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For the US government to break the cycle of disappointment in
its first decade of support for carbon capture and storage projects
(CCS), federal grant and loan programs must be revised, the
Government Accountability Office (GAO) said in a report released in
December.
That's part of the equation, analysts agree, and they support
the reforms suggested by GAO. But just as key for the industry's
future are increased tax credits for CCS, instituted in 2018, and
the technological advances that have the potential to capture
carbon less expensively. With new private and government funding
and an urgency behind CCS, now is a prime opportunity for the
technology to contribute to US decarbonization goals.
The Biden administration has made it clear that it believes CCS
will be part of the nation's drive towards halving CO2 emissions by
2030 and reaching net zero by 2050.
"To reach the President's ambitious domestic climate goal of
net-zero emissions economy-wide by 2050, the United States will
likely have to capture, transport, and permanently sequester
significant quantities of carbon dioxide," stated the Council on Environmental Quality
(CEQ) in a report published in July 2021.
IHS Markit says that 71 CCS and CCUS projects are operating, in
some stage of development, or have been announced in the US.
Existing projects can capture up to 25 million metric tons
(mt)/year of CO2-equivalent, and nearly 85 million mt/year of
additional capacity is in development, IHS Markit said in a report
published on 30 November.
IHS Markit believes that CCUS capacity in the US has to double
every five years through 2050 to contribute meaningfully to the
nation's net-zero goal, said Paola Perez Pena, principal research
analyst, clean energy technology.
The Clean Air Task Force (CATF) is optimistic that such lofty
goals can be hit. The US could have 125 million mt/year of capture
capacity operating by 2031, said John Thompson, CATF technology and
markets director.
CATF believes the Infrastructure Investments and Jobs Act,
signed by President Joe Biden on 15 November, will accelerate the
next stage of the industry's growth. The legislation represents
"the largest single investment in
carbon management provisions since DOE began funding carbon capture
research in 1997," CATF said.
The provisions in the infrastructure act closely follow key CEQ
recommendations, such as funding to speed up permitting reviews for
pipelines to deliver CO2 to sequestration facilities and providing
$3.5 billion in new funding for demonstration and pilot
projects.
It's a good start—but only a start, Thompson said in an
interview with Net-Zero Business Daily. "Congress needs to
provide smarter economic support to CCS," Thompson said. "It needs
to pair that greater oversight and accountability with more
flexibility so DOE can make changes to address new conditions [such
as] changing market factors, rising inflation, and technology
performance improvements."
High costs and low revenues
As documented in the GAO report, DOE spent $1.1 billion to support CCS
demonstration projects from 2009 through 2018. But only three
projects reached the point of actually capturing and storing
carbon: a single coal project and two projects tied to industrial
facilities.
GAO cited DOE's poor decisionmaking on which projects to fund,
the vulnerability of those projects to falling oil and natural gas
prices, and the "uncertainty regarding carbon markets" as factors
that impeded success.
Fixing the system begins with giving DOE more flexibility in the
projects that it backs. GAO said that coal-fired power plants were
the carbon source for eight of the 11 projects DOE funded from 2009
through 2018, and they took nearly $684 million of the agency's
total investment of $1.1 billion.
But those are, generally speaking, very high-cost projects, said
Perez Pena. "DOE was putting its money into a high-risk industry,"
she said. "Coal power generation is one of the most expensive
technologies to capture CO2 from…. Lower cost is lower risk."
A study by CATF of the comparative costs of capturing carbon
streams from different types of processing units finds coal and gas
at the high end of the scale at $70-$90/mt, including $25/mt for
transporting the CO2 by pipeline to the storage facility. This is
because only about 12% of the flue gas coming off a coal plant is
CO2 and only about 3% from a gas plant.
In contrast, the only emissions from an ethanol facility are CO2
and water. Separating the CO2 is a simpler process than purging all
the impurities from coal flue gas, and this leads to a cost of
$37-$55/mt (including transportation), Thompson said.
DOE staff was aware of the cost differential, but the
department's hands were tied. "DOE inherited a program that could
only fund coal and certain industrial plants. It did the best it
could under the circumstances," Thompson said.
On top of the high costs incurred by coal-oriented projects,
developers were operating under a fee structure that provided far
less revenue than they needed to recoup those costs.
The key revenue stream for a CCS project is Internal Revenue
Service Code Section 45Q, which provides a credit for CO2 that is
captured and stored at an approved facility. From 2009 through
2018, the credit (or allowance) for CO2 stored and then used in
enhanced oil recovery (EOR) was $10/mt, and the credit for CO2
stored underground permanently was $20/mt. Given the cost structure
cited above, the economics were impossible, Thompson explained, and
that discouraged any developer that didn't have the federal
government footing pretty much all of the bill.
The Bipartisan Budget Act of 2018, which was signed into law in
February 2018, changed the equation. It raised the rate for permanently stored CO2 to
$31.77/mt in 2020 for new CCS facilities and set the rate at $50/mt
in 2026, plus annual inflation adjustments. For storage-plus-EOR,
the rate was $20.22 in 2020 and will rise to $35 in 2026.
Allowances can be claimed for 12 years.
It's possible the 45Q tax credit could be raised again, as a
proposal to increase it to $85/mt for permanent storage is in the
Build Back Better legislation. However, that bill is stalled in the
US Senate. Given that many CCS projects in the industrial space are
expected to cost $60-$80/mt, this would be a major boost, Perez
Pena said.
CCS works
One thing to keep in mind in considering the financial
difficulties of past CCS projects is that CCS does work
technologically.
"We know from completed projects that you can capture 90% of
carbon, and even 98%-99% at reasonable cost. We see in DOE-funded
projects … very high levels of capture above 90%," Thompson
said.
"What's wrong [has been] the policies to support it," he
continued. "Carbon capture isn't free. You add it to a factory, to
a power plant, and it costs money. We just weren't realistic about
the cost of CCS for most applications."
The experience with the one completed coal CCS project, known as
Petra Nova, illustrates this
problem. Petra Nova is designed to treat and capture at least 90%
of the CO2 emissions, or 1.4 million mt/year, from a 240-MW unit at
the W.A. Parish Electric Generating Station in Thompsons, Texas.
The captured CO2 was to be compressed and transported through an
approximately 80-mile pipeline to an operating oil field and used
for EOR. Petra Nova began commercial operations in early 2017, but
it halted operations in May 2020, according to GAO's report.
The culprit was low oil prices, which killed the price that the
developer, NRG Energy, could get for CO2. Without a strong and
steady price for that CO2 from oil companies using it for EOR or a
higher 45Q credit from the government, it couldn't overcome the
high cost of operating the facility.
"The Petra Nova plant … never claimed 45Q credits," Thompson
said.
Reducing costs
While a higher 45Q tax credit can help to solve the revenue side
of the equation, developers and government also can address the
cost side of CCS. New technologies such as enzymatic absorption are
showing promise in making carbon capture less expensive.
"There are technologies on the capture side that aren't far
enough advanced yet—such as membranes and metal oxides—and
for those you will need a lot of government support to get to
commercial scale," Thompson said. "And you need [them to be used on
a] commercial scale in order to bring the costs down."
Another way to reduce costs in the capital-intensive industry is
to leverage technical knowhow. Oxy Low Carbon Ventures, Mitsubishi
Heavy Industries, Sumitomo Corp., and venture capitalists have
invested in Cemvita Factory, which is
developing "synthetic biology solutions" for carbon removal for oil
and coal producers.
ExxonMobil's 2019 investment in Mosaic Materials is another
example in which an oil company with deep pockets could move
innovative CCS technologies into commercial applications.
Another idea that's gained momentum in the last year is to
create projects large enough that economies of scale come into
play. That's the model ExxonMobil is following in its
much-publicized, $100-billion CCS hub concept for the Houston area,
announced in April 2021. The hub could capture up to 50 million
mt/year of CO2 by 2030, and 100 million mt by 2040 from an array of
sources, ExxonMobil said.
The Infrastructure Investment and Jobs
Act signed by Biden in November provides $2.1 billion for
low-interest loans for shared CO2 transport infrastructure,
addressing exactly that issue. Two proposals to gather CO2 from as
many as 30 Midwest ethanol plants and sequester the carbon at a
central location are examples of projects that could take advantage
of those loans.
Adding CCS capability to existing power or industrial facilities
is another way to keep down costs, compared with the unsuccessful
DOE programs, Thompson said. He noted that all of the DOE-funded
coal power projects, except one, were coal gasification, which
itself was an expensive technology. When the costs of a coal
gasification plant ballooned and projects were delayed, it had a
devastating effect on the CCS project associated with it.
It's not a coincidence that the two successful industrial CCS
projects funded by DOE were add-ons to existing operations: an
ethanol facility owned by Archer Daniels Midland in Illinois, and
methane steam reformers owned by Air Products & Chemicals in
Texas. They each store carbon onsite, which reduces transport costs
as well. "Focusing on retrofits takes out an enormous chunk of
capital risk," Thompson said.
There's another reason that those industrial projects succeeded
where power projects didn't, said Perez Pena: less competition. She
recommends focusing CCS investment on hard-to-abate sectors for
which few alternatives exist, such as the cement or steel
industries. "Those industries don't have many options to remove
carbon. In power generation, you have renewables, so that's a
different decision," she said.
A coal or gas-fired power plant, plus CCS, is not likely to be
cost competitive against renewable power. And yet it's still
surprising that about half of the announced CCS projects are
supporting coal generation. "We know these are high risk and high
cost, and we are still trying to push these projects because there
is a lot of state support for the coal industry," she said.
Thanks to carbon taxes, Europe is farther along on pushing CCS
to the sectors where there's no other attractive option, she said.
"The US is not penalizing you if you produce CO2. It's a 'carrot'
strategy. We are giving incentives for CCS projects with … higher
revenue streams [as 45Q allowances are raised]," she said. "But in
Europe it's more of a 'stick'—that if you don't reduce
emissions, you will be penalized."
Integrated approach
GAO and the analysts said that an integrated approach in which
the government and industry work together is essential to bringing
CCS into the US' climate mitigation mainstream.
This begins by giving DOE the flexibility to adjust as new
technologies, opportunities, and needs emerge. "We might find
there's a clear CCS technology winner. Don't lock yourself in,"
Thompson said.
The same goes for the projects for which carbon is being
sequestered. The infrastructure bill instructs DOE to support two
coal plants, two gas plants, and two industrial plants. That's a
slightly better balance than the coal focus in the past.
Also, DOE is not likely to repeat its prior mistakes in
selecting projects too quickly and then adding funding even if
targets are not met. GAO said in its report that the decisions in
2009 were made in the unusual circumstance of money coming through
the American Recovery and Reinvestment Act, which was passed in the
wake of the 2008-09 financial crisis. This led to pressure on DOE
to select CCS projects in as little as three months, and then
senior management did not enforce cost controls over ensuing
years.
GAO recommended a different approach with more oversight, and
Thompson said he's confident that will occur, even as DOE will
shoulder a smaller share of a project's costs.
If DOE is providing less funding, then developers will have to
risk more private capital. But this comes with benefits as well,
Thompson said. "I think there's no substitute for strong market
forces like 45Q that doesn't require the government to 'OK' a
particular project," he said.
Posted 05 January 2022 by Kevin Adler, Chief Editor
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