From SunShot to a Carbon Capture Moonshot


C2ES President Bob Perciasepe speaks at a discussion higlighting the successes of carbon capture technology with Al Collins, Senior Director of Regulatory Affairs, Occidental Petroleum Corporation; David Greeson, Vice President of Development, NRG Energy; and Christopher Romans, Senior Manager for Government Relations, Mitsubishi Heavy Industries America.

Last month, the Department of Energy announced the solar industry met an ambitious goal to make the solar electricity market competitive, a feat achieved three years ahead of schedule. The SunShot initiative, as it was called, is a great example of what that can be achieved with the help of federal and state policies that promote private sector investment. Now it’s time to apply that formula and commitment to other clean-energy technologies, including carbon capture, use and storage.

The Department of Energy’s National Renewable Energy Laboratory concluded that the country has already reached the SunShot initiative’s 2020 price goals of $1 per watt and less than six cents per kilowatt-hour for utility-scale solar energy. This is an impressive display of policy solutions in action, current International Trade Commission dispute notwithstanding.

This was achieved with the help of federal investments in research, development, demonstration and deployment (RDD&D), as well as a federal investment tax credit and a federal loan guarantee to support project financing. Meanwhile, strong state policies like the California Renewables Portfolio Standard supported deployment by enabling developers to enter into above-market power purchase agreements.

Carbon capture, like solar and other low-carbon technologies, will be essential to meeting our long-term emissions reduction goals. This versatile technology can be applied to coal and gas-fired power plants, as well as steel, cement, and fertilizer production plants and refineries.

2017 has already been a banner year for carbon capture. NRG Energy’s Petra Nova project came online as America’s first commercial-scale coal-fired power plant retrofitted with carbon capture and the largest of its kind in the world, and the ADM Illinois Industrial Carbon Capture and Storage project opened as the world’s first commercial-scale ethanol plant retrofitted with carbon capture. Even with these successes, more national investment in RDD&D and support for private sector commercialization is needed. The International Energy Agency warns that carbon capture technology is not on track to meet long-term emissions reduction goals necessary to stave off the worst effects of climate change .

To highlight current successes and the potential of next-generation technology, C2ES organized a policy briefing featuring U.S. Sens. Heidi Heitkamp (D-N.D.), Sheldon Whitehouse (D-R.I.), Shelley Moore Capito (R-W.Va.), and John Barrasso (R-Wyo.). As proof that bipartisan progress on energy policy is possible, the four in July introduced the FUTURE Act, which would extend and expand the Section 45Q tax credit for carbon capture. The Senate bill has 25 sponsors. Rep. Mike Conaway (R-Texas) also introduced legislation on 45Q in the House, and it also has substantial bipartisan support from 38 sponsors.

Speakers at the C2ES event highlighted the need for federal policy leadership to expand corporate investment in carbon capture technology and bring next-generation technologies to market. Carbon capture technology also needs overlapping incentives like federal tax credits, loan guarantees, and state portfolio standards that worked to help bring down the cost of solar energy.

Two days before the C2ES event, a hearing before Sen. Barrasso’s Environment and Public Works Committee highlighted opportunities to invest in pipelines for manmade carbon dioxide, to spur regional investment in carbon capture.

Carbon capture would also benefit from the use of Private Activity Bonds, often used for infrastructure projects like airports and water sewer projects. To this end, in April 2017, Sens. Rob Portman (R-Ohio) and Michael Bennet (D-Colo.) introduced the Carbon Capture Improvement Act, and Reps. Carlos Curbelo (R-Fla.) and Marc Veasey (D-Texas) introduced a companion bill in the House.

Congress can also support carbon capture through the appropriations process, particularly through continued support for carbon capture RDD&D. For FY 2018, the House of Representatives appropriated $668 million for the Office of Fossil Energy, and it would be beneficial for the final appropriation to be close to this level. Support for large-scale transformational pilot projects (such as in the House’s FY 2017 Omnibus Appropriations bill) and using the loan guarantee program for carbon capture projects would also be helpful.

Looking ahead, DOE should develop a strategy and long-term roadmap—a “Carbon Capture Moonshot.” Building on the success of the SunShot initiative and the Petra Nova and ADM project milestones of 2017, it is the right time to invest in carbon capture to increase lower carbon energy production, reduce emissions, and grow our economy, while keeping and creating jobs in the process.

 

Bipartisan support grows for carbon capture

Bipartisan support is growing on Capitol Hill and beyond to accelerate carbon capture deployment on power plants and industrial sources like steel and cement plants. This support comes from lawmakers who share a common interest in increasing the production of domestic energy resources and reducing carbon emissions.

On July 12, a bill co-sponsored by 25 senators was introduced that would provide a performance-based incentive to capture CO2, put it to productive use, and store it safely and permanently underground.

The FUTURE Act (Furthering carbon capture, Utilization, Technology, Underground storage, and Reduced Emissions) would extend and expand a federal tax credit, known as Section 45Q, which incentivizes capturing carbon dioxide (CO2) from power and industrial sources for enhanced oil recovery (EOR) and other uses. CO2-EOR is a decades-old process that produces domestic oil from existing fields, while safely and permanently storing billions of tons of CO2. Recent analysis demonstrates its climate benefits.

Bill supporters cross the aisle and the country. They include Sens. Heidi Heitkamp (D-ND), Shelley Moore Capito (R-WV), Sheldon Whitehouse (D-RI), John Barrasso (R-WY), Tim Kaine (D-VA), and Lindsey Graham (R-SC).

Other bipartisan bills would help unleash private capital to scale up more carbon capture projects. The Carbon Capture Improvement Act, introduced in April by Sens. Rob Portman (R-OH) and Michael Bennet (D-CO), would authorize states to use private activity bonds to help finance carbon capture equipment. A companion bill was introduced by Reps. Carlos Curbelo (R-FL) and Marc Veasey (D-TX). Private activity bonds are widely used to develop U.S. infrastructure, such as airports and water and sewer projects. (Join a free C2ES webinar on private activity bonds July 24.)

Task force recommends clear, consistent financial reporting of climate risks

It’s clear to many companies and investors that the physical impacts of climate change and the transition to a low-carbon economy pose financial risks if companies are not prepared. But financial reporting on those risks has not been always consistent or clear.

After 18 months of work, an industry-led task force has recommended ways companies across multiple sectors can inform their lenders, investors, insurance underwriters, and other stakeholders about climate risks—and opportunities—for their businesses. The framework is voluntary, but already more than 100 companies, including Bank of America, BHP Billiton, Dow Chemical Company, and Royal Dutch Shell, are supporting the recommendations.

The Financial Stability Board’s Task Force on Climate-related Financial Disclosures focused on corporate governance, strategy, risk management, and climate-related metrics and targets. The final recommendations provide guidance to companies on how to translate climate risks and opportunities into traditional financial terms, like revenues, expenditures, assets, and liabilities, and how to integrate climate risks into existing business continuity and enterprise risk management systems.

One of the most important recommendations is that more companies conduct a scenario analysis. Looking out over the horizon, companies should analyze what climate change will mean for their facilities, operations, supply and distribution chains, as well as demand for their products and services over a range of plausible scenarios. For example, how might sea-level rise and increased frequency and severity of heat, drought, and other extreme weather pose financial risks to the business over time? Or how will moving to a low-carbon energy economy present significant opportunities or challenges for the business? The task force recommendations are flexible because each company may use scenario analysis to develop an individual strategy to capitalize on opportunities and manage transition risks. The financial impacts of climate change will vary depending on the intensity of climate impacts (for physical risks) and on the timing and nature of policy and market changes (for transition risks). That’s why a scenario analysis to stress-test the resilience of a company’s business model and portfolio across a range of plausible scenarios is critical.

Opportunities for carbon capture in California

California has demonstrated leadership in setting ambitious goals for reducing greenhouse gas emissions. The state’s target: Reduce emissions to 40 percent below 1990 levels by 2030.

While California is reducing emissions and expanding clean energy through many means, including a cap-and-trade program, the state appears to be underestimating the effectiveness and readiness of carbon capture technology and how it could help California reach its goal.

In consensus comments on the California Air Resources Board’s (CARB) draft 2017 Climate Change Scoping Plan Update, a diverse group of nonprofits (including C2ES); environmental groups; and oil, gas, and ethanol companies outlined the current state of carbon capture deployment, the technology’s benefits, and how California could address roadblocks that may be hindering its deployment.

State of technology

Carbon capture technology has been deployed in U.S. commercial-scale industrial facilities since the early 1970s, including at natural gas processing plants and fertilizer production plants. The comment letter lists more than a dozen notable U.S. projects.

Most recently, Archer Daniels Midland’s Illinois Industrial Carbon Capture and Storage project – the world’s first commercial-scale carbon capture project on ethanol — began operations in April. More than 1 million tons of CO2 will be captured and stored in Mount Simon sandstone. Carbon capture on biofuels could one day lead to negative emissions, since bioenergy crops absorb greenhouse gases as they grow.   

Earlier this year, NRG finished – on time and under budget – the first American retrofit of a coal-fired power plant with carbon capture technology and the largest of its kind in the world. 

The NRG Petra Nova project near Houston, Texas, is capturing about 1.6 million tons of CO2 annually for use in enhanced oil recovery (CO2-EOR). Studies have documented the net benefit to the climate of CO2-EOR using manmade CO2.

Carbon capture benefits

Carbon capture plays an important role in reducing emissions at a lower cost than other scenarios modelled by the Intergovernmental Panel on Climate Change. In the industrial sector, the International Energy Agency (IEA) concluded there are no practical alternatives to the use of carbon capture technology to achieve deep decarbonization.

Accelerating carbon capture deployment also could have co-benefits for environmental justice because carbon capture retrofits are often accompanied by improvements to promote efficiency and reduce sulfur oxide and nitrogen oxide emissions.

Next generation technologies could do even more:

  • NET Power’s Allam Cycle technology, which is being tested at the 50-megawatt scale, could generate power from natural gas with near zero CO2 and nitrogen oxide emissions, while also eliminating the need to use water for cooling.
  • The Lake Charles Methanol project in Louisiana, which recently received a conditional commitment for a Department of Energy loan guarantee, would capture CO2 from a process that converts waste petcoke from refining into methanol, hydrogen, and other chemicals, eliminating harmful emissions.
  • FuelCell Energy’s technology isolates carbon emissions from power plants, while simultaneously producing power. The fuel cells also eliminate 70 percent of the plant’s nitrogen oxide emissions.

What California can do

California has certainly taken positive steps on carbon capture. As noted in our comments, a major step forward is CARB’s progress toward drafting and adopting a Quantification Methodology (QM) for determining how to account for emissions reductions from carbon capture and storage. The concept paper was released April 17.

Looking forward, the pace of carbon capture deployment in California may be determined largely by legal, regulatory and policy considerations. Among the recommendations for CARB in our consensus comments were:

  • Identify carbon capture on the menu of CO2 reduction strategies not only for industrial sources, but also in the power sector, and identify a range of emission reductions that could come from carbon capture deployment in those sectors. ?
  • Consider and update the recommendations of the CCS Review Panel to identify steps needed to ensure that carbon capture could be implemented by 2025.
  • In addition to developing a regulatory monitoring, reporting, verification, and implementation methodology, identify any barriers in current regulatory programs that impede carbon capture deployment.  
  • Identify the potential for synergies between carbon capture and the reduction of other emissions (toxics and criteria pollutants) at large point sources and recommend additional work to analyze these synergies.
  • Consider whether the state’s Low Carbon Fuel Standard should be revised so that carbon capture is not required to take place onsite at the crude oil production facility.  The highest priority should be for the CO2 to be transported to and injected at a site with suitable geological characteristics for safe storage.
  • Consider allowing credit for CO2 emissions captured outside of crude oil production facilities if it leads to a lower-carbon energy input into the fuel supply chain of the crude oil.

California should be commended for its leadership in setting an ambitious emissions-cutting goal and charting a path toward reaching it. California can also lead by addressing key policy and regulatory questions to ensure that carbon capture is part of its overall plan.  

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Comments, posted here, were from: California Resources Corporation, Chevron, Clean Air Task Force, Center for Climate and Energy Solutions, Conestoga Energy, EBR Development LLC, 8 Rivers, Global CCS Institute, Natural Resources Defense Council, Occidental Petroleum, Shell, Steyer-Taylor Center, and White Energy.  

 

Measuring and managing climate change impacts through financial reporting

carney bloomberg photo

Photo courtesy of Task Force on Climate-related Financial Disclosures

Bank of England Governor Mark Carney and task force chairman Michael Bloomberg at the Task Force on Climate-Related Financial Disclosures recommendations report launch.

Most large companies recognize the risks climate change poses to their facilities, operations, and supply and distribution chains. And many of these companies are letting their stakeholders know how climate risks and opportunities will affect their bottom line.

Currently, much of this information is made public through voluntary reporting to non-profit organizations, in corporate sustainability reports, and, for publicly-traded companies, filings with the Securities and Exchange Commission. In our research on company strategies to manage climate risks and opportunities, we have found that the quality of reporting and level of detail varies extensively from company to company, and sector to sector.

Reflecting the growing importance of climate change as a material set of risks for companies to manage, finance ministers from 20 major economies asked the Financial Stability Board (FSB) to review the financial implications of climate change. The G-20 Finance Ministers established the FSB after the 2008 financial crisis to monitor and make recommendations on the global financial system. The FSB convened an industry-led task force  to develop voluntary recommendations to better, and more consistently, integrate into financial filings the risks and opportunities posed by physical climate impacts and the transition to a lower carbon economy. 

In a speech, “The Tragedy of the Horizon,” describing the impetus for creating the FSB task force, Bank of England Governor Mark Carney said: “We don’t need an army of actuaries to tell us that the catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors – imposing a cost on future generations that the current generation has no direct incentive to fix.”

In December 2016, the task force, chaired by Michael Bloomberg, released recommendations focused on four areas of climate-related financial disclosure:  governance, strategy, risk management, and metrics and targets. 

C2ES commends the task force on its efforts to shine a light on the risks we are already facing from climate change, and to enhance the transparency we need to better understand and address them over the long term. 

In our comments submitted on the recommendations, we suggested that the task force:

  • Provide additional guidance on the timeframes companies would use for conducting scenario analysis of their business models and portfolios. For example, if a company is reviewing an investment with a short time horizon, a scenario running out to 2050 or longer might not be helpful.
  • Provide additional guidance for companies on how to select the appropriate scenario tools to assess climate risks.
  • Provide additional guidance on how mainstream financial filings can interact with corporate sustainability reports in a consistent way given that financial data and sustainability data have different levels of precision and timelines.
  • Consider how implementation of the recommendations could involve a “maturity model” that would allow companies to self-assess their progress, benchmark against peers, and influence executive decision-making. An example of this type of model is the Electric Power Research Institute’s Electric Power Sustainability Maturity Model.
  • Provide additional implementation guidance for sectors that the recommendations currently do not reference specifically, such as for information technology, telecommunications, health care, consumer products, and professional services.  Translating climate risks and opportunities into material financial impacts on income statements and balance sheets requires sector-specific guidance. As a starting point, the recommendations provide sector-specific guidance for sectors with high greenhouse gas emissions and energy and water use. Climate-related financial disclosures will be more helpful if they are adopted economy-wide so additional sector-specific guidance may be useful.
  • Engage with stakeholders to identify ways to promote consistency across voluntary reporting regimes to reduce the burden on data preparers.

Many companies will be interested in demonstrating to investors and stakeholders that they are reviewing their corporate sustainability reports and environmental, social, and governance disclosures in line with the task force’s recommendations. An iterative process for enhancing climate-related financial disclosure will likely be needed to make this possible.

We believe the task force recommendations will help ensure that companies take a long view and avoid the “tragedy of the horizon.”