Corker (R-TN), Franken (D-MN), Manchin (D-WV), Risch (R-ID), Shaheen (D-NH), Udall (D-CO), Wyden (D-OR)
Here are some highlights of the question-and-answer session during the hearing’s first panel, with witnesses David Sandalow, Assistant Secretary for Policy and International Affairs at the U.S. Department of Energy, and Dr. Howard Gruenspecht, Acting Administrator of the Energy Information Administration:
Sen. Bingaman pointed out that EIA projects that electricity rates would increase by 2035 under the CES, but then asked how would electricity bills will be affected. Mr. Sandalow answered that the modeling shows that the average household energy bill would actually decline by $5 a month by 2035, in large part because of the energy efficiency promoted by the bill. Dr. Gruenspecht agreed.
Sen. Murkowski asked whether the cost of renewable energy being used by federal agencies under the Energy Policy Act of 2007 is an indication of the costs that would be seen under Sen. Bingaman’s bill. Mr. Sandalow pointed out that a key difference between Sen. Bingaman’s bill and the 2007 law is that the CES would give credit not only for renewable energy, but for nuclear power, natural gas, and clean coal, which would lead to lower prices than renewable energy alone.
Sen. Barrasso asked whether the Obama administration would rescind greenhouse gas regulations promulgated under the Clean Air Act if Sen. Bingaman’s bill were enacted. Mr. Sandalow said the administration would not support such an amendment to the Clean Air Act. For the record, C2ES believes that if a CES, or any other measure, led to significant reductions in GHG emissions from a given economic sector, we should be open to using that measure rather than the existing provisions of the Clean Air Act that pertain to that sector.
Sen. Franken suggested that it might be worth setting aside a fraction of the bill’s requirement for clean energy specifically for renewable energy. In fact, while most states have renewable energy standards in place, four—Michigan, Ohio, Pennsylvania, and West Virginia—have alternative energy standards, similar to Sen. Bingaman’s clean energy standard proposal, and each of the four takes an approach that favors renewable energy sources over the other qualifying clean energy sources.
Update May 17, 1:55 pm: Here are some quick notes on the second panel of this morning’s hearing. The room is still full even though many of the Senators and journalists have left—thus missing a discussion on preemption that was arguably the most noteworthy exchange of the entire hearing.
After the opening statements, Senators Bingaman and Murkowski had an extended back-and-forth with the panelists about the overlap between the Bingaman bill and other regulatory programs. The panelists offered a range of views, with a couple supporting preemption of the Clean Air Act authority. C2ES’s Judi Greenwald expressed a more nuanced view:
The key issue is environmental results. If a CES is ambitious enough, and can achieve greater environmental benefits than we can get under existing Clean Air Act Authority, it might make sense to consider replacing some Clean Air Act provisions with a CES. However, we need to be very cautious. The Clean Air Act has very broad authority to address GHG emissions throughout the economy and the CES only applies to power plants. We would need to ensure that EPA maintains its authority to continue to make progress in other sectors, for example, as with the successful greenhouse gas standards for vehicles.
Perhaps the biggest obstacle to exploring this issue is the deep partisan divide over EPA and the Clean Air Act. With members of Congress calling for an evisceration of EPA and the Clean Air Act, there is a legitimate concern that opening up the Act for an ostensibly narrow revision would lead to a gutting of provisions having nothing to do with greenhouse gases.
On another topic, Sen. Franken discussed Minnesota’s energy efficiency resource standard, and asked whether incentives for energy efficiency could be incorporated into the Bingaman bill. Judi Greenwald pointed out that many of the bill’s features would indeed promote energy efficiency: crediting of combined heat and power, the use of revenues raised through the alternative compliance payment, and the very structure of the proposed standard—it would be set as a percentage of total electricity production; if electricity use goes down, the requirement is easier to meet.
One thing we wish we could've said:
During the first panel, Sen. Corker said carbon capture and storage (CCS) will be broadly deployed when donkeys fly. Sen. Manchin, who takes a decidedly more favorable view towards CCS, was nevertheless concerned that the bill does not promote CCS.
Here's what we would have said, had they raised those points during the second panel:
While EIA projects that CCS is not deployed under the bill, it could be. CCS could play a bigger role under this bill if we can bring down its costs. There are a number of options for doing that. For example, C2ES co-convenes the National Enhanced Oil Recovery Initiative, which is calling for a federal tax credit to capture and transport CO2 from power plants and industrial sources for use in enhanced oil recovery. In addition to driving a lot of domestic oil production, and reducing CO2 emissions, it would generate additional revenue to cover the cost of CCS. We would expect that as CCS costs come down, it would enable coal to have a bigger role. A CES could help in other ways as well. AEP put the Mountaineer project on hold and withdrew from its partnership with DOE on this project because regulators in several states could not justify the expense for a technology that is not required by law. The CES could make the case for projects like Mountaineer to go forward.
Testimony of Judi Greenwald, Vice President for Technology and Innovation,
Center for Climate and Energy Solutions
Committee on Energy and Natural Resources United States Senate
May 17, 2012
Hearing on The Clean Energy Standard Act of 2012
Mr. Chairman, Senator Murkowski, and members of the Committee, thank you for the opportunity to testify on the Clean Energy Standard. 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).
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. Our work is informed by our Business Environmental Leadership Council (BELC), a group of 36 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 are those of C2ES alone.
C2ES recently published two papers on the topic of this hearing, Clean Energy Standards: State and Federal Policy Options and Implications (jointly with the Regulatory Assistance Project), and An Illustrative Framework for a Clean Energy Standard for the Power Sector. I'd like to ask that they be entered into the record.
To summarize my testimony, C2ES applauds Senator Bingaman's leadership in introducing this bill. It begins the public debate on this promising approach to protecting the environment, diversifying energy supply, and promoting clean energy industries. C2ES believes that Senator Bingaman's proposal embodies a number of design features that are innovative and reasonably balance the multiple objectives of a Clean Energy Standard. In particular, we would highlight the following: a flexible, market-based approach including clean energy credit trading and banking; a target that starts off modestly but increases over time; a broad "all-of-the above" definition of clean energy; and a crediting system that rewards environmental performance based on carbon intensity.
My testimony will focus first on the general concept of a Clean Energy Standard, then on lessons from the state experience with such standards, and finally more specifically on Sen. Bingaman's proposed Clean Energy Standard Act of 2012.
Balancing our objectives with a Clean Energy Standard
I'd like to begin with a note on use of the word "clean." There is no commonly accepted definition of "clean" energy. Indeed, one person's definition of "clean" can differ dramatically from another's if their objectives for energy policy differ. Renewable energy, nuclear power, natural gas, coal with carbon capture and sequestration, energy efficiency, and emission offsets all have their advocates as falling under the definition of clean. Unless otherwise noted, in my testimony I will use the word "clean" to refer to these options generally and "conventional" to refer to all other forms of electricity generation.
Moving from conventional electricity generation to clean energy offers three types of possible benefit: the reduction of the environmental and public health damages associated with conventional electricity generation, the growth of new clean energy industries, and diversification of energy supply. A clean energy standard usually refers to a market-based approach that can achieve all of these objectives cost-effectively: it requires an increasing amount of clean electricity, but gives utilities the flexibility to comply by generating or buying clean power, or purchasing tradable clean energy "credits" (CECs), typically denominated in megawatt-hours.
One objective is the protection of public health and the environment. Electric power plants are the leading U.S. source of emissions of sulfur dioxide, mercury and many other metals, and acid gases. The electricity sector also ranks third among all U.S. sources of nitrogen oxide emissions and fourth in emissions of fine particulates. The vast majority of the emissions in this sector are associated with coal-fired power plants. Clean energy sources emit zero or very low levels of these pollutants.
Today, the power sector is the source of about a third of U.S. greenhouse gas emissions. As we heard during the hearing the committee held on sea level rise a few weeks ago, recent findings in the peer-reviewed science provide only more cause for concern about the impacts of climate change. A properly designed clean energy standard would lead to the reduction of these emissions from power plants.
A second objective is to advance the position of the United States in the global competition to deliver the next generation of energy technologies. In a world hungry for energy services, we can be confident that modern energy technologies, especially those with a smaller environmental footprint than those we have today, will be a global growth area for decades to come. A recent report finds that global renewable energy finance and investment grew significantly in 2011 to $263 billion, a 6.5 percent increase from the previous year. The renewable energy sector is emerging as one of the most dynamic and competitive in the world, witnessing 600 percent growth in finance and investments since 2004. A clean energy standard would spur technology and economic development in the United States, allowing the market to determine the winners among clean technologies.
A third objective is to ensure a diverse energy supply. Currently we obtain 42 percent of our electricity from coal, 25 percent from natural gas, 19 percent from nuclear, and 13 percent from renewables. Under business as usual, this energy mix is not expected to change significantly over the next two decades; while new builds are expected to be primarily natural gas, overall electric generation is growing fairly slowly.
In many respects, a properly designed clean energy standard would advance all three objectives. There are a few aspects in the design of a clean energy standard, however, that require one to choose between the objectives, or at least to strike a balance between them. Design choices may be evaluated in light of additional criteria, including:
- Effectiveness – what is the magnitude of the policy's desired impacts?
- Affordability – does the policy balance the benefits associated with increased clean power generation against the cost impacts of the policy?
- Cost-effectiveness – how efficiently does the policy achieve its intended aims?
- Fairness – does the policy unfairly burden particular groups or regions or lead to any undue burdens or unearned windfalls for particular utilities, power generators, or customers?
- Innovation – does the policy drive innovation in the lowest-emitting and/or least mature technologies with the greatest potential long-term benefits?
I'll elaborate on a few examples of how design choices can involve tradeoffs and affect costs.
Targets, coverage, and alternative compliance payments. More ambitious clean energy targets will achieve greater benefits and drive greater innovation in the lowest-emitting technologies, but at higher cost. Broader inclusion of electric utility companies will increase the effectiveness of the standard and more broadly share the costs, but could impose greater administrative burdens. Allowing utilities to pay an alternative compliance payment if clean energy credit prices get too high limits the rate impacts but can also reduce the effectiveness of the targets.
Definition of clean energy. In general, a broader definition of clean energy will lower the cost because it allows greater scope for identifying the least expensive solutions. It also makes the standard more equitable across regions, because different regions have different natural endowments of different types of clean energy. Supply diversity is also a hedge against price volatility. However, because different types of clean energy have different characteristics, policy-makers might not be neutral with respect to the role each type plays. There are many possible compromises on this issue, depending on the attribute of concern.
As an illustration, natural gas is lower-emitting than coal but higher-emitting than nuclear or renewables. A compromise is to award natural gas partial credit. In addition, advances in shale gas production have increased the availability of inexpensive natural gas. Thus, providing credit for natural gas reduces the cost of achieving the CES target. However, since natural gas is already the dominant choice for new power plant builds, there is a risk that the power sector will become too reliant on natural gas, crowding out other options.
Inherently, a clean energy standard will favor the lowest-cost clean energy source. But policy-makers may want to drive innovation and cost reduction in less mature, advanced clean energy technologies. A compromise might be to place a limit on how many credits can be distributed to the lowest-cost clean energy source. Another option is to provide additional favorable treatment to the lowest-emitting or least mature technologies (e.g., by granting certain subcategories of technologies additional credits, or guaranteeing them a role by establishing "tiers" with separate targets). Finally, policy-makers can design the CES to be technology-neutral, and rely on complementary policies (such as loan guarantees or other financial assistance for nuclear power plants, subsidies for carbon capture and storage, and tax credits for wind and solar power) to drive innovation in less mature and lower-emitting technologies.
The role of energy efficiency. Energy efficiency is cleaner than any of the energy supply options. Providing credit for energy efficiency can lower cost, but increase the complexity of the standard and potentially diminish its effectiveness. Measuring electricity savings from energy efficiency is more challenging than measuring generation from qualified clean energy sources, and it is especially difficult to distinguish energy savings driven by the standard from business as usual.
Crediting existing clean generation. On the one hand, it is fair to reward early clean energy investment. On the other hand, such crediting could result in windfall profits and reduce new clean energy production.
State experience with renewable and alternative energy standards
We have substantial experience with renewable and alternative energy standards at the state level. At this point, 31 states and the District of Columbia have adopted some form of mandatory electricity portfolio standards through legislation, regulation, or public utility commission order. Another seven states have adopted non-mandatory renewable portfolio goals. These policies differ in a number of the design elements described above. Thus we have a wealth of state experience to draw from in designing a federal program. In addition, 22 states have established mandatory long-term electricity savings targets through an Energy Efficiency Resource Standard (EERS), with five other states having a non-mandatory electricity savings goal. In some of these cases, the state electricity portfolio standard is combined with or linked to the EERS policy.
Perhaps the most important lesson to be learned from state portfolio standards is that they succeed in accelerating the deployment of renewable resources. Ninety percent of the nonhydro renewable capacity added in the United States between 2004 and 2010 was built in states with a mandatory renewable portfolio standard. Another clear (and expected) lesson is that state portfolio standards tend to result in the deployment of the cheapest available renewable energy options. In most states, this means utility-scale wind power projects. State portfolio standards are given a good deal of credit for establishing a viable wind turbine supply chain in the United States, along with training and credential programs and some domestic manufacturing facilities. A number of states have driven some innovation in less mature technologies, for example by establishing "carve-outs" requiring that a certain fraction of the requirement be met using solar energy.
A third key lesson is that the impact of portfolio standards on electricity rates has been generally modest, though it is difficult to isolate this impact from other factors that influence prices. Of 14 states where compliance cost data are available, Arizona had the highest impact in 2010 of nearly 4 percent. No other of these states saw a rate impact above 2 percent. As a typical example, the Maine Public Utilities Commission estimates a 0.6 percent increase in rates in 2010 caused by its portfolio standard of 40 percent renewable energy by 2017, and expects a 1.9 percent increase by 2017. Due to the price stability of long-term renewable energy contracts, the portfolio standard may even help reduce rates in some states.
While most of the state portfolio standards focus on energy sources that are renewable, nonrenewable electric generation technologies are given credit in the programs of four states – Michigan, Ohio, Pennsylvania and West Virginia. Natural gas, coal with carbon capture and storage (CCS), coal gasification and liquefaction, coal bed methane, nuclear power, industrial combined heat and power, and greenhouse gas offset projects are given credit under one or more of these programs, in addition, of course, to the traditional renewable energy sources. All of these states have taken an approach that favors renewable sources compared to the other qualifying sources, either by establishing "tiers" that define some fraction of the clean energy targets that must be achieved by renewable sources, or by giving renewable sources extra credits.
The proposed Clean Energy Standard Act of 2012
Let us now turn to Sen. Bingaman's bill, the Clean Energy Standard Act of 2012. The bill would, beginning in 2015, require covered electric utilities to supply an increasing share of their electricity sales from qualifying clean energy sources. Utilities could comply by building their own clean power plants, buying clean power from others, or buying tradable clean energy credits.
Senator Bingaman's CES proposal embodies a number of design features, including the following, that are innovative and reasonably balance the multiple objectives I described earlier:
- A target that starts off modestly but increases over time, balancing effectiveness and cost, and driving innovation;
- A broad, "all-of-the above" definition of clean energy, maximizing flexibility and minimizing cost;
- Appropriately rewarding environmental performance by calculating credits based on carbon intensity;
- Providing some credit for existing nuclear and hydropower, balancing the goal of fairly sharing costs with the goal of recognizing clean energy investment;
- Allowing banking of clean energy credits, affording additional compliance flexibility;
- Allowing utilities to pay an alternative compliance payment if clean energy credit prices get too high, but escalating the payment over time; and
- Advancing energy efficiency by providing credit for combined heat and power, and using alternate compliance payments to fund state efficiency programs.
At Sen. Bingaman's request the Energy Information Administration has analyzed the implications of the bill using the National Energy Modeling System. As with all economic modeling, we should look at the EIA's work for insights, rather than for hard and fast predictions about the future. In that spirit, we offer the following additional observations about the bill.
The Act and natural gas
Pertaining to the balancing of natural gas against the other clean energy technologies, the EIA projects that under the proposed standard, in 2035, natural gas will be 31 percent, nuclear power will be 30 percent, and renewables will be 20 percent of the total generation mix. According to EIA's scenario, the bill drives the largest increase in natural gas use in the early years, but as the standard becomes more ambitious, we see an increase in lower-emitting technologies. In 2020, natural gas-fired generation under the proposed standard is 13 percent higher than in the reference scenario; by 2035 it is 8 percent higher. Thus the bill takes advantage of natural gas's near-term price and availability while still driving innovation in much cleaner technologies. Additionally, the investment in a range of low emitting technologies in response to the CES provides supply diversity, and a hedge against potential volatility in the price of natural gas.
Moreover, the EIA projects only a modest natural gas price increase, as increased consumption from the electric power sector leads to prices around 10 percent higher than the reference case from 2015 – 2018. Then, the price converges to reference case levels over the following five years. Given the very low projected price of natural gas, in absolute terms, this is actually a small increase. This is good news, considering the current investments being made by manufacturers on the basis of projected low natural gas prices.
The Act and very low-emitting technologies
This modestly increased role for gas, however, depends on a significant increase in one or more very low-emitting technologies. EIA projects especially large growth in nuclear power that may or may not come to pass. EIA also projects some increase in biomass, wind and solar power, but no increase in coal (or gas) with carbon capture and storage. In EIA's analysis of a case in which new nuclear plant builds were constrained, and other assumptions were held constant, natural gas played a more significant role, and this uniformly raised the projected price of natural gas. One could still project a more modest role for natural gas with less growth in nuclear power but with more optimistic assumptions for renewables and/or carbon capture and storage.
If policy-makers are interested in ensuring innovation in zero-emitting technologies, policy options are available, as discussed earlier. In any event, C2ES would strongly recommend making a Clean Energy Standard just one component of a comprehensive strategy to advance the very low-emitting technologies – nuclear power, renewable energy, and carbon capture and storage – a strategy that includes support for R&D, as well as subsidies to allow power companies and others to deploy the technologies.
Nuclear power plants face a number of major hurdles. One hurdle that policy-makers could address is obtaining financing, for example by continuing and potentially expanding the current loan guarantee program and/or providing other forms of financial assistance to a few "first mover" next-generation nuclear plants. This could demonstrate to potential investors that these plants can indeed be built with lower cost and improved safety features, setting the stage for second, third, and nth movers to obtain private financing. This would increase the likelihood of nuclear power playing a significant role in achieving a clean energy standard.
For wind and solar power, EIA projects increases that are significant but not nearly as large as for nuclear power, relative to the reference case. Also, EIA assumes that the production tax credit (PTC) for wind expires in 2012, and the investment tax credit (ITC) for solar expires in 2016. Extending the PTC and ITC could incentivize additional solar and wind investment beyond what would be built solely to comply with the CES.
EIA projects that additional coal (or gas) with CCS will not be deployed under this bill because it is not cost-competitive with other clean energy options. It is technically feasible today to build a commercial-scale CCS operation, which several power companies are doing. However, CCS is very expensive due to its current stage of development, and planned projects are limited primarily because of uncertainty with respect to the regulation of CO2 emissions. Coal- and natural gas-fired generation will likely be significant sources of electricity in the United States, and indeed in most of world's major economies, for decades to come. Thus, ultimately, in order to deeply reduce U.S. and global GHG emissions, we need CCS.
One approach for advancing CCS would involve utilizing the CO2 as a resource, rather than treating it as a waste product. C2ES is a co-convener of a coalition of industry, state, environmental and labor leaders, known as the National Enhanced Oil Recovery Initiative (www.neori.org), which has called for a federal tax credit for capturing and transporting CO2 from industrial sources and power plants for use in enhanced oil recovery. In addition to driving a lot of domestic oil production, a benefit of such a program would be to generate an additional revenue stream to cover the cost of CCS. We would expect that as CCS costs come down, it would enable coal to have a bigger role.
Other Impacts of the Act
EIA projects that under the CES, electricity prices would not experience a significant impact until the mid 2020s. The projected average end-use electricity price under Senator Bingaman's bill exceeds the Reference case by only 1.5 percent in 2023, but that grows to more than 18 percent by 2035. There would be almost no impact for the first ten years, with a gradual increase over the next dozen years, giving people and companies both an incentive to increase their energy efficiency (and potentially reduce their energy bills even as prices increase) and ample time to do so.
Also, total combined heat and power (CHP) generation would benefit from the policy provision that allows qualified CHP generators to earn and sell clean energy credits. According to the EIA, CHP generation fired by natural gas under the bill exceeds the Reference case by 8 percent in 2025 and by 21 percent in 2035. CHP saves energy and promotes industrial competitiveness.
Senator Bingaman, thank you for introducing this bill and beginning the public debate on this promising approach to protecting the environment, diversifying energy supply, and promoting clean energy industries. C2ES is grateful for your leadership, and we look forward to working with you and your colleagues on the Committee to analyze, refine and advance this proposal.
Keynote speech by Eileen Claussen, President of the Center for Climate and Energy Solutions
11th Annual Conference on Carbon Capture, Utilization and Sequestration
May 1, 2012
Thank you very much. It is a pleasure to be here in Pittsburgh. And I want to thank Exchange Monitor Publications and Forums, together with the Department of Energy and the National Energy Technology Laboratory and their partnering organizations, for convening this very timely and very important conference.
Everything is so well organized and the breakfast spread was so perfect and so tantalizing … for a moment I thought I was at an event put together by the General Services Administration.
I also congratulate you for putting added emphasis this year on the utilization of carbon emissions and for changing the title of the conference to reflect this … Now it can officially be said that this is the event that put the “you” in CCS. If only we could add an “A” word to the end and make it CCUSA, then we could add some patriotic flair to this whole endeavor.
In all seriousness, I want to talk with you today about why CCS (or any acronym we choose to employ for it) is so important … not just for the future of fossil fuels—but also for the future of this country and its efforts to get a handle on the twin challenges of energy and climate change.
And I also want to discuss one of the most promising technologies available for making large-scale CCS a reality. I am talking, of course, about CO2-enhanced oil recovery, or CO2-EOR, which is an issue that my organization has been working intently on as a co-convener of the National Enhanced Oil Recovery Initiative.
Whether you spend the bulk of your waking hours worrying about the potential dangers of climate change or not, CO2-EOR makes a huge amount of sense for a number of reasons that I intend to go over later in my remarks. But first I want to talk about why we are even having this conversation and why the United States and the world must finally get serious about taking full advantage of big opportunities CO2-EOR.
When it comes to energy and climate, the United States stands at a crossroads today. Indeed, we are standing there with the rest of the world. At this crossroads, we have a choice to make. We can continue with a business-as-usual or status quo approach to energy and climate issues. If that’s what we choose, we’ll continue to face the same questions and the same concerns not just about the environment and climate change but about energy-related risks to our national security, our economy and jobs, and more.
Or we can choose a new road to the future--that protects our economy, our security and our climate for decades to come.
The environmental case for doing this is compelling enough. According to most scenarios, global emissions of greenhouse gases need to peak by 2015 in order to have a reasonable chance of limiting global warming to no more than 2 degrees Celsius. This is the level where many scientists say we can manage the risks of climate change, but there is considerable debate even on this point and some think we will already be flirting with disaster at 2 degrees Celsius.
Whatever the case, 2015 is just three years away. Are emissions showing any signs of peaking? Not even close … After a brief downturn due to the recession, newly released figures from the EPA show that U.S. emissions resumed their upward march in 2010, rising by 3.2 percent compared to 2009. And global emissions are projected to grow 17 percent by 2020, and 37 percent by 2035. Under that scenario, we could see average global temperatures rise 3 to 4 degrees Celsius by 2100.
But, even if you are an ardent skeptic of the science of climate change or of our ability to dramatically reduce our greenhouse gas emissions, the energy case should be motivation enough for abandoning the status quo and following a new and different road to the future.
What do we care about? Reliability. Affordability. Security. Reduced environmental impact. These have to be the hallmarks of U.S. energy policy going forward, and carbon capture and storage can and must be an important component of that policy. It provides us with the means to continue using fossil fuels in a carbon–constrained future. It is especially critical for producing electricity from both coal and natural gas, while simultaneously reducing greenhouse gas emissions.
Coal, of course, has the most at stake in this discussion. Coal, in fact, is at a crossroads itself. The latest figures from the U.S. Energy Information Administration confirm that coal’s share of U.S. electricity generation is decreasing.
In 2006, coal-fired generation accounted for more than half (50.4 percent to be exact) of the total generation mix in this country. By the end of 2011, that figure had declined to 43.4 percent of the mix, a drop of 7 percentage points. The biggest factor in coal’s relative decline, of course, is dropping natural gas prices. According to EIA, natural gas prices are forecast to remain below $5 per million BTUs for the next 10 years. This is why we’re seeing so many new natural gas power plants. EIA’s latest estimates for 2011 and 2012 show around 20 gigawatts of added capacity planned for natural gas versus around 9 gigawatts for coal. Add to this the spare capacity of existing gas-fired power plants that were built to generate electricity during the daytime hours only and you can see the challenges facing coal.
New EPA rules also pose challenges for coal. The new Mercury Rule alone, which was issued last December, will affect 1,325 units at 525 power plants of all types around the United States. Some of these plants are more than 50 years old, and companies may retire older plants rather than paying to install new pollution control equipment.
In addition, there is EPA’s Cross-State Air Pollution Rule (CSAPR) and, on the industrial side, the 2011 rule imposing new emissions reductions requirements on coal-fired boilers. And most notably, of course, earlier this spring the EPA proposed the first-ever national standards for limiting greenhouse gas emissions from new power plants. In order to comply with the rules, new plants would have to install carbon capture and storage technologies. There is essentially no other way for these plants to reduce their emissions to the level required under this proposal.
After detailing all of these challenges for coal, I am inclined to ask the question, “Other than that, Mrs. Lincoln, how did you enjoy the play?”
The proposed GHG rules make it official: In order to keep coal’s share of the U.S. energy mix from declining further, we need to throw out old ways of thinking. We need to think big. This is not just about trying to compete with natural gas on price; it is about embracing new ideas and new technologies to ensure that coal can continue as a fuel of choice in a world that, whether you like it or not, will become increasingly focused on limiting and reducing carbon emissions.
Coal alone is responsible for 28 percent of U.S. greenhouse gas emissions. Worldwide, 43 percent of CO2 emissions from fuel combustion come from coal. Clearly, something has to give. In order for the world to get a handle on the climate problem, and in order for coal to hold onto its place as a major energy source in the decades to come, we need to show – and very quickly – that it is possible to achieve substantial cuts in emissions from coal-fired power generation.
In other words, we need to find a low-carbon solution for coal. And coal is not our only challenge – we need all the low-carbon and carbon-free technologies we can get. The good news about natural gas is that it generates half of the emissions of coal when used as a fuel source. But that’s also the not-so-good news about natural gas; it still generates substantial emissions, and in order to achieve the level of reductions that will reduce the risk of climate change, we need CCS for natural gas as well as for coal.
The potential for CCS to reduce emissions is undeniable. Studies show that CCS technology could reduce CO2 emissions from a coal-fueled power plant by as much as 90 percent. Modeling done by the International Energy Agency (IEA) forecasts that CCS could provide 19 percent of total global GHG emission reductions by 2050. That includes reductions from coal and natural gas-fired power plants, as well as all other sources.
But these are just studies, they are merely estimates of what could happen if CCS finally emerges from the world of drawing boards and demonstration projects to actual widespread deployment throughout this country and around the world. What we are doing right now to develop these technologies is not enough; it’s not even close to enough. We have two decades at most to deploy these technologies at the scale needed to achieve substantial reductions in emissions.
And one way to start is by taking a more serious approach to the development of CO2-Enhanced Oil Recovery in this country.
For nearly 15 years, my organization has sought to bring industry, government, NGOs and others together to explore innovative solutions to the climate and energy challenges we face in the United States and around the world. We see CO2-EOR as a very important piece of the puzzle. And this is why we worked with the Great Plains Institute to convene the National Enhanced Oil Recovery Initiative, or NEORI. NEORI is a coalition of industry, state, environmental and labor leaders who have come together to develop and present recommendations for boosting domestic oil production and reducing CO2 emissions through the expanded use of CO2-EOR.
The participants in this effort believe that EOR using captured carbon dioxide offers a safe and commercially proven method of expanding domestic oil production that can help the U.S. simultaneously address three urgent national priorities.
- The first priority is increasing our nation’s energy security by reducing dependence on foreign oil, including oil that is imported from unstable and hostile nations. CO2-EOR potential in the United States equals 26 to 61 billion barrels of oil with existing technology; with next-generation techniques the potential rises to 67 to around 140 billion barrels. U.S. proven reserves are 20 billion barrels, so we are talking about at least doubling U.S. oil potential. That’s huge.
- The second priority that CO2-EOR addresses is creating economic opportunity – if we do this right, it will create jobs, boost tax revenues, and reduce the U.S. trade deficit. We can put dollars we now spend on oil imports to work right here in the U.S. economy. How much money are we talking about? One estimate, from Advanced Resources International, projects that the reduction in oil imports associated with CO2-EOR would total $600 billion by 2030.
- And the third priority addressed by CO2-EOR? Protecting the environment. Capturing and storing CO2 from industrial facilities and power plants will reduce U.S. greenhouse gas emissions, while getting more American crude from areas already developed for oil and gas production. By fully developing American reserves that are amenable to this practice, we could reduce CO2 emissions by 10 billion to 19 billion tons, an amount equal to 10 to 20 years of emissions from personal vehicle use in this country. And the bonus is that it can help us further the commercial deployment of the CCS industry in this country — not just with coal and natural gas power plants, but with other domestic industries such as natural gas processing, ethanol and ammonia production, and steel and cement manufacturing. Driving innovation in CCS technology will allow us both to take advantage of our nation’s vast fossil fuel resources and achieve much larger CO2 emission reductions.
I have worked on the climate issue for many years now, and I assure you this is a big deal. Reducing U.S. CO2 emissions by up to 19 billion tons while also advancing CCS technology would be a major achievement.
So if CO2-EOR is so important, why aren’t we doing more of it? Well, as all of you know, the major hurdle standing in our way is that there’s just not enough readily available CO2. And this is why our organization joined with the Great Plains Institute to convene the NEORI.
The idea behind this initiative was to bring together a diverse group of stakeholders and try to come to agreement about what needs to happen to realize CO2-EOR’s potential. More specifically, we wanted to develop a set of recommendations for federal and state incentives that will stimulate the expansion of CO2-EOR using carbon dioxide from power plants and industrial facilities.
Were these conversations easy? In a word, no. This is a group that included participants ranging from major coal companies and industrial suppliers of CO2 to environmental NGOs, organized labor, and state officials. The diversity of the group meant we had some very tough discussions. But in the spirit of the saying, “Nothing that is worthwhile is easy,” the final participants in this project stuck with it, and they came up with a plan that already has attracted bipartisan interest in Congress. We released this plan earlier this year at an event on Capitol Hill, and I want to give you a quick sense of what it entails.
NEORI’s centerpiece recommendation is a competitively awarded, revenue-positive federal production tax credit for capturing and transporting CO2 to stimulate CO2-EOR expansion. This federal tax credit would more than pay for itself because it will lead to additional oil production subject to existing tax treatment. The new incentive will enable a variety of industry sectors to market new sources of CO2 to the oil industry, and to reduce their carbon footprints. It will drive innovation and cost reduction in CO2 capture and compression, and help build out a national CO2 pipeline system.
For the near term and until the broader credit is in place, NEORI also recommends specific “good government” changes to improve the workability of the existing carbon capture and storage credit known as Section 45Q.
Of course, states also have an important role to play in fostering CO2-EOR deployment. This is why NEORI identifies existing state policies that should serve as models for policymakers in other states to adopt and tailor to their particular needs.
Later this morning, you will hear more about our recommendations from a panel of NEORI participants. And I encourage you to visit the website, www.neori.org, for more on the recommendations we have made.
So let’s cut to the chase. What will happen if we adopt these measures I have described? NEORI estimates that our proposed new federal production tax credit for CO2 capture will quadruple the amount of domestic oil currently produced annually through enhanced oil recovery – to 400 million barrels a year in the outyears – while cutting CO2 emissions by 4 billion tons over the next 40 years. In addition, we will be generating new tax revenue for states and for the federal government – as I said, these incentives will more than pay for themselves. And we will be gaining vital experience and creating valuable infrastructure supporting broader deployment of carbon capture and sequestration in the future.
At a time of economic struggle, fiscal crisis and political gridlock, at C2ES we believe the NEORI proposal is an encouraging example of how we can and must make progress on the climate and energy challenges we face. As much as we would like to see comprehensive solutions to our climate and energy challenges, those solutions are not on the immediate horizon. But if we come at these issues one by one, look for opportunities where interests converge, and are open to compromise, we can arrive at practical solutions benefiting our economy, our security and the environment.
At the Capitol Hill event where NEORI announced our recommendations in February, we also were able to welcome a bipartisan group of members of Congress who were on hand to express their support. Given the political gridlock in Washington in this election year, it was reassuring to see lawmakers from both political parties step up and say they agree that this is important work.
Will we see comprehensive legislation on this issue pass the Congress this year? That’s unlikely … but we do think we have a shot at Section 45Q reform this year. Still, the NEORI recommendations have started the conversation and we feel optimistic that we can see progress on this issue in the not-too-distant future no matter who controls the Presidency and the Congress next year.
All of which brings me to the closing segment of my remarks today, in which I simply want to appeal to all of you to help us keep pushing these issues forward.
Rarely in the current political climate do Republican and Democratic lawmakers in Washington rally together in support of anything. So we need to make the most of this opportunity. Everyone who supports CO2-EOR has an obligation to educate their representatives in Washington and in state capitals around the country about the benefits this can deliver for our economy, our national security and the environment.
We also need to help the general public understand what’s at stake here … why we need to reduce emissions, why CO2 use and sequestration in depleted oil fields is an important solution, and what this can mean for the future of our country, and for the future of fossil fuels as well.
Thank you very much.
This blog post is cross-posted on the Center for New American Security's National Security blog.
Today we released a new report today titled Climate Change & National Security: The Arctic as a Bellwether. The lead author of the report is Dr. Rob Huebert, Associate Director of the Centre for Military and Strategic Studies at the University of Calgary.
Official military doctrine in the United States now holds that “climate change, energy security, and economic stability are inextricably linked.” Nowhere is this linkage more clearly illustrated than in the Arctic, and that’s why we think the region is a bellwether for how climate change may reshape global geopolitics in the post-Cold War era.
As the planet has warmed over the past few decades, temperatures in the Arctic have been increasing at about twice the global rate. And the Arctic sea ice cover has been shrinking much faster than scientists anticipated. The five smallest sea ice covers ever recorded have all occurred in the past five summers. As a result, the Northwest Passage through the Canadian Archipelago has opened up every summer since 2007, and the Northeast Passage along Russia’s coastline has opened up every summer since 2008.
May 1, 2012
Contact: Rebecca Matulka, 202-701-5032, firstname.lastname@example.org
New Analysis Finds Climate Change Is Driving New Security Concerns In The Arctic
Report Calls for Stronger Multilateral Mechanisms to Avert Potential Conflicts
Arctic melting driven by climate change is reshaping the geopolitics of the far North, and as governments respond with steps such as rebuilding their military capabilities, multilateral mechanisms must be strengthened to head off potential conflicts, according to a new analysis released today by the Center for Climate and Energy Solutions (C2ES).
The report, Climate Change and International Security: The Arctic as a Bellwether, examines a recent spate of Arctic-related announcements and actions by circumpolar states, including the United States, Canada, Russia and several European countries. The emerging security issues in the Arctic, it concludes, could foreshadow climate change’s broader influence on geopolitics globally in the post-Cold War era.
Temperatures are rising in the Arctic at about twice the global rate, and the decline in summer sea ice over the past decade is outpacing scientists’ projections. The rapid melting is driving increased interest in new and expanded shipping routes, oil and gas exploration, and Arctic fisheries. In the five years since Russia planted its flag at the North Pole, Arctic states have issued a string of major policy announcements and begun reassessing and rebuilding their military capabilities in the region.
“The repositioning we see in the Arctic clearly demonstrates that climate change presents not only huge environmental and economic challenges, but national security challenges as well,” said C2ES President Eileen Claussen, formerly Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs and Senior Director for Global Environmental Affairs at the National Security Council. “These emerging Arctic issues are unfortunately just a preview of the kinds of security challenges we’ll see more of as the world warms.”
The analysis was led by political scientist Rob Huebert, associate director of the Center for Military and Strategic Studies at the University of Calgary. Huebert’s coauthors were Heather Exner-Pirot of the University of Saskatchewan, Adam Lajeunesse of the University of Calgary, and Jay Gulledge, senior scientist and director of the science and impacts program at C2ES. Heubert is presenting the report today at the Arctic Forum portion of the American Geophysical Union’s Science Policy Conference 2012.
In their analysis of countries’ announcements and actions since 2008, the report’s authors found that while all support the goal of maintaining cooperative relations in the region, several have also made clear that they intend to defend their national interests there if necessary.
In policy statements, as well as multilateral actions and agreements, the Arctic countries have demonstrated a sincere desire for the region to be developed cooperatively and peacefully, the report says. For example, in the 2008 Ilulissat Declaration, the five coastal Arctic states—Canada, Denmark, Norway, Russia, and the United States—agreed to settle any territorial disputes under accepted principles of international law as they seek to extend their claims to Arctic territory.
On the other hand, the authors note, some countries are rebuilding military forces far beyond “constabulary” needs, such as policing waterways, and others are drawing up plans to. For example, Russia plans to build several new nuclear-powered submarines for fast attack or nuclear missile launch missions, and the Norwegian Air Force has announced plans to acquire 48 F-35 Joint Strike Fighters. “Consequently,” the report says, “if political cooperation in the region should sour, most of the Arctic nations will have forces that are prepared to compete in a hostile environment.”
One potential source of tensions is access to shipping routes through the Northwest Passage, through the Canadian archipelago, and the Northeast Passage, along Russia’s coast. While the United States views freedom of the seas for navigation as a core interest in the Arctic, Canada and Russia, each with vastly more Arctic coastline than the United States, put stronger emphasis on territorial sovereignty.
To keep relations from veering toward conflict, the report calls for countries to move quickly to strengthen existing multilateral mechanisms. As a first step, it recommends that the Arctic Council, which includes all of the Arctic states, reconsider its existing prohibition on discussing military security issues. Otherwise, it warns, smaller groupings may emerge, and countries left out may feel threatened.
As another example, the report cites support by the Department of Defense for U.S. ratification of the Law of the Sea treaty, which provides a framework for resolving issues such as the delimitation of the continental shelf in the Arctic.
“The Arctic is a true bellwether on climate-related security issues,” said lead author Huebert. “Arctic states should act quickly to reinforce multilateral mechanisms before resource competition and core national interests take center stage. And other countries should watch closely to learn from our successes or failures in managing this new breed of security challenge.”
The Center for Climate and Energy Solutions (C2ES) is an independent non-profit, non-partisan organization promoting strong policy and action to address the twin challenges of energy and climate change. Launched in November 2011, C2ES is the successor to the Pew Center on Global Climate Change, long recognized in the United States and abroad as an influential and pragmatic voice on climate issues. C2ES is led by Eileen Claussen, who previously led the Pew Center and is the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.
What are Oil and Natural Gas Air Pollution Standards?
The Environmental Protection Agency (EPA) released oil and natural gas air pollution standards on April 17, 2012. These standards are a combination of court-mandated regulations for the oil and gas industry covering both New Source Performance Standards (NSPS) and National Emissions Standards for Hazardous Air Pollutants. The regulations target the emission of Volatile Organic Compounds (VOCs), sulfur dioxide, and air toxics, but they will have significant co-benefits reducing emissions of methane, a potent greenhouse gas. By requiring the use of a process known as "green completion" these are the first federal regulations to specifically require emission reductions from new or modified hydraulically-fractured natural gas wells.
The Clean Air Act requires the EPA to regulate pollution from new, modified and reconstructed facilities through the NSPS program, established in Sec. 111 of the Act. NSPS are rate-based standards which apply to specific categories of stationary sources. The Clean Air Act also requires EPA to regulate hazardous air pollutants, through the National Emissions Standards for Hazardous Air Pollutants program established in Sec. 112 of the Act.
Together, these rules will require the use of "green completions" at drilling sites, a step already mandated by some jurisdictions and voluntarily undertaken by many companies. EPA estimates that this proven, cost-effective technology is currently used at roughly half of the fractured natural gas wells recently drilled throughout the country. In a green completion, special equipment separates hydrocarbons from the "flowback" that comes from the well as it is being prepared for production. This step allows collection and sale of the natural gas that would otherwise be released as waste.
Who are the covered entities?
The NSPS regulates VOC emissions from oil and gas production and processing facilities, including gas wells (including hydraulically fractured wells), compressors, pneumatic controllers, storage vessels, and leaking components at onshore natural gas processing plants. It also regulates (SO2) emissions from onshore natural gas processing plants. The MACT component adds regulation for glycol dehydration unit process vents used in well production and updates leak detection and repair requirements for all equipment. The final standards apply to facilities that commence construction, reconstruction or modification after August 23, 2011, estimated to be 11,000 wells per year. The green completion requirement will be phased in, with flaring allowed as an alternative compliance mechanism until January 1, 2015.
Exploratory, delineation and low-pressure wells are exempt from green completion requirements, but are required to flare waste gases instead, which eliminates VOC emissions and combusts methane.
What are the air pollution and climate implications of this regulation?
EPA estimates that this regulation will improve air quality by directly reducing emissions of certain air pollutants:
- 190,000 to 290,000 tons of VOCs (a 95 percent reduction); and
- 12,000 to 20,000 tons of air toxics.
The green completions required under these standards will have a co-benefit of reducing emissions of methane a potent greenhouse gas by 1 million to 1.7 million short tons annual, or about 19 to 33 million tonnes of CO2 equivalent.
Methane is a short-lived climate pollutant, with 37 times the radiative forcing of CO2 and with an atmospheric lifespan of only 12 years. Short-lived climate pollutants such methane, black carbon and hydrofluorocarbons account for roughly 30 to 40 percent of global warming to date. Targeted efforts to reduce these emissions can slow the pace of global warming and moderate climate impacts already underway, including the melting of sea ice and glaciers. These co-benefits are significant as the oil and gas industry is the largest source of domestic methane emissions, accounting for 40 percent of U.S. emissions of this potent greenhouse gas.
EPA's analysis of the rules shows a cost savings of $11 million to $19 million when the rules are fully implemented in 2015. These net savings result from the capture and sale of natural gas that would otherwise be vented to the air.
What is the status of regulation?
The first NSPS for oil and natural gas facilities for VOCs and SO2 were issued in 1985, while the MACT requirements were issued in 1999. In 2009, litigation was initiated by environmental groups against the EPA for failure to update these regulations. The U.S. District Court for the District of Columbia issued a consent decree requiring EPA review of these standards by April 17, 2012. A proposed rule was released on July 28, 2011. The final rule was issued on the day of the final deadline, April 17, 2012, and a revised final rule was published on August 16, 2012.
Eileen Claussen, President of C2ES
Opening Remarks for Low-Carbon Innovation Forum
April 24, 2012
Thank you very much. On behalf of the Center for Climate and Energy Solutions, I want to welcome you to our latest forum on low-carbon innovation. As we gather here to talk about the role of innovation in addressing the twin challenges of energy and climate change, I am reminded of the story of the first-grade teacher who was reading the story of Chicken Little to her class. She comes to the part of the story where Chicken Little approaches the farmer and says to him, “The sky is falling, the sky is falling!” The teacher then asks her students, “And what do you think the farmer said next?”
One little girl in the front row of the class raises her hand and answers, “I suppose he said, ‘Holy cow! It’s a talking chicken!’”
In today’s political environment, it’s hard sometimes not to feel like that talking chicken when we bring up the important issues of energy and climate change. Sometimes it seems that no one really wants to pay attention to what we’re saying. It’s hard to get past the posturing and the politics to a place where there’s a possibility of real attention to these issues and real action.
Well, I am here to tell you this morning that we have to get to that place where people pay attention to us … and we have to get there as soon as possible. Spurring low-carbon innovation must be a national priority and I want to use my remarks to set the stage for the three excellent panels that will follow, dealing with the respective roles of business and government in this work.
Most of what we hear in Washington these days about public-private collaboration to advance low-carbon technologies revolves around a single example where things did not turn out well. I’m speaking, of course, of Solyndra. But whatever the truth ultimately proves to be —whether Solyndra is a case of undue political influence, or simply a casualty of a market shakeout — this one, overblown example hardly tells the full story. As we will hear in the course of the morning, both government and business have vital roles to play at every stage on the path to commercialization. And to ignore or undermine the role played by government is to risk losing the fight against climate change and our competitive positioning in the growing clean energy market.
It’s important to remember first and foremost what this work is about: it is about addressing two of the most important challenges facing our country and the world in the years ahead — the twin challenges of energy and climate change. And, even if you are an ardent skeptic of the science of climate change or of our ability to reduce emissions to a level where we can actually have a discernible impact on global temperature trends, the case for addressing our energy challenges should be motivation enough.
Innovation in low-carbon technologies isn’t crucial solely because it will reduce greenhouse gas emissions, as important as that is. It is also crucial because it will reduce our dependence on fossil fuels, contribute to our energy security and our national security, and drive economic growth and U.S. competitiveness in the years ahead.
When we do a full accounting of the environmental and the economic and national security costs of our energy status quo in this country, we see that the old ways of doing things just aren’t sustainable. So what’s the solution?
Well, in the short term, there are steps we can take right now to conserve energy, switch to low-carbon fuels and deploy more efficient technologies. But over the long term, achieving change on the scale that is needed will require new technologies. And we need to seed the technologies of tomorrow by investing right now in low-carbon innovation.
This is not just a necessity; it is also a huge opportunity. Business leaders from Bill Gates to Jeff Immelt to Andrew Liveris agree that energy innovation is the next great global industry. With world energy consumption expected to grow by 40 percent in the next two decades alone, this is a growth opportunity that could rival what we’ve seen in recent decades with the growth of computing and the Internet.
But our research at C2ES shows that innovation in the energy industry doesn’t come easy. It takes time and one of the keys to success is making sure you have the right industries and the right partners working together.
Our research also shows that forward-thinking companies, including some of the companies you will hear from today, are developing innovative technologies that could be part of the long-term solution to our energy and climate challenges. Last October, we released a report called The Business of Innovating: Bringing Low-Carbon Solutions to Market, which was developed with members of the our Business Environmental Leadership Council (BELC) and included a survey of leading companies, a series of BELC workshops, and in-depth case studies of eight low-carbon innovation projects from four multinational companies. Here were some of the key findings:
- First, companies emphasized the importance of business leaders or internal champions highlighting the strong contribution that low-carbon innovation can make to the bottom line and to future growth.
- Second, business executives stressed that reductions in carbon emissions alone will not make low-carbon innovations successful in the marketplace; the innovations must also bring bottom-line value in terms of total cost reduction, enhanced performance, or competitive edge.
- And third, the report notes the importance of balancing long-term vision and short-term profitability. Companies that are able to successfully commercialize low-carbon innovations have a constant focus on core competencies and customer needs today, while also studying the changing technical, market, and policy landscape of the future.
The report also laid out the huge opportunities that are out there for businesses that embrace low-carbon innovation. By 2020, total investment in clean energy alone — that includes everything from renewable power to technologies that improve energy efficiency, such as the smart grid — is expected to reach $2.3 trillion. For the United States to sit back and allow other nations to assume a leadership role in meeting these needs would be, frankly, irresponsible.
Business is innovating, as we found in our report. But business cannot do this work alone. Our research confirmed that there are considerable barriers standing in the way of individual companies and industries as they try to move low-carbon solutions from the laboratory to full-scale commercialization.
Among the companies we studied, one of the biggest of these barriers is what we refer to as “policy uncertainty.” Climate policy is on the back burner, as all of us know very well, and the nation’s elected leaders also can’t seem to come to agreement on a comprehensive energy policy. The result is that companies are left to guess for themselves what type of policy environment they will be operating in five or ten years from now. The current state of affairs makes it a huge challenge for business to make strategic bets on what energy products and services to bring to market.
I will say it again: Business and government each play critical roles in the innovation process. And if we want to develop the low-carbon technologies that will help us protect our environment, our energy security and our economy in the years to come, government needs to be a part of the solution.
And so in today’s panels we are looking at three of the ways in which government plays a vital role alongside business in advancing low-carbon innovation in this country.
First … government must continue to support basic research, development, and demonstration. We need to keep evaluating and investing in the next generation of low-carbon energy technologies. Tools we rely on everyday — from the Internet to GPS — came out of research supported by the Department of Defense.
Some of the breakthrough technologies enabling the natural gas boom in the United States were made possible by investments in research, development and demonstration from the Department of Energy and national labs. It is estimated that U.S. shale gas can now meet our domestic gas needs for the next 100 years — that’s a pretty good return on our taxpayer investments.
In 2007, Congress created ARPA-E — the Advanced Research Projects Agency for Energy — to help support the development of breakthrough energy technologies. It’s absolutely vital that government continue to invest in these types of efforts.
The second role of government that we will explore today is government procurement. Through its purchasing power, the government can help create a market for innovative technologies. The government’s operational needs provide a large, early market for scaling up newly commercialized low-carbon technologies, which can then be adopted for private-sector use as well. For instance, the Department of Defense is the single largest consumer of energy in the country, and is very quickly realizing how improved energy technologies can save taxpayers millions. Military bases are becoming important markets for energy efficiency and renewable energy technologies. Other federal and state agencies also are adopting low-carbon technologies that can ease tight budgets by reducing energy expenses. Government procurement can quickly move technologies up the learning curve and down the cost curve, helping these innovations become competitive in the broader marketplace.
And last but not least, we will have a panel today discussing the role of government standards and incentives in driving mass deployment. Time and time again, such public policies have driven the adoption of innovative technologies across the economy. Government plays a critical role as “standards-setter” for industries. Federal and state standards create incentives for companies to make long-term investments in innovation, and create demand for the resulting products.
A particularly strong example is the recent steps by the Obama Administration to significantly increase fuel economy and greenhouse gas standards for vehicles. In February, U.S. auto sales reached their highest level in four years, and the Big Three automakers all cite higher sales of smaller, fuel-efficient vehicles as a contributing factor. Two years ago, the Smart Car was the only conventional car available in the U.S. with a fuel economy rating of 40 miles a gallon or better. Today there are nine. The EPA estimates that the new standards will save the average driver $8,000 over the lifetime of a vehicle and reduce oil consumption by over 2 million barrels a day.
So those are three roles we will be exploring today as we talk about how government can help drive low-carbon innovation. Government as supporter of research, development and demonstration. Government as purchaser and market-creator. And government as a standard-setter driving mass deployment. It promises to be a very interesting and provocative morning, even though we don’t have any talking chickens on the agenda.
Thank you very much.
Remarks of Elliot Diringer, Executive Vice President of the Center for Climate and Energy Solutions
Deputy Minister's Speaker Series-Environment Canada
April 19, 2012
I’ve been asked to talk today about the international picture – about where the U.N. climate negotiations might be headed after Durban. And I promise I will eventually work my way toward that topic.
But I’d like to start with some reflections on a few recent events in Washington–events that I think in many ways sum up where we stand in our struggle with climate change.
This past weekend, some of you might know, Washington celebrated its annual Cherry Blossom Festival. This was a special year – the festival’s 100th anniversary. Tens of thousands of people from around the world joined in the festivities. There was only one problem: no cherry blossoms. They’d already come and gone – early – in fact, it was just about the earliest bloom in the century since the festival began. Washington was not the only place that experienced summer in March. Some 15,000 temperature records fell across the eastern half of the U.S. In parts of Canada, temperatures were higher in March than the previously recorded highs for April.
Now we all know that you can’t really attribute any single event – like a blossom-less Cherry Blossom Festival–to global warming. But even among TV weathercasters, who are generally skeptical of climate change, its emerging influence is getting hard to ignore. Here’s what Stu Ostro, chief meteorologist at The Weather Channel, had to say about the record heat: “While natural factors are contributing to this warm spell, given the nature of it and its context with other extreme weather events and patterns in recent years, there is a high probability that global warming is having an influence…”
My point is this: the impacts of climate change are being felt now–and, on our present course, they are certain to intensify. At some levels, this reality is beginning to sink in. As the Arctic sea ice begins to melt away, Canada, the United States, Russia and other Arctic states are very actively considering the implications for shipping, for resource development, and for security. Some are strengthening their military capabilities in the region. But in too many places–including here and in Washington–the growing risks of climate change are not yet real enough with the public, or with our political leaders, to drive the changes needed to avert the worst of them.
Twenty years after the first Rio summit–which launched the international climate effort–we are barely making a dent in the problem. Global leaders agreed in Copenhagen on a goal of limiting warming to 2 degrees Celsius. To meet that goal, according to most scenarios, global greenhouse gas emissions must peak by 2015. That’s three years away. Instead, global emissions are projected to grow 17 percent by 2020, and 37 percent by 2035. Under that scenario, we could see average global temperatures rise 3 to 4 degrees by 2100.
So let me come back to Washington, and a second recent event: the latest step by the Obama administration to regulate greenhouse gases. The recession has significantly moderated U.S. emissions. They dropped 9 percent from 2007 to 2009. They’re now rising again, but fairly slowly. In fact, current projections don’t show emissions returning to 2005 levels until after 2035. But they would still likely be significantly higher in 2020 than the target pledged by the U.S. in Copenhagen.
Three years ago, you may recall, the goal was comprehensive legislation, including an economy-wide cap-and-trade program. A bill did pass the House, which was at the time controlled by the Democrats, but the effort fizzled in the Senate. The Republicans took control of the House in the next election–and a number of moderate Democrats who’d supported the bill were tossed out. Prospects for any major climate legislation in the near future are now generally put at nil.
So the only option open to the Administration is to regulate greenhouse gases under the federal Clean Air Act–and at the moment, it is proceeding cautiously. When it came to reducing emissions from cars and light trucks, the Administration was able to capitalize on a particular set of circumstances to deliver a genuine breakthrough. The automakers were already being pushed by California to lower emissions, and having just been rescued from bankruptcy by Washington, were more obliging than usual. The resulting rules – one already in place, the other pending–will increase the fuel economy of the average new vehicle from 30 miles a gallon today to 50 miles a gallon by 2025, avoiding some 3 billion metric tons of greenhouse emissions.
Now the Administration is turning its attention to stationary sources–starting with power plants. Last month, the Environmental Protection Agency proposed a rule to limit greenhouse gases from new power plants. Under the proposed rule, they could not exceed the level emitted by a natural gas combined cycle plant – the most efficient now available. Any new coal-fired plants would have to use carbon capture-and-storage, which could be phased in over time. The reality, though, is that with the natural gas boom there is virtually no talk of building new coal plants. So the rule would more or less lock in the direction things are projected to be heading anyway. The bigger question is what happens at existing power plants, which account for 40 percent of U.S. emissions. On that–or any other steps to control stationary sources – we’re unlikely to hear anything at all out of EPA until after the November election.
This is, of course, a presidential election year, which helps explain the context for a third recent event in Washington–one that no doubt more of you will have heard about. I’m talking about the President’s denial of a permit for the Keystone pipeline.
Those of you very familiar with the manmade geography of North America know that Keystone would be but one more addition to a vast network of pipelines linking our two countries. Insofar as it would continue our dependence on high-carbon fuels–something that’s true of countless other investment decisions being made around the globe–Keystone is indeed worrisome. But given the global nature of the oil market, building or blocking Keystone is unlikely to have any significant impact on the price of gas, the U.S. job market, or greenhouse gas emissions. With or without Keystone, as long as oil prices remain high, the Canadian oil sands will continue to be developed, and that oil will reach market. If the real problem is, as I believe, our dependence on oil, then the real answers are reducing consumption and developing alternatives. Blocking Keystone does neither.
Yet with this being an election year; with the economy still struggling; with gasoline prices at record highs; with Keystone advocates promising jobs, cheaper gas and energy security; and with climate advocates rallying outside the White House, it’s easy to see how Keystone has emerged as a symbolic flashpoint. The upshot for now is that a southern section of the pipeline, fully within the U.S., is proceeding, and the President has left the door open for a revised proposal for the upper, transboundary portion.
The political theatrics of the Keystone episode–with the president trying to punt the issue past the election, and Republicans in Congress forcing him to make a decision now, and the President managing to punt it anyway–underscore a troubling aspect of the climate and energy debate in the U.S.: like so many others, it has become increasingly partisan.
Which leads me to a fourth telling event recently in Washington: A group called Republicans for Environmental Protection took “Republican” out of its name. The group is now called ConservAmerica, a switch that its leaders say is aimed at better highlighting the conservative roots of conservation. Indeed, as far back as Teddy Roosevelt, some of America’s greatest environmental achievements have come with Republicans in power. But Republican moderates are today a disappearing breed. Senator Olympia Snowe of Maine, one of the last remaining, announced her retirement recently. Looking back over her 33 years in Congress, she lamented that “an atmosphere of polarization and ‘my may or the highway’ ideologies has become pervasive in campaigns and in our governing institutions.”
Even outside the hyper-partisan atmosphere of Washington, there is a clear partisan divide. Sixty-five percent of Democrats believe global warming is mainly caused by human activities, while among Republicans, it’s only 36 percent. Most Americans generally support an all-of-the-above approach to energy. But here, too, there are clear partisan differences: while roughly 85 percent of Democrats favor more government money for wind and solar, as well as mandatory CO2 controls, 85 percent of Republicans favor opening more federal land to oil drilling.
So that is how things look right now. I imagine many of you are wondering how they might look after the election. And I’ll get there. But for now, I’d like to put Washington aside for a moment and turn, as promised, to the international picture.
I think years from now, it is quite possible that we will look back at the UN climate conference last December in Durban as a critical turning point. The deal that was finally eked out there at 3 in the morning, 30 hours after the conference was supposed to end, delivers little in the way of concrete action. But it does open up some possibilities. I’d say it is a deal delicately poised between two eras in the evolving international climate regime–between the fading age of Kyoto, and a new phase beyond Kyoto, with developed and developing countries presumably on a more equal footing. What that phase might look like is at this stage very difficult to say.
Since the very start of the climate negotiations, there has been a tension between two different approaches: a top-down model with binding targets and timetables; and a bottom up approach called pledge-and-review, with countries undertaking voluntary efforts, and subject to some form of international review. Twenty years later, we’ve yet to choose between them. Right now, we are in fact pursuing both.
We’ve tried the top-down model, of course, in the form of the Kyoto Protocol. The theory there was that binding international commitments would drive domestic action. One might point to Canada as a clear exception in this case–or, perhaps, as proof that the whole theory is wrong. I, for one, think the truth likely lies somewhere in between. We’re all familiar with the Kyoto critique: that it covers a small and shrinking share of global emissions, while leaving emerging economies like China and India free to emit all they want. Canada is the only country to have actually withdrawn from the protocol, but others like Russia and Japan have made abundantly clear for some time that they want nothing to do with it after 2012.
Now interestingly, even as Kyoto has been sputtering along, other things have been happening in the international regime. The 2009 Copenhagen summit, declared by many a failure because it didn’t produce a binding agreement, did in fact produce an important political agreement, one calling for both developed and developing countries to pledge climate targets or actions for 2020. The Copenhagen Accord also called for a new climate fund for developing countries, and stronger transparency measures so parties could better keep tabs on one another. In another wee-hour episode, this one perhaps best forgotten, formal adoption of the accord was blocked in the final moments by a handful of parties. But a year later in Cancun, parties adopted all of its major elements and began implementing them. They were, in essence, creating a parallel framework that looks very much like pledge and review.
The upside is that so far, more than 80 countries have made explicit pledges for 2020. This includes, for the first time, all of the major economies, both developed and developing. The downside is that taken together these pledges fall far short of what’s needed to put us on track for the 2-degree target adopted in Copenhagen, and again in Cancun.
For all its failings, the Kyoto Protocol retains enormous symbolism around the globe as the first and only binding commitments to fight climate change. And going into Durban, many developing countries were adamant that if there was to be any deal there, Kyoto’s survival had to be part of it. While Canada and others were saying count us out, Europe said it might well be willing to take a new Kyoto target, but on one condition: that parties launch a new round of negotiations toward a binding comprehensive agreement.
That became the crux of the Durban deal: Europe and a handful of others agreed to take new Kyoto targets, keeping the protocol alive, if only barely. Parties took a number of steps to further flesh out the framework emerging from Copenhagen and Cancun. And they adopted the Durban Platform for Enhanced Action, launching new talks aimed at a new agreement in 2015.
What kind of agreement? If you look to the Durban Platform for guidance, you won’t find much. Here is the critical passage: parties “launch a process to develop a protocol, another legal instrument or an agreed outcome with legal force under the Convention applicable to all parties.” There are two central issues embedded here, and on both, these words leave considerable ambiguity.
The first issue is the agreement’s legal character–will it be legally binding? A protocol would meet that test. So, presumably would “another legal instrument.” But the third option contained in the text–“an agreed outcome with legal force”–is a completely novel formulation. An artful one, to be sure, but one easily open to interpretation. And the interpretations already being suggested by some parties sound less than binding, at least as it’s been conventionally understood.
The second issue is the balance of responsibility between developed and developing countries, a perennial concern. Back at the start, in the Rio convention, the parties spoke to this issue by laying down the principle of “common but differentiated responsibilities.” A country’s responsibility varies according to its contribution to the problem, and its capacity to address it. Kyoto applied this principle in an especially stark and especially rigid manner: binding targets for developed countries, no new commitments for developing countries, and no clear path for ever moving beyond that. One thing that can be said of the Durban Platform is that it sweeps away this strict notion of differentiation, and with good reason. China has overtaken the United States at the world’s largest greenhouse gas emitter, and collectively, developing countries now account for nearly 60 percent of annual emissions.
But beyond discarding the strict binary differentiation of Kyoto, Durban offers scant guidance. While it doesn’t directly invoke the phrase “common but differentiated responsibilities,” it does so implicitly by placing the new agreement “under the Convention.” It would be a mistake to think for a minute that developing countries have in any way abandoned this core principle. And while Durban says the new agreement will be “applicable to all parties,” the same actually could be said of Kyoto, so it’s hard to read that as ensuring full symmetry.
On another issue–the form of commitments to be taken–Durban is utterly silent. The Copenhagen and Cancun agreements were clear that developed country pledges were to be economy-wide emission targets, while developing countries were free to pledge in any form they chose. Is that the presumption for next time? Can’t say.
So on the one hand, by knocking down the so-called firewall between developed and developing countries erected by the Kyoto Protocol, and by establishing a strong preference at least for a binding outcome, the Durban Platform opens up, for the first time, the possibility of a balanced, binding agreement. On the other hand, it tells us virtually nothing about what that agreement should look like.
Let’s look again at the two models we’ve already created. One option might be to keep the Kyoto approach of binding emission targets, but this time set targets for the major developing countries too. Realistically, I see very little chance of getting there by 2015. Another option is to keep building up the framework coming out of Copenhagen and Cancun. It’s proven to be a very inclusive framework, while allowing differentiation between developed and developing countries in the form of their commitments.
But how would we move it beyond pure pledge and review? Can we make it a system that actually encourages countries to elevate their efforts by giving them confidence that others are doing their fair share? Can we agree on what a fair share of effort is? Will countries be ready to legally bind themselves? And with Canada providing proof that binding is not always binding, we really do have to ask ourselves, what is it we even mean by binding?
As we start looking for answers, I think this is a good moment to reconsider what it is we are actually looking to the international climate regime to accomplish. Experience has shown us that in the case of many countries, including many of the largest emitters, we cannot realistically expect the international regime to drive the domestic effort. But I believe it can serve to facilitate and to encourage; and as the place where emerging national efforts are stitched together, hopefully in ways that that build confidence and a sense of reciprocity that, over time, delivers a stronger collective effort.
If that is one’s vision of the international effort, then what follows is that the real work to be done right now is not in the international negotiations, but rather, at home. So let me return to Washington, and our election, and the outlook beyond.
One could very reasonably suggest that a re-elected President Obama would be more favorably inclined to strong climate action than would a President Romney. But the reality is that how quickly we are able to ramp up the U.S. effort depends a lot more on factors other than who occupies the White House. First and foremost is the state of the economy, and while there are hopeful signs, we’re not out of the woods yet. The next most important factor is probably the level of public awareness and concern, and that may be very closely linked to the weather. In a recent survey, a large majority of Americans said they believe global warming is making the weather more extreme. As the impacts become more pronounced, so may public support for action.
And regardless of who’s in the White House, it matters a lot who is in Congress. Right now the situation is so fluid that you couldn’t rule out the possibility of either the Democrats or the Republicans taking both houses. I think it is fair to say that whatever the outcome of the election, stronger action, whether in Congress or through EPA, will remain an uphill fight.
Given that outlook, we see two priorities. The first is to continue laying the ground for a comprehensive policy solution by working with all parties to explore the options, and by helping to strengthen public awareness and concern. The second is to find ways to make concrete progress now, piece by piece, by looking for opportunities where different interests converge, and are prepared to compromise around practical solutions. To cite just one example, we recently pulled together a group from industry, government, labor and the environmental community that worked out joint recommendations to expand enhanced oil recovery using CO2 captured from power plants and industrial facilities. It’s a plan that would reduce CO2 emissions while boosting domestic oil production. We need to find more opportunities like this, get people together, and prove that progress is possible.
I’d like to end where I began, by noting that climate change is no longer remote–it is here and now. I understand that just as Washington’s festival goers missed out on the cherry blossoms, the world’s largest ice skating rink barely made an appearance this winter. Up north, the permafrost is melting, the sea ice is shrinking, and the ancient ways of the Inuit are in danger. We can see the signs, and we have begun to take some steps. But the truth is that neither the U.S. nor Canada is yet coming to grips with the climate realities and climate risks that we face. We are not out of time, but it is running short. There are serious choices upon us. Let us hope we choose well.