[Senate Hearing 112-22]
[From the U.S. Government Publishing Office]
S. Hrg. 112-22
CARBON CAPTURE AND
SEQUESTRATION LEGISLATION
=======================================================================
HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
TO
RECEIVE TESTIMONY ON CARBON CAPTURE AND SEQUESTRATION LEGISLATION,
INCLUDING S. 699 AND S. 757
__________
MAY 12, 2011
Printed for the use of the
Committee on Energy and Natural Resources
U.S. GOVERNMENT PRINTING OFFICE
66-578 WASHINGTON : 2011
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC
20402-0001
COMMITTEE ON ENERGY AND NATURAL RESOURCES
JEFF BINGAMAN, New Mexico, Chairman
RON WYDEN, Oregon LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota RICHARD BURR, North Carolina
MARY L. LANDRIEU, Louisiana JOHN BARRASSO, Wyoming
MARIA CANTWELL, Washington JAMES E. RISCH, Idaho
BERNARD SANDERS, Vermont MIKE LEE, Utah
DEBBIE STABENOW, Michigan RAND PAUL, Kentucky
MARK UDALL, Colorado DANIEL COATS, Indiana
JEANNE SHAHEEN, New Hampshire ROB PORTMAN, Ohio
AL FRANKEN, Minnesota JOHN HOEVEN, North Dakota
JOE MANCHIN, III, West Virginia BOB CORKER, Tennessee
CHRISTOPHER A. COONS, Delaware
Robert M. Simon, Staff Director
Sam E. Fowler, Chief Counsel
McKie Campbell, Republican Staff Director
Karen K. Billups, Republican Chief Counsel
C O N T E N T S
----------
STATEMENTS
Page
Barrasso, Hon. John, U.S. Senator From Wyoming................... 2
Bingaman, Hon. Jeff, U.S. Senator From New Mexico................ 1
Greenberg, Sallie E., Assistant Director, Advanced Energy
Technology Initiative, Illinois State Geological Survey,
Champaign, IL.................................................. 8
Klara, Scott, Deputy Laboratory Director, National Energy
Technology Laboratory, Department of Energy.................... 3
Lubbon, Ben, Managing Director, Jude Benedict & Associates....... 36
Trabucchi, Chiara, Principal, Industrial Economics Incorporated,
Cambridge, MA.................................................. 14
Watson, Matt, Senior Energy Policy Manager, Environmental Defense
Fund........................................................... 10
APPENDIX
Responses to additional questions................................ 39
CARBON CAPTURE AND
SEQUESTRATION LEGISLATION
----------
THURSDAY, MAY 12, 2011
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 9:03 a.m. in room
SD-366, Dirksen Senate Office Building, Hon. Jeff Bingaman,
chairman, presiding.
OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW
MEXICO
The Chairman. I'd like to welcome everyone here and thank
the witnesses for coming to testify this morning.
This is a hearing on two bills, S. 699 and S. 757. These 2
bills both focus on important aspects of carbon capture and
storage that Senator Barrasso and I have been working on
together in this Congress but also in the previous Congress.
S. 699 focuses on creating a long term liability program
that would incentivize large scale early mover deployment of
integrated geologic carbon capture and storage.
S. 757 is a bill that focuses on creating a technology
prize for the successful demonstration of carbon dioxide
capture from dilute sources such as the air. The topic of
reducing greenhouse gases, particularly carbon dioxide
emissions is a great concern to me and to other members of this
committee. Carbon capture and geologic storage holds promise as
a measure that can be used to mitigate a changing global
climate while still allowing the use of fossil fuels at
electric generating plants and industrial facilities such as
steel manufacturing and cement plants. With discussion centered
on coal use in a carbon constrained world integrated carbon
capture and storage systems may represent the most immediate
solution for continued use of coal and other carbon intensive
fuels while not contributing further to carbon dioxide
emissions and global warming.
These two bills were introduced in the 111th Congress. We
successfully passed them out of committee with a strong
bipartisan vote. We're here today to receive testimony and
update the record in the 112th Congress.
I'd like to welcome our panel of experts before hearing
from them. Let me turn to Senator Barrasso for any opening
comments he has.
STATEMENT OF HON. JOHN BARRASSO, U.S. SENATOR
FROM WYOMING
Senator Barrasso. Thank you very much, Mr. Chairman. I want
to thank you personally for your leadership on carbon capture
and sequestration. I'm privileged to be an original co-sponsor
of your Carbon Capture and Sequestration Liability bill.
Uncertainty over liability is a major impediment to carbon
capture and sequestration deployment. This bill will address
that question for the first ten projects. I believe it's a very
important step.
When it comes to carbon sequestration issues the State of
Wyoming is a national leader. The Wyoming legislature enacted
laws creating the legal framework for carbon sequestration. The
Wyoming State Geological Survey has identified and
characterized sequestrationsites within the State.
The University of Wyoming is partnering with the private
sector to develop innovative technologies. Wyoming has a long
history as an energy producing State. We can use this knowledge
and experience to make carbon sequestration a reality. There
are steps, though, that the Federal Government must take first.
That includes addressing the issue of liability.
My direct air capture bill, the Carbon Dioxide Capture
Technology Act is also on today's agenda. I'd like to thank
you, Mr. Chairman, for partnering with me on this legislation.
This bill takes a fresh approach to the issue of excess carbon
dioxide. It would create a prize system for developing
technology that directly removes CO2 from the
atmosphere.
An article 2009 in the Economist, lays out the issue
clearly. Some researchers think there might be a simpler way to
reduce the level of CO2 in the atmosphere, it says.
To build air capture machines that as their name suggests grab
it from the air.
It goes on to say in some respects this is a more ambitious
version of the carbon capture and sequestration technology. Air
capture has the further advantage that it can be done anywhere,
not just in places where carbon dioxide is being emitted such
as power stations. So, Mr. Chairman, rather than focusing on
solutions that impose costly regulations or taxes, this bill
focuses solely on innovation.
So I look forward to hearing the analysis and suggestions
from today's panel. Thank you, Mr. Chairman.
The Chairman. Thank you. I know Senator Franken has some
other hearings he's going to have to leave and go to at some
point. So let me just see if he had anything he wanted to say
at this early point.
Senator Franken. Not at this moment. This would be--if we
can do this it'd be a really helpful way to address climate
change. So, I'm looking forward to the testimony.
Thank you. Thank all the witnesses for being here today.
The Chairman. Alright. Why don't we start? Let me introduce
all of our witnesses.
Mr. Scott Klara is the Deputy Director of the National
Energy Technology Laboratory in Pittsburgh. Thank you for being
here.
Miss Sallie Greenberg is the Assistant Directory with the
Advanced Energy Technology Initiative at Illinois State
Geologic Survey. Thank you for being here.
Mr. Matt Watson is a Senior Energy Policy Manager with the
Environmental Defense Fund. Thank you for coming.
Ms. Chiara Trabucchi, is that reasonably accurate? Thank
you for being here. She is the Principal and Chief Financial
Officer with the Industrial Economics Incorporated in
Cambridge, Massachusetts.
Alright. Please let's just have you go in that order, if
you would. Give us 5 minutes or so of the main points we need
to understand about your views on these 2 pieces of
legislation.
Mr. Klara.
STATEMENT OF SCOTT KLARA, DEPUTY LABORATORY DIRECTOR, NATIONAL
ENERGY TECHNOLOGY LABORATORY, DEPARTMENT OF ENERGY
Mr. Klara. Thank you, Chairman Bingaman, Ranking Member
Barrasso and other members of the committee. I appreciate the
opportunity to discuss the department's activities to promote
the development of carbon capture and storage technologies. I
will refer to this as CCS throughout my remarks.
My testimony will provide an overview of the department's
research efforts in developing CCS technologies. The
administration is still reviewing the specifics of these 2
bills and doesn't have a formal position at this time.
Before I discuss the department's clean coal research
program or CCS activities, I will briefly review the
conclusions from the Interagency Task Force on CCS. In August
2010 the final report from the Task Force was issued
summarizing the administration's efforts to develop and deploy
CCS technologies and the proposed plans to overcome the
barriers for widescale deployment in 10 years with a goal of
bringing at least 5 to 10 commercial demonstrations online by
2016.
The report is the collective work of 14 executive
departments and Federal agencies which were tasked with
developing a comprehensive and coordinated Federal strategy to
speed the commercial development and deployment of these task
force--or of these technologies. The Task Force concluded while
there are no insurmountable technical, legal, institutional,
regulatory or other barriers that prevent CCS from playing a
key role in greenhouse gas reduction, early CCS projects, as
many of you know, face economic challenges related to climate
policy uncertainty, first of a kind technology risk and the
current high cost associated with the technologies.
DOE continues to play a leadership role in the development
of these technologies. The programs that we run are
administered by the Office of Fossil Energy and implemented by
the National Energy Technology Laboratory. The coal program, in
partnership with the private sector, is focusing on 2 key
aspects in development: maximizing efficiency and environmental
performance while minimizing the costs of these technologies.
In recent years we've been restructured around the CCS
mission and focusing on a 2-prong approach.
The first is the capture and storing of the greenhouse
gases.
But second in conjunction with that an important aspect is
improving the efficiency of fossil energy systems. As many of
you may be aware, one of the key issues of carbon capture is
these big efficiency penalty hits.
The first strategy aims at concerns to reduce the
greenhouse gas emissions from these fossil fuel systems.
The second is to improve these fuel to energy efficiency,
the system, thus reducing emissions, water use, carbon dioxide
on a per unit energy basis.
Collectively these 2 strategies comprise the program's
approach in coming up with technologies for the future. The
program is addressing these technical challenges through
research on cost reduction for capture, monitoring verification
and accounting technologies to ensure permanent storage,
permitting issues and the development of advanced energy
systems with these high efficiency gains. A key aspect of the
research is focusing on developing options to dramatically
lower the cost of carbon capture. This research is categorized
into 3 pathways: Postcombustion, precombustion, oxycombustion.
These pathways provide technology diversity that will allow
for CCS integration and nearly all current and future fossil
energy systems. This research is exploring a wide range of
approaches such as membranes, oxy combustion concepts, sorbents
and gas liquid scrubbing.
Another key initiative is the Regional Carbon Sequestration
Partnerships. The Partnerships are designed to form of network
of capability, knowledge and infrastructure to enable carbon
sequestration technology to play a major role in a national
strategy to mitigate greenhouse gas emissions. These
partnerships are comprised of State agencies, universities and
private companies that represent more than 400 unique
organizations in 43 States and 4 Canadian provinces. They also
encompass regions that encompass 97 percent of coal fired
CO2 emissions, 97 percent of industrial
CO2 emissions, 96 percent of land mass and
essentially all of the geologic storage sites that could
potentially be available for carbon sequestration.
The success of this program and the technologies that are
emerging will ultimately be judged by the extent to which they
get deployed in domestic and international marketplaces. Both
technical and financial challenges associated with these high
risk technologies must be overcome. To facilitate
commercialization of integrated CCS systems, the Department is
pursuing many commercial scale demonstrations to help industry
understand and overcome startup issues, component integration
and gaining early learning commercial experience necessary to
reduce risk.
CCS and related coal technologies, as you're aware, can
play a critical role in the future of mitigating CO2
emissions. The Department's research programs are a vital step
to achieving the readiness of these technologies for these
future deployments. I thank this committee and its members for
allowing me the opportunity to provide remarks today. I look
forward to our discussion.
Thank you.
[The prepared statement of Mr. Klara follows:]
Prepared Statement of Scott Klara, Deputy Laboratory Director, National
Energy Technology Laboratory, Department of Energy
Thank you Chairman Bingaman, Ranking Member Barrasso, and members
of the Committee; I appreciate the opportunity to discuss the
Department of Energy's activities to promote the development of carbon
capture and storage (CCS) technologies.
My testimony will provide an overview of the Department of Energy's
(DOE) research efforts in developing CCS technologies. The
Administration is still reviewing S. 699 and S. 757 and does not have a
position on either bill at this time.
interagency task force on carbon capture and storage
Before I discuss the Department's Clean Coal Research Program, I
will briefly review the conclusions from the Interagency Task Force on
CCS. In August 2010, the final report from the Task Force was issued
summarizing the Administration's efforts to develop and deploy CCS
technologies, and proposed a plan to overcome the barriers to the
widespread, cost-effective deployment of CCS within ten years, with a
goal of bringing five to ten commercial demonstration projects online
by 2016. This report is the collective work of 14 executive departments
and federal agencies, which were tasked with developing a comprehensive
and coordinated Federal strategy to speed the commercial development
and deployment of clean coal technologies. The task force concluded
that while there are no insurmountable technological, legal,
institutional, regulatory or other barriers that prevent CCS from
playing a role in reducing GHG emissions, early CCS projects face
economic challenges related to climate policy uncertainty, first-of-a-
kind technology risks, and the current high cost of CCS relative to
other technologies.
clean coal research program
DOE continues to play a leadership role in the development of clean
coal technologies with a focus on CCS. The Clean Coal Research
Program--administered by DOE's Office of Fossil Energy and implemented
by the National Energy Technology Laboratory--is designed to enhance
our energy security and reduce environmental concerns over the future
use of coal by developing a portfolio of revolutionary clean coal
technologies. The Program is well positioned to help overcome the
technical challenges associated with the development of clean coal
technologies.
The Clean Coal Program, in partnership with the private sector, is
focused on maximizing efficiency and environmental performance, while
minimizing the costs of these new technologies. In recent years, the
Program has been restructured to focus on clean coal technologies with
CCS. The Program pursues the following two major strategies:
1) capturing and storing greenhouse gases; and
2) improving the efficiency of fossil energy systems.
The first strategy aims to eliminate concerns over emissions of
greenhouse gases from fossil fueled energy systems. The second strategy
seeks to improve the fuel-to-energy efficiencies of these systems, thus
reducing pollutant emissions, water usage, and carbon emissions on a
per unit of energy basis. Collectively, these two strategies comprise
the Clean Coal Program's approach to ensure that current and future
fossil energy plants will have options to meet all emerging
requirements for a safe and secure energy future.
core research and development activities
The Clean Coal Program is addressing the key technical challenges
that confront the development and deployment of clean coal technologies
through research on cost-effective capture technologies; monitoring,
verification, and accounting technologies to ensure permanent storage;
permitting issues; and development of advanced energy systems. The
Program is also actively engaged in interagency efforts to address
liability issues, public outreach, and infrastructure needs. As an
example, today's commercially available CCS technologies would add
around 80 percent to the cost of electricity for a new pulverized coal
plant, and around 35 percent to the cost of electricity for a new
integrated gasification combined cycle plant.\1\ The Program is
aggressively pursuing developments to reduce these costs to less than a
35 percent increase in the cost of electricity for pulverized coal
energy plants and less than a 10 percent increase in the cost of
electricity for new gasification-based energy plants.
---------------------------------------------------------------------------
\1\ Cost and Performance Baseline for Fossil Energy Plants, Volume
1: Bituminous Coal and Natural Gas to Electricity, U.S. Department of
Energy/National Energy Technology Laboratory, DOE/NETL-2007/1281, Final
Report, May 2007.
---------------------------------------------------------------------------
Research is focused on developing technology options that
dramatically lower the cost of capturing carbon dioxide
(CO2) from fossil fueled energy plants. This research can be
categorized into three technical pathways: post-combustion, pre-
combustion, and oxycombustion. Post-combustion refers to capturing
CO2 from the stack gas after a fuel has been combusted in
air. Pre-combustion refers to a process where a hydrocarbon fuel is
gasified to form a mixture of hydrogen and carbon dioxide, and
CO2 is captured from the synthesis gas before it is
combusted. Oxy-combustion is an approach where a hydrocarbon fuel is
combusted in pure or nearly pure oxygen rather than air, which produces
a mixture of CO2 and water that can easily be separated to
produce pure CO2. Collectively, research in each of these
technical pathways is exploring a wide range of approaches such as
membranes; oxy-combustion concepts; solid sorbents; CO2
hydrates; and advanced gas/liquid scrubbing technologies. These efforts
cover not only improvements to state-of-the-art technologies but also
development of several revolutionary concepts, such as metal organic
frameworks, ionic liquids, and enzymebased systems. Coupling these
developments with other advances in efficiency improvements and cost
reduction from developments in gasification, turbines, and fuel cells,
will help provide a technology base for commercial deployment of fossil
energy systems integrated with CCS.
The Department is the primary supporter of the National Carbon
Capture Center (NCCC), which is a joint partnership between DOE and
industry. The NCCC is a one of a kind, world class facility which
offers an opportunity to validate capture technologies on actual gas
from a coal fired power plant or gasification facility. Because of the
ability to operate under a wide range of process conditions, research
at the NCCC can effectively evaluate technologies at various levels of
maturity for many different applications.
regional carbon sequestration partnerships
The Regional Carbon Sequestration Partnerships were created by the
DOE in 2003 through a competitive solicitation. The Partnerships were
designed to address a range of issues associated with geologic storage
of CO2. The Clean Coal Program has been performing CCS field
tests focused on injection, monitoring, verification, accounting and
other aspects of geologic storage for many years, and the seven
Regional Carbon Sequestration Partnerships are critical to this effort.
These Partnerships are comprised of state agencies, universities, and
private companies. They represent more than 400 unique organizations in
43 States, and four Canadian Provinces. Geographic differences in
fossil fuel use and potential storage sites across the United States
dictate the use of regional approaches in addressing CCS, so each
Partnership is focused on a specific region of the United States and
Canada that hold similar characteristics relating to CCS opportunities.
Together, the Partnerships form a network of capability, knowledge,
and infrastructure that will help enable geologic storage technology to
play a role in the clean energy economy. They represent regions
encompassing 97 percent of coal-fired CO2 emissions, 97
percent of industrial CO2 emissions, 96 percent of the total
land mass, and essentially all the geologic storage sites that can
potentially be available for geologic carbon storage.
Regional Partnerships are drilling wells and injecting small
quantities of CO2 to validate the potential of key storage
locations throughout the country. To date, the Regional Partnerships
have injected over 1 million tons of CO2 at 18 small scale
injection projects throughout the United States and Canada. These tests
have helped to validate storage at a small scale and understand the
fate of CO2 in different depositional systems containing
saline water, oil, and natural gas. Several large scale projects are
also underway that will inject several million tons of CO2
over the life of the projects. One of these projects has safely and
securely injected over 2 million metric tons of CO2. Several
more large-scale field tests will begin later this year.
Over the course of these initiatives, DOE and the Partnerships are
addressing key infrastructure issues related to permitting, pore space
ownership, site access, liability, public outreach, and education. We
are also jointly developing Best Practice Manuals on topics such as
site characterization, site construction, operations, monitoring,
mitigation, closure, and long-term stewardship. These manuals will
serve as guidelines for a future geologic sequestration industry in
their regions, and help transfer the lessons learned from DOE's Program
to all regional stakeholders. Finally, DOE and the Partnerships
continue to work closely with the Environmental Protection Agency (EPA)
and other federal and state agencies in developing CCS regulatory
strategies, which will provide additional certainty for future CCS
deployments.
demonstrations at commercial-scale
The success of the Clean Coal Program will ultimately be judged by
the extent to which emerging technologies get deployed in domestic and
international marketplaces. Both technical and financial challenges
associated with the deployment of new ``high risk'' coal technologies
must be overcome in order to be capable of achieving success in the
marketplace. Commercialscale demonstrations help the industry
understand and overcome start-up issues, address component integration
issues, and gain the early learning commercial experience necessary to
reduce risk and secure private financing and investment for future
plants.
The Department is implementing large-scale projects through the
Regional Partnerships, the Clean Coal Power Initiative (CCPI), and
FutureGen. Phase III of the Partnerships is focused on large-scale
field tests of geologic carbon sequestration on the order of 1 million
metric tons of CO2 per year, and are addressing the
liability, regulatory, permitting, and infrastructure needs of these
projects. As described previously in this statement, the Partnerships
have brought an enormous amount of capability and experience together
to work on the challenges of these large projects.
The CCPI is a cost-shared partnership between the government and
industry to develop and demonstrate advanced coal-based power
generation technologies at the commercial scale. CCPI demonstrations
address the reliability and affordability of the Nation's electricity
supply from coal-based generation. By enabling advanced technologies to
overcome technical risks involved with scale-up and bringing them to
the point of commercial readiness, CCPI accelerates the development of
both advanced coal generation technologies and the integration of CCS
with both new and existing generation technologies. The CCPI also
facilitates the movement of technologies into the market place that are
emerging from the core research and development activities. The CCPI
program received an additional $800 million from the 2009 American
Recovery and Reinvestment Act (Recovery Act) which, in combination with
base funding, was used to fund four active CCPI projects, two pre-
combustion and two post-combustion projects. In addition, a CCPI round
II project has been modified to demonstrate CCS at a new integrated
gasification combined cycle power plant. We are working closely with
the project developers to comply with NEPA, air and water regulatory
requirements, and complete initial Front End Engineering & Design
(FEED) studies for the facilities. All five of these projects are on
track to be operational between 2013 and 2015.
The FutureGen Project intends to conduct novel large-scale testing
to accelerate the deployment of a set of advanced oxy-combustion power
production technologies integrated with CCS. This project will be the
first advanced repowering oxy-combustion project to store
CO2 in a deep saline geologic formation. On August 5, 2010,
Secretary of Energy Steven Chu announced an award of $1 billion in
Recovery Act funding to the FutureGen Alliance, Ameren Energy
Resources, Babcock & Wilcox, and Air Liquide Process and Construction,
Inc., to build FutureGen 2.0, a clean coal repowering program and
carbon dioxide storage network. On February 28, 2011, the FutureGen
Alliance selected Morgan County, Illinois, as the preferred location
for the FutureGen 2.0 CO2 storage site, visitor center,
research, and training facilities.
In addition to the CCPI and FutureGen 2.0 projects, the Recovery
Act has also helped fund more than 80 additional projects which
includes three large scale Industrial CCS demonstrations, ten geologic
site characterizations, forty-three university research training
projects, seven CCS research training centers, six Industrial CCS
projects focused CO2 reuse, and 14 projects focused on
accelerated component development in the core research program.\2\
---------------------------------------------------------------------------
\2\ Details about all of the Fossil Energy projects funded by the
Recovery Act can be found here: http://www.fossil.energy.gov/recovery/
index.html.
---------------------------------------------------------------------------
conclusion
CCS and related clean coal technologies can play a critical role in
mitigating CO2 emissions under many potential future carbon
stabilization scenarios. Nevertheless, challenges remain to achieving
cost-effective commercial deployment of CCS. The Department's research
programs are a vital step to advancing the readiness of clean coal
technologies for future commercial deployment. I thank this Committee
and its members for allowing me the opportunity to provide an overview
of DOE's research efforts in developing CCS technologies and I look
forward to your questions. The Administration is still reviewing S. 699
and S. 757 and does not have a position on either bill at this time.
The Chairman. Thank you very much.
Ms. Greenberg.
STATEMENT OF SALLIE E. GREENBERG, ASSISTANT DIRECTOR, ADVANCED
ENERGY TECHNOLOGY INITIATIVE, ILLINOIS STATE GEOLOGICAL SURVEY,
CHAMPAIGN, IL
Ms. Greenberg. Mr. Chairman, Ranking Member Barrasso,
distinguished members of the committee, thank you for the
opportunity to testify before you today on S. 699.
The Illinois State Geological Survey at the University of
Illinois is one of the largest and most diverse State
geological surveys in the United States. Beginning in 2001 we
have been researching carbon capture and storage in the
Illinois basin of Illinois, Southwestern Indiana and Western
Kentucky. We have led the Midwest Geological Sequestration
Consortium, 1 of the 7 regional carbon sequestration
partnerships supported by the U.S. Department of Energy since
2003.
In 2008, we began developing a one million metric ton
demonstration of carbon dioxide capture and storage in
collaboration with the Archer Daniels Midland Company in
Decatur, Illinois. Injection is expected to begin at the rate
of 1,000 tons per day in September 2011 and continue for the
next 3 years. As a result of directly dealing with such issues
as underground injection control permitting, pore space
ownership, liability and community stakeholder engagement, we
are pleased to offer our comments on S. 699.
We commend the criteria established in this bill to define
a large scale injection to mean the injection of at least one
million metric tons per year. To specify a set of project
selection criteria that require the submittal of comprehensive
geologic data and appropriate plans for environmental
monitoring. We see these project selection provisions as
requiring selective projects to be beyond the applied research
stage. Applicants must demonstrate thorough knowledge of their
proposed site based on existing information or new information
such as geophysical surveys specifically obtained to validate
their application to the Secretary.
A basic project will not and should not qualify. The
Secretary, however, will require the staff to assure that the
information submitted is adequate and complete in order to
minimize the risk to the government and the taxpayer under the
indemnification provisions. The recently adopted Class VI
underground injection control or UIC regulations will also
assure that many of the provisions of S. 699 are met.
These regulations require that underground sources of
drinking water are protected and no injection project may
proceed without a UIC permit. UIC regulations cover all aspects
of carbon dioxide injection from site characterization to well
construction and from operational monitoring to site closure.
Many of the provisions in the UIC Class VI regulations are
mirrored in the post injection and monitoring elements of S.
699 which in effect means that the U.S. EPA or State EPAs in
States with primacy will have the leading enforcement rule.
Close coordination in between the Secretary of Energy and these
organizations will be required.
With respect to liability, risks during site operations and
immediately following closure can be minimized through rigorous
geological site characterization and excellent operational and
site closure practices. Best practices guidelines have been
developed for many of these activities based on the DOE's
supported applied research conducted since 2003. We believe the
indemnification provisions of S. 699 represent a backstop to
new UIC Class VI regulations and to privately insurable
activities that commercial carbon capture and storage operators
will normally engage in such as the drilling of injection
wells.
Beyond these requirements the government's indemnification
is necessary to allow projects to proceed where the risk
profile beyond post closure stewardship is poorly known. Given
that it is in the public interest for carbon capture and
storage to be thoroughly evaluated the provisions of S. 699
that allow for a pool of up to ten indemnified projects will
help establish a risk profile that can inform long term
liability under a fee supported structure. These projects must
be carefully selected and monitored, however, to ensure that
the indemnity is warranted at the outset and not abused by poor
practices during project execution and post closure
stewardship.
We would also suggest that the projects be selected in
geologically diverse areas to maximize the understanding of
relative risk. Excuse me.
Mr. Chairman and members, we appreciate the opportunity to
submit these comments to the committee. Would welcome any
follow up communications that would be useful to you.
[The prepared statement of Ms. Greenberg follows:]
Prepared Statement of Robert J. Finley, Director and Sallie E.
Greenberg, Assistant Director, Advanced Energy Technology Initiative,
Illinois State Geological Survey, Champaign, IL
Chairman Bingaman and Members U.S. Senate Committee on Energy and
Natural Resources: The Illinois State Geological Survey at the
University of Illinois is one of the largest and most diverse state
geological surveys in the United States. Beginning in 2001, we have
been researching carbon capture and storage in the Illinois Basin of
Illinois, southwestern Indiana, and western Kentucky. We have led the
Midwest Geological Sequestration Consortium, one of the seven Regional
Carbon Sequestration Partnerships supported by the U. S. Department of
Energy, since 2003. In 2008, we began developing a one million metric
ton demonstration of carbon dioxide capture and storage in
collaboration with the Archer Daniels Midland Company at Decatur,
Illinois. Injection is expected to begin at the rate of 1,000 tonnes
per day in September 2011 and continue for the next three years. As a
result of directly dealing with such issues as Underground Injection
Control permitting, pore space ownership, liability, and community
stakeholder engagement, we are pleased to offer our comments on S.699.
We commend the criteria established in this bill to define a large-
scale injection to mean the injection of at least one million metric
tons per year and to specify a set of project selection criteria that
require the submittal of comprehensive geological data and appropriate
plans for environmental monitoring. We see these Project Selection
provisions as requiring selected projects to be beyond the applied
research stage. Applicants must demonstrate thorough knowledge of their
proposed site based on existing information or new information, such as
geophysical surveys, specifically obtained to validate their
application to the Secretary. A basic research project will not and
should not qualify. The Secretary, however, will require the staff to
assure that the information submitted is adequate and complete in order
to minimize the risk to the Government and the taxpayer under the
indemnification provisions.
The recently adopted Class VI Underground Injection Control, or
UIC, regulations will also assure that many of the provisions of S.699
are met. These regulations require that underground sources of drinking
water are protected, and no injection project may proceed without a UIC
permit. UIC regulations cover all aspects of carbon dioxide injection
from site characterization to well construction and from operational
monitoring to site closure. Many of the provisions of the UIC Class VI
regulations are mirrored in the Post Injection and Monitoring Elements
of S.699 which, in effect, means that the US EPA, or state EPAs in
states with primacy, will have the leading enforcement role. Close
coordination between the Secretary of Energy and these organizations
will be required.
With respect to liability, risks during site operations and
immediately following closure can be minimized through rigorous
geological site characterization and excellent operational and site-
closure practices. Best-practices guidelines have been developed for
many of these activities based on DOE-supported applied research
conducted since 2003. We believe the indemnification provisions of
S.699 represent a backstop to new UIC Class VI regulations and to
privately insurable activities that commercial carbon storage operators
will normally engage in, such as drilling of injection wells. Beyond
these requirements, the Government's indemnification is necessary to
allow projects to proceed where the risk profile beyond post-closure
stewardship is poorly known. Given that it is in the public interest
for carbon capture and storage to be thoroughly evaluated, the
provisions of S.699 that allow for a pool of up to 10 indemnified
projects will help establish a risk profile that can inform long-term
liability under a fee-supported structure. These projects must be
carefully selected and monitored, however, to ensure that public
indemnity is warranted at the outset and not abused by poor practices
during project execution and post-closure stewardship. We would also
suggest that the projects be selected in geologically diverse areas to
maximize understanding of relative risk.
Mr. Chairman and Members, we appreciate the opportunity to submit
these comments to the Committee and would welcome any follow-up
communications that would be useful to you.
Mr. Chairman and Members, we appreciate the opportunity to submit
these comments to the Committee and would welcome any follow-up
communications that would be useful to you.
The Chairman. Thank you very much.
Mr. Watson.
STATEMENT OF MATT WATSON, SENIOR ENERGY POLICY MANAGER,
ENVIRONMENTAL DEFENSE FUND
Mr. Watson. Chairman Bingaman, Ranking Member Barrasso,
members of the committee: EDF appreciates the opportunity to
appear in support of S. 699. Until we have a policy mechanism
that internalizes the cost of carbon pollution and creates a
true market for CCS, we won't see the technology perfected and
deployed at scale. In today's context with the commercial basis
for CCS in limbo and the prospects for new projects
increasingly in question, we think the targeted rifle shot
approach in S. 699 is an important and productive step in the
right direction.
It's been suggested that the private market won't provide
financial risk management tools for CCS projects and that
operators will need unlimited and perpetual liability relief in
order to go forward. EDF strongly disagrees with this
assertion. There's no special liability relief for EOR projects
or for underground injection of hazardous waste or geologic
storage of natural gas. Under the right conditions CCS
shouldn't present risks any greater than those posed by these
activities, all of which appear to have little trouble
attracting investment capital and risk management options in
the marketplace.
We recognize, however, that as a new technology private
sector insurance offerings for CCS are limited. Ultimately, it
will take on the ground experience to generate the actuarial
data on which a robust and well calibrated suite of risk
management options can be built. S. 699 will help generate this
on the ground experience. It strikes an appropriate balance by
providing limited indemnification to early CCS projects while
putting 4 key protections in place to reduce the risk of moral
hazard that's inherent to broad liability relief.
So I'd like to spend a minute on those protections because
to EDF they're critical aspects of the bill.
No. 1, the bill is limited to ten projects. This should put
future project operators as well as private insurers on notice
that liability relief is not going to become a permanent
fixture of the legal regime governing CCS. We anticipate the
private insurance market and the CCS industry itself will
respond by closely observing these ten demonstration projects
and using the data generated there to develop insurance
products to meet the needs of future projects.
No. 2, the bill requires project operators to seek
financial assurances in the marketplace and only provides
indemnification from liabilities over and above the coverage
provided by those protections. Requiring project operators to
have first dollar responsibility for damages is a critical step
toward minimizing moral hazard.
No. 3, the bill requires recipients of indemnification
agreements to pay risk based fees to cover taxpayer exposure
for the ten projects. Risk based fees provide an important
incentive for careful project planning, in particular as it
relates to the critical issues of site characterization and
site selection.
No. 4, project selection is competitive and is based on a
number of eligibility criteria that can be thought of as
underwriting standards. In particular requirements for detailed
geologic characterization and requirements for thorough
measurement monitoring and verification would serve as
important thresholds for program participation.
By establishing a program that mimics risk management
models that exist in the marketplace and by restricting the
program to a limited number of early projects, S. 699 should
help lay a foundation for the development of market based
solutions to the industry's need to manage risk at a reasonable
cost.
Finally a few words about the post closure stewardship
aspects of the bill. EDF supports creation of a third party
entity, adequately funded by industry to manage the routine
maintenance and monitoring of properly closed
sequestrationsites. S. 699 goes beyond routine maintenance
allowing DOE to take responsibility for remediation activities.
The limited confines of this bill for these ten projects we
believe this broad definition of stewardship is appropriate.
However, when stewardship policies are crafted for future
projects it would not be appropriate to transfer major
remediation responsibilities or responsibilities for other
liabilities that may arise to third party entities, again,
because of the risk of moral hazard that this creates.
That concludes my written remarks other than to commend the
Chairman and Senators Murkowski, Barrasso and Rockefeller for
putting forward this important legislation. Look forward to the
discussion.
[The prepared statement of Mr. Watson follows:]
Prepared Statement of Matt Watson, Senior Energy Policy Manager,
Environmental Defense Fund
Environmental Defense Fund (EDF) appreciates the opportunity to
speak in support of S.699 as the Committee considers how to help early
carbon capture and sequestration (CCS) projects conduct operations in a
safe and effective manner and otherwise address risk management issues.
Since 1967 EDF has linked science, economics and law to create
innovative, equitable and cost-effective solutions to urgent
environmental problems.
The primary challenges to CCS deployment are not technological. The
component technologies exist today. Rather, the primary barrier is the
lack of a commercial basis for deployment. Without a policy mechanism
that internalizes the costs of carbon pollution--such as a declining
cap on carbon emissions, or more robust regulatory requirements than
are currently being contemplated--it is unlikely that we'll see CCS
deployment at scale. As such, costs will remain high and technology
advancements will be slower than they would otherwise be.
However, the problem of climate disruption isn't going away. As a
society, it is something we will be forced to address, sooner or later,
whether we like it or not. And EDF believes that successful deployment
of geologic sequestration will be a critical technology option if we
are to accommodate fossil energy in a carbon-constrained future.
EDF therefore supports moving forward with pilot projects than can
help us begin the process of acquiring operational experience with CCS.
We likewise favor moving forward judiciously in building up the legal
and regulatory frameworks that will be necessary to support CCS
commercialization.
Progress is being made on this front. For example, in December the
EPA promulgated final rules for geologic sequestration of
CO2 under the Underground Injection Control program and for
injection and geologic sequestration of CO2 under the
greenhouse gas reporting program. These rules represent important steps
forward in laying the groundwork for CCS deployment.
As Congress and the Administration contemplate additional steps on
the legal and regulatory front, though, it will be important to not get
too far ahead of our on-the-ground experience. Decision makers should
resist the temptation to intervene in the marketplace or create
exemptions in fundamental laws that protect citizens and the
environment in an attempt to solve problems or reduce barriers to CCS
deployment that may not actually exist.
ccs does not present inherently unique financial risk management
challenges
It has been suggested that the private market will not provide
adequate financial risk management tools for CCS projects and that
operators will need unlimited and perpetual ``liability relief'' in
order to move forward with CCS projects. EDF strongly disagrees with
this assertion.
Under the right conditions, CCS should present risks no greater
than those posed by any number of other similar activities. The IPCC
Special Report on Carbon Capture and Sequestration concluded in 2005
that the local health, safety and environmental risks of CCS are
comparable to the risks of similar underground injection and storage
activities if there is ``appropriate site selection based on available
subsurface information, a monitoring programme to detect problems, a
regulatory system and the appropriate use of remediation methods to
stop or control CO2 releases if they arise.''
With these protections in place, CCS projects should be able to
secure risk management tools in the private marketplace, rather than
rely on taxpayers to take on the liability risks associated with
projects.
There is no special liability relief for the enhanced oil recovery
business. Businesses engaged in the underground injection of industrial
and hazardous wastes operate without any special liability relief.
Natural gas storage operators are not shielded from liability. Firms in
these industries face potential liability for their actions until
normal statutes of limitation have run their course or the companies
are relieved of liability through bankruptcy. Yet all of these
businesses inject material into geologic formations and appear to have
little trouble attracting investment capital and risk-management tools
in the marketplace.
We recognize, however, that at this early stage the private sector
has not yet developed a robust suite of risk management tools for CCS
projects. At least one private-sector insurer is now offering policies
for CCS projects. But ultimately it will take on-the-ground operational
experience to generate the actuarial data on which a robust and well-
calibrated suite of risk-management options can be built. Similarly,
on-the-ground experience will help banks and other investors better
understand project risk, which should bring down the costs of capital
over time.
s.699 is a measured approach to a temporary problem
Given these facts, EDF is willing to support temporary, limited and
thoughtful intervention in the marketplace in order to acquire the
operational experience that will support the development of a broader
range of risk management options in the private sector. It is critical,
however, that any such intervention put protections in place to avoid
the problems of ``moral hazard'' that are inherent to broad liability
relief.
Current liability rules, grounded in common law and statutes, serve
an important purpose--encouraging people to take prudent and necessary
steps to avoid putting fellow citizens and investors at risk.
Privatizing economic benefits while socializing the associated risks
through so-called liability relief increases the odds that shortcuts
will be taken and warnings will be ignored, potentially leading to
disastrous results.
S.699 strikes an appropriate balance between the need to provide
limited indemnification to early CCS projects--in order to generate the
operational experience that will allow the private sector to take over
the task of financial risk management--and putting protections in place
to reduce the risk of ``moral hazard'' for these early projects.
First and foremost, the indemnification program under S.699 is
limited. Limiting the program to 10 projects puts future project
operators, as well as private insurers, on notice that liability relief
is not going to become a permanent fixture of the legal regime
governing CCS. We anticipate the private insurance market will respond
by closely observing the 10 demonstration projects and developing
private insurance products to meet the needs of future projects.
Likewise, expect the CCS industry itself will use the experience gained
through the demonstration projects to develop self-insurance strategies
and mutual insurance arrangements.
Second, in order to be eligible for an indemnification agreement,
S.699 requires project operators to seek financial assurances in the
private marketplace and only provides indemnification from liabilities
over and above those privately-secured financial protections. Requiring
project operators to have ``first dollar'' responsibility for any
damages that may arise is a critical step toward minimizing moral
hazard.
Third, S.699 requires recipients of indemnification agreements to
pay risk-based fees to cover the taxpayer exposure for the 10 projects.
Risk-based fees provide an important incentive for careful planning of
CCS projects--in particular as relates to site selection, an issue of
utmost importance to project safety.
Fourth, project selection is competitive and based on a number of
eligibility criteria that can be thought of as ``underwriting
standards.'' In particular, requirements for detailed geologic
characterization and risk analysis and requirements for thorough
measurement, monitoring and verification serve as important thresholds
to protect taxpayers, local communities and the environment.
By establishing a program that mimics risk management models that
exist in the marketplace, and by restricting the program to a limited
number of early projects, S.699 should help lay a foundation for the
development of market-based solutions to the emerging CCS industry's
need to manage financial risk at a reasonable cost.
post-closure infrastructure maintenance--an appropriate government
function
Properly closed sequestration sites will require stewardship for
long time periods even though there is sound basis to believe that
properly planned and operated projects will present minimal risk in the
post-closure period. EDF supports the creation of a third-party entity,
adequately funded by industry, to manage the maintenance of properly
closed sequestration sites. Ultimately the function might be
privatized, but it makes sense for the government to perform this role
for early projects.
The bill extends DOE's post-closure stewardship obligations beyond
simple infrastructure maintenance (plugging the occasional leaking
well, conducting a low-intensity monitoring regime, etc.) to include
``remediation activities to ensure the geological integrity of the site
and prevent any endangerment of public safety.'' Given the nature of
the program established by S.699--one in which the government will
indemnify eligible sites for damages that do not arise from gross
negligence or intentional conduct--we believe this broad definition of
stewardship is appropriate.
When long-term stewardship policies are crafted for future
projects, however, we recommend that Congress re-consider the scope of
any third-party stewardship program. Creation of a third-party entity
for site maintenance is probably appropriate for both early projects
and later projects, but the optimum funding method, duties and
obligations of the stewardship entity are likely to be different once
the marketplace has had time to develop robust insurance offerings and
other risk mitigation tools.
And while it may be appropriate to allow a future third-party
entity to take on routine stewardship responsibilities, it would not be
appropriate to transfer responsibility for remediation or other
liabilities to a third-party entity in the post-closure phase. Again,
this would raise the prospect of moral hazard. Certainly, decisions
made during a project's operational phase could lead to problems that
might not materialize until post-closure. Therefore, responsibility for
liabilities that may arise should rest with the project operator, even
in the event that a third-party entity takes on stewardship
responsibilities.
assisting state regulatory agencies
EDF is pleased that the bill establishes grants to state agencies
for employee training purposes. CCS projects raise a number of new
regulatory issues and federal assistance in helping to educate state
agencies regarding these issues is important.
The Chairman. Thank you very much.
Ms. Trabucchi.
STATEMENT OF CHIARA TRABUCCHI, PRINCIPAL, INDUSTRIAL ECONOMICS
INCORPORATED, CAMBRIDGE, MA
Ms. Trabucchi. Mr. Chairman, Senator Barrasso,
distinguished members of the committee, thank you for
introducing S. 699 and for the invitation to testify at today's
hearing.
I'm a Principal and Chief Financial Officer with Industrial
Economics in Cambridge, Massachusetts. My expertise relevant to
this matter is in financial insurance frameworks and long term
indemnity models. My testimony focuses on the financial
management in indemnification framework proposed in the bill.
My remarks today address 2 specific aspects.
The first being the assessment, collection and use of fees
from developers of CCS projects.
No. 2, the dollar delimited amount of indemnification
included in the bill.
Firms seeking investment capital to finance business
ventures including CCS must demonstrate the ability to assume
and manage risks inherent to the venture. By doing so the firm
is able to assure investors whether private or public that the
value of their investment will not erode. In fact, over time
will gain value.
In the case of CCS the use of taxpayer dollars in the very
long time horizon demands a financial assurance structure that
blends the strengths of private and public risk sharing. To be
effective a financial assurance structure that implements
private/public risk sharing should achieve 4 goals.
No. 1, it should ensure funds are adequate when needed.
No. 2, it should ensure these funds are readily assessable
when needed.
No. 3, it should establish minimum standards for financial
institutions providing funds or underwriting risk.
No. 4, it should insure continuity of financial assurances
when ownership of sites is transferred.
The long term indemnity model proposed in S. 699 is a
notable step forward in achieving these goals. However, to the
extent the bill is designed to establish a financial management
structure that ensures sufficient resources are available to
pay for long term stewardship at the time of a demonstration
projects are transferred. Then in my view the following
elements warrant additional clarification.
No. 1, in the section addressing collection of fees and the
use of net present value analysis, the amount of fees assessed
and collected should be based on the net present value of
probable damages arising from each project. The analytic tools
exist to estimate dollar values for potential damages and are
routinely used by firms expert and financial and natural
resource economics.
No. 2, consistent with basing fees on a net present value
analysis, the fees collected should be investing the dedicated
interest bearing account that generates a rate of return at
least equal to the risk adjusted discount rate used in the net
present value calculation. In the absence of doing so the fees
collected may not yield sufficient revenue to avoid an
intergenerational transfer of costs to future taxpayers.
No. 3, by design an appropriate fee structure should be
adjustable whereby the CCS developer pays a risk adjusted, site
specific fee that is reassessed as actual site specific
monitoring, measuring and verification data become available.
No. 4, given the experimental nature of CCS and its limited
commercial application insufficient information may exist about
the risk profiles of a candidate demonstration projects to
establish a limited liability today that appropriately adjusts
for risk and uncertainty over the long term.
In my view pending the availability of such information and
to provide a measure of certainty to markets interested in
investing in CCS projects establishing a dollar delimited
amount of indemnification for a discreet number of early mover
demonstration projects may in fact be appropriate. But only if
the stated public policy objective to accelerate the deployment
of CCS technology. It is important to recognize that public
financing of this sort distorts or eliminates the impact of
market forces in determining what is or is not a rational risk
neutral business venture.
With respect to the specific indemnification provisions
included in the bill, as I understand the bill authorizes
financial assistance for up to ten CCS demonstration projects
with explicit provisions for project selection and financial
responsibility. In my view by doing so the bill appropriately
limits the overall risk exposure to the public to a discreet
number of sites with a discreet array of selection criteria.
Further, by limiting the timing of liability relief to after a
defined period of post injection and by requiring that transfer
of title be contingent upon performance based standards, the
bill appropriately provides incentives for developers of CCS
demonstration projects to properly operate and maintain their
sites limiting the potential for future damages and public
liability.
Finally, in the section addressing the amount of
indemnification the language should state clearly that
indemnification is applicable only to CCS related activities. A
business entity or ``person'' underwriting a CCS project should
not be allowed to package its operating activities in such a
way as to yield an inappropriate risk transfer of preexisting
non CCS related liabilities to the public.
In my view clarifying the language of S. 699, as I have
suggested will help ensure continuity of financial assurances
and provide a measure of certainty with respect to the long
term stewardship of CCS sites in a manner cognizant of and
consistent with potential risks to the public. My written
testimony elaborates on these areas. I would be pleased to
answer any questions.
Thank you.
[The prepared statement of Ms. Trabucchi follows:]
Prepared Statement of Chiara Trabucchi, Principal, Industrial Economics
Incorporated, Cambridge, MA
summary
Firms seeking investment capital to finance business ventures,
including CCS, must demonstrate the ability to assume and manage risks
inherent to the venture. By doing so, the firm is able to assure
investors, whether private or public, that the value of their
investment will not erode, and with time, will gain value. In the case
of CCS, the very long time horizon and the use of taxpayer dollars
demands a financial assurance structure that adequately protects the
private and public investor.
To be effective, a financial assurance structure that implements
private--public risk sharing should achieve four clear goals: (1)
Ensure funds are adequate, when needed; (2) Ensure these funds are
readily accessible, when needed; (3) Establish minimum standards for
financial institutions providing funds or underwriting risk; and (4)
Ensure continuity of financial assurances, when ownership of sites is
transferred.
The long-term indemnity model proposed in Senate Bill 699 is a
notable step forward in achieving these goals, and appropriately limits
indemnification to certain types of damages. To the extent that Senate
Bill 699 is designed to establish a financial management structure that
ensures sufficient resources are available to pay for long-term
stewardship at the time ownership of the demonstration projects is
transferred, then, in my view, the following elements of the Bill would
benefit from additional clarification:
1. In the section addressing Collection of Fees and the use
of Net Present Value analysis, the amount of fees assessed and
collected should be based on the Net Present Value of probable
damages arising from each demonstration project. Damages
associated with CCS projects are a function of site location
and plant design; the analytic tools exist to estimate dollar
values for potential damages and are routinely used by firms
expert in financial and natural resource economics.
2. This section also should require the design of an
adjustable fee structure, whereby the CCS developer pays a
risk-adjusted, site-specific fee that is reassessed as actual
site-specific monitoring, measuring and verification data
become available.
3. Consistent with basing fees on a Net Present Value
analysis, the fees collected should be invested in a dedicated,
interest-bearing account that generates a rate of return at
least equal to the risk-adjusted discount rate underpinning the
Net Present Value calculation. In the absence of doing so, the
fees collected may not yield sufficient revenue to avoid an
inter-generational transfer of costs to future tax payers.
4. Given the experimental nature of CCS and its limited
commercial application, insufficient information may exist
about the risk profiles of the candidate demonstration projects
to design a site-specific fee structure, today, that
appropriately adjusts for risk and uncertainty over the long-
term. Pending the availability of such information,
establishing a dollar-denominated amount of indemnification for
a discrete number of early-mover, demonstration projects may be
appropriate.
Over the long term, I caution against establishing an
arbitrary limit of absolute dollar liability. Rather, the
amount of indemnification should be correlated to the pooled
value of probable loss associated with the specific CCS
demonstration projects subject to cooperative agreements under
the Bill.
5. In the section addressing the amount of indemnification,
the language should state clearly that indemnification is
applicable only to CCS-related activities; a business entity
(or `person') underwriting a CCS project should not be allowed
to package its operating activities in such a way as to yield
an inappropriate risk transfer of pre-existing, non-CCS related
liabilities to the public.
In my view, clarifying the language of Senate Bill 699 as I have
suggested will help ensure continuity of financial assurances and
provide a measure of certainty with respect to the long-term
stewardship of CCS sites in a manner cognizant of, and consistent with,
potential risks to the public. In so doing, Senate Bill 699 will send a
positive signal to private capital markets seeking to invest in CCS
technology.
Thank you for the opportunity to testify in today's legislative
hearing on Senate Bill 699, Department of Energy Carbon Capture and
Sequestration Program Amendments Act of 2011. I am a Principal with,
and the Chief Financial Officer of, Industrial Economics Incorporated
in Cambridge, Massachusetts. My expertise is in finance and economics,
with specific focus on financial assurance frameworks and financial
indemnity models. Founded in 1981, Industrial Economics is a privately-
owned professional services firm expert in the areas of financial and
natural resource economics. The clients of the firm span the public and
private sectors.
The focus of my testimony is on the financial management and
indemnification framework proposed by Senate Bill 699. Below, I offer
my overall assessment of Senate Bill 699, I highlight areas of the Bill
with which I agree, and offer suggestions for consideration by the
Committee. These suggestions are based on the language proposed in
Senate Bill 699, and the Bill's intended objective of fostering early-
mover deployment of no more than 10 Carbon Capture and Sequestration
(herinafter CCS) demonstration projects.
The sections that follow map to the provisions proposed by Senate
Bill 699. Where appropriate, I highlight elements of the proposed
language that are well designed; and I offer suggestions where the
language of Senate Bill 699 might be clarified or improved.
overview. the importance of financial responsibility
Firms seeking investment capital to finance business ventures must
demonstrate the ability to assume and manage risks inherent to the
venture. By doing so, the firm is able to assure investors, whether
private or public, that the value of their investment will not erode,
and with time, will gain value. Under traditional financing models,
investors require that risks be bounded, quantified and accounted for
either directly as an expense, or indirectly through third-party
financial instruments (letters of credit, surety bonds, insurance, to
name a few).
CCS processes create a suite of risks, including possible injury to
private and public sector interests, e.g., possible injury to natural
resources, bodily injury and/or property damage. Traditional financing
models presume that the project developer is an active business entity
capable of setting aside funds today to pay for future obligations
related to these risks. However, the objective of CCS is to store
CO2 in perpetuity, i.e., a period of time that transcends
the typical business life cycle of many corporate endeavors. To the
degree risks arising from CCS ventures continue beyond the operational
life of the project, and in the event the CCS developer is no longer a
going concern, prudent risk management dictates consideration of who
will finance the obligations arising from these risks.
The use of taxpayer dollars and the very long time horizon
associated with CCS--one which may extend beyond the natural life of
the corporate entity undertaking the demonstration project--demands a
financial management solution that blends the strengths of private and
public risk sharing. To be effective, a financial assurance structure
that implements a private--public risk sharing should achieve four
clear goals:
(1) Ensure funds are adequate, when needed;
(2) Ensure these funds are readily accessible, when needed;
(3) Establish minimum standards for financial institutions
providing funds or underwriting risk; and
(4) Ensure continuity of financial assurances, when ownership
of sites is transferred.
To the degree society wishes to reduce greenhouse gas emissions,
and the portfolio of emission reduction technologies includes CCS, then
an effective financial assurance and indemnification framework will
balance the four above-listed goals with needed incentives to foster
the safe deployment of a limited number of early mover, demonstration
projects.
If modified as I suggest below, the design of the financial
assurance framework and the implementation of private--public risk
sharing as proposed in Senate Bill 699 should provide a measure of
financial and legal certainty with respect to the long term stewardship
of CCS sites in a manner cognizant of, and consistent with, potential
risks to the public. In so doing, Senate Bill 699 sends a positive
signal to private capital markets seeking to invest in CCS projects.
project selection criteria
In my view, the science-based criteria and provisions for project
selection as proposed by Senate Bill 699 are necessary but not
sufficient to underpin the financial management structure defined in
later sections of the Bill. Additional provisions requiring the
explicit evaluation of potential human health and environmental impacts
from a financial perspective--deriving expected and maximum loss values
with a clear understanding of the statistical range of possible
outcomes--are needed for each proposed demonstration project.
The outputs of these evaluations will achieve three objectives.
First, they will help the implementing agency assess competitive
bids for demonstration projects, and make an informed decision as to
the potential financial risk posed by each demonstration project.
Second, they will provide an appropriate basis to calculate the
amount of financial assurance that should be set aside by the
individual CCS developer during the operating lifecycle of the CCS
project, and for a defined period post-injection.
Third, to the degree the Secretary agrees to indemnify recipients
of cooperative agreements for CCS demonstration projects, they will
inform the amount of indemnification that is warranted.
terms and conditions (financial assurance)
In my view, as proposed by Senate Bill 699, the CCS developer
should remain financially responsible for events that occur during the
operating lifecycle of the CCS project, and for a defined period post-
injection. Specifically, financial assurances should be secured and
maintained by the developer of the CCS demonstration project until such
time as title to the site is transferred and accepted by the
implementing Federal agency. In this way, the Bill provides incentives
for CCS developers to properly operate and maintain their sites,
limiting the potential for future damages. Firms are more likely to
undertake design and operating decisions that minimize environmental
(and remediation) costs, if they are held financially accountable.
Further, maximum flexibility should be afforded to developers of
the early mover demonstration projects in selecting the financial
instruments that may be used, including but not limited to trust funds,
letters of credit, surety bonds, insurance, and self-insurance through
a corporate financial test or corporate guarantee, or any combination
thereof. The array of acceptable financial instruments must ensure that
funds are adequate if and when needed, and readily accessible to pay
for delineated activities. For this reason, minimum standards are
necessary for financial institutions securing funds or underwriting CCS
risks.
indemnification agreements
Exception for Gross Negligence and Intentional Misconduct
In my opinion, Senate Bill 699 appropriately limits indemnification
to certain types of damages. The exception provided in Senate Bill 699
for gross negligence and intentional misconduct is important,
particularly as it relates to fraud and misrepresentation of site
(monitoring, measuring and verification) data. The importance of this
exception can not be overemphasized, because these data likely will be
used to underpin financial assurances, fee calculations and
indemnification amounts.
Collection of Fees
I believe it is appropriate to assess and collect fees from the CCS
developer to finance the cost of long-term stewardship. In my view, the
language proposed by Senate Bill 699 should be clarified to ensure that
the amount of fees collected is not arbitrary or based on a fixed rate
for all sites. Establishing a blanket fixed fee to be paid by all CCS
developers regardless of their individual site characteristics,
operational methods and potential for consequences results in an
inefficient use of available resources which otherwise could be
invested for productive economic purposes. From a financial
perspective, establishing a fixed rate of financial assurance that is
paid by all CCS developers results in some developers paying more, and
others less, than their fair share, because of differences in site
attributes. Further, without strong oversight regarding site selection
and fund management, and a clear process by which the amount of fees
collected are periodically evaluated against the risk profiles of
pooled sites, there is no reason to believe that the amount of funds
collected will map to the actual financial resources needed to address
long-term care expenses and delimited compensatory damages.
If the intent of Senate Bill 699 is to ensure a fee structure
whereby the CCS developer pays a risk-adjusted, site-specific fee, then
additional clarifying language in the section of the Bill that
addresses the criteria for determining the amount of the fee to be
collected is prudent. In my opinion, this fee should be based on the
Net Present Value of the future expected losses for each individual
demonstration project. Specifically, damages associated with CCS
projects are a function of location and plant design (including fuel
source and technology), and therefore probable loss scenarios can be
derived from each project's site characterization and risk assessment
plans. These analyses provide an indication of `how bad it could get'
if an adverse event related to a CCS project were to occur, as well as
a measure of the expected amount of funds required for remediation and
to compensate for harm or injury, taking into account the probability
of an event arising.
The amount of money collected from each CCS developer should
directly correlate to the funds needed for long-term stewardship once
ownership of their specific site is transferred. A `one-size-fits-all'
approach will result in perverse financial incentives, whereby poorly
designed, sited and operated sites may be allowed to proceed without
`paying' for their share of prospective risk; allowing exclusions for a
subset of sites will exacerbate these incentives, contributing to
market distortions and the potential for moral hazard.
The use of Net Present Value analysis is accepted practice for
funds management within the financial community; in addition, the
analytic tools exist to estimate the expected range of dollar values
for potential damages on a site-specific basis. Similar tools are used
by: (1) firms, such as insurers, in the risk management industry; (2)
firms in the financial sector; and (3) firms with expertise in human
health and natural resource economics.
Additional clarifying language is warranted with respect to the
timing of when such fees will be paid by the CCS developer. To ensure
continuity of financial assurance during active site injection, post-
injection, and through long-term stewardship, the amount of fees
collected from the CCS developer should be established either as an up-
front payment or as a payment over time during the operating
lifecycle--the period of active injection--of the demonstration
project. If the intent of Senate Bill 699 is not to delay the
collection of fees until the end of the project, when there is the
danger that the CCS developer may not have the resources available to
pay the fees, or until an event or claim arises, then the language of
the Bill should clearly state this. Provisions should be made at the
outset of the demonstration project for the possibility of future
bankruptcy or financial distress of the developer of the CCS
demonstration project.
As the provisions proposed by Senate Bill 699 relate to a limited
number of demonstration projects, and the public is assuming a measure
of financial risk, the fees should be reassessed as information about
the risk profiles become available. Practical reality should inform the
application of financial theory. For example, if actual site
monitoring, measuring and verification data demonstrate a declining
risk profile and a reduced dollar value of future expected loss, the
Net Present Value calculation underpinning the fee collection should be
adjusted to reflect this situation, and the CCS developer should pay
less in fees. Overfunding a long-term financial structure benefits
neither the private sector nor the public sector. However, the inverse
is also true--if monitoring, measuring and verification data suggest an
increasing risk profile--the fees assessed should reflect the
incremental increase in potential harm that may arise from the
occurrence of an adverse event.
Establishing an adjustable fee structure that is based on the
results of actual monitoring, measuring and verification data ensures
that the CCS developer is rewarded for design and operating decisions
that minimize future risk, and by extension future loss. Further,
underpinning the financial management structure proposed by Senate Bill
699 with an adjustable fee structure that reflects the evolution of
site risks over time ensures that the financial instruments used for
purposes of financial assurance can be scaled up or down in response to
site-specific differences.
Analyses underpinning the Net Present Value calculation proposed by
Senate Bill 699, and the determination of how much to collect in fees,
should be developed prior to entering into an indemnification
agreement. These analyses should be transparent, identifying key
assumptions regarding the timing of probable payments and an
appropriate risk-adjusted discount rate. The public should know what it
is financing, especially if there is the expectation that these fees
will be passed through to end consumers in the form of increased energy
rates. Further, to the degree other projects (beyond the early mover
demonstration projects) come on-line, the data generated as part of
these early mover efforts should inform the financial assurances and
design of financial management strategies for long-term stewardship of
subsequent projects.
Use of Fees (Net Present Value and the Importance of Funds Management)
In my view, the use of Net Present Value analysis as proposed in
Senate Bill 699 is effective only if the money that is collected is set
aside in a dedicated, interest-bearing account that generates a rate of
return at least equal to the risk-adjusted discount rate underpinning
the Net Present Value calculation. In the absence of doing so, the fees
collected may not yield sufficient revenue to avoid an inter-
generational transfer of costs to future tax payers.
The portion of funds collected that is not required to meet annual
withdrawals should be invested in interest-bearing obligations of the
United States.\1\ Other long-term liability and federal indemnity
models, including the Hazardous Substances Superfund,\2\ the Oil Spill
Liability Trust Fund,\3\ and the Harbor Maintenance Trust Fund,\4\ to
name a few, adopt a similar investment strategy. Further, the Secretary
of the Treasury should rely on the implementing agency, as established
by Senate Bill 699, to provide information on the annual funding needs
of the program, either as it may relate to the payment of claims
following acceptance of title to the CCS demonstration project, or for
purposes of long-term monitoring activities.
---------------------------------------------------------------------------
\1\ 26 U.S.C. 9602
\2\ See Comprehensive Environmental Response, Compensation, and
Liability Act Sec. 221, 42 U.S.C. 9631 (2007), Superfund Amendments
and Reauthorization Act Sec. 517, 42 U.S.C. 9601(11) (2006), 26 U.S.C.
9507 (Hazardous Substance Superfund).
\3\ See Oil Pollution Act Sec. 1001(11), 33 U.S.C. 2701(11)
(2007). 26 U.S.C. 9509 (Oil Spill Liability Trust Fund).
\4\ See Act of May 13, 1954 (commonly referred to as the ``St.
Lawrence Seaway Act'') Sec. 13(a), 33 U.S.C. 988(a). Water Resources
Development Act Sec. 210(a), 33 U.S.C. 2238(a) (2007). 26 U.S.C. 9505
(Harbor Maintenance Trust Fund).
---------------------------------------------------------------------------
Ensuring that the language of Senate Bill 699 clearly articulates
the intent of Congress in assessing, collecting and using fees from the
developers of CCS demonstration projects will help to avoid future
litigation over how much should have been collected in fees, how much
was collected in fees, and what happened to the fees that were
collected.
Contracts in Advance of Appropriations--Limitation
I am persuaded that investing in a limited number of CCS
demonstration projects through a public financial assistance program is
prudent. In my view, the financial management and indemnification
framework as set forth in Senate Bill 699 provide a measure of
financial and legal certainty with respect to long term stewardship of
CCS sites in a manner cognizant of, and consistent with, potential
risks to the public. In so doing, Senate Bill 699 sends a positive
signal to private capital markets seeking to invest in CCS projects.
All else being equal, site-specific, risk-based pricing is
predicated on the premise that the amount of funds collected over the
life of the CCS project equals the amount of funds necessary to hedge
financial obligations arising from project risks in the long-term. This
is particularly true if the fees are regularly adjusted to reflect
evolutions in the project's risk profile over time. However, given the
experimental nature of CCS and its limited commercial application,
insufficient information may exist about the risk profiles of the
individual demonstration projects to design a site-specific fee
structure, today, that appropriately adjusts for risk and uncertainty
over the long-term. Therefore, pending the availability of such
information, establishing a dollar-delimited limitation of liability
for a discrete number of early mover, demonstration projects may be
appropriate.
However, over the long term, any limitation of liability (i.e.,
dollar-denominated amount of indemnification) should not be arbitrary
in design. Establishing an arbitrary limitation of liability
contributes to unreasonable expectations and fosters misunderstanding
with respect to the amount and timing of funds necessary for the
responsible deployment of CCS. Perhaps more importantly, arbitrary
limits of absolute dollar liability can result in moral hazard arising,
because the CCS developer believes itself insulated from risk, and
therefore may act less prudently with respect to how it sites and
operates its project. Rather, the amount of indemnification should be
correlated to the pooled value of probable loss associated with the
specific CCS demonstration projects subject to cooperative agreements
under the Bill.
As the provisions proposed by Senate Bill 699 relate to a limited
number of demonstration projects, and the public is assuming a measure
of financial risk, the amount of indemnification should be reassessed
as information about the risk profiles of the CCS demonstration
projects becomes available. Finally, if the intent of Senate Bill 699
is to provide financial certainty with respect to long term
stewardship, then additional clarifying language in the section of the
Bill that addresses limitations of liability is warranted.
First, with respect to the amount of indemnification proposed by
the Bill, the language in this subsection should apply only to CCS-
related activities underpinning each demonstration project subject to
cooperative agreement. Blanket indemnification should not be provided
to `all persons indemnified in connection with an agreement'
irrespective of activity. In the absence of clearly delineating that
the amount of indemnification is applicable only to CCS-related
activities, a business entity (or `person') underwriting a CCS project
could package its operating activities in such a way as to yield an
inappropriate risk transfer of pre-existing, non-CCS related
liabilities to the public.
Second, as written, the Bill leaves open to interpretation whether
the $10 billion amount of indemnification applies to the collective
pool of CCS demonstration projects, or whether each CCS demonstration
project is subject to an individual amount of indemnification equal to
$1 billion per project. In my view, of the two options, the more
effective means of protecting the public against financial risks
associated with the early-mover CCS demonstration projects over the
long-term would be to apply the amount of indemnification to the
collective pool. Notwithstanding, if the intent of Senate Bill 699 is
to establish per project indemnification, then additional clarifying
language is warranted to address what happens if a single CCS
demonstration project exceeds its per project limit of liability.
federal land
The same financial and legal provisions, with respect to financial
assurances and indemnification, should exist regardless of whether the
CCS demonstration project is sited on private lands, public lands or
tribal lands. The failure to establish the same financial provisions
for demonstration projects sited on public or tribal lands as for those
sited on private lands may result in: (1) poor operating decisions and
lack of appropriate site selection, because the project developer is
not held financially accountable for its business decisions; and/or (2)
provide an unintended subsidy or competitive market advantage to
developers of demonstration projects on public or tribal lands.
conclusion
The use of tax payer dollars and the very long time horizon
associated with CCS--one which may extend beyond the natural life of
the corporate entity undertaking the demonstration project--demands a
financial assurance structure that blends the strengths of private and
public financing and risk management tools. In my view, a financial
assurance structure that successfully implements private--public risk
sharing should achieve four clear goals:
(1) Ensure funds are adequate, when needed;
(2) Ensure these funds are readily accessible, when needed;
(3) Establish minimum standards for financial institutions
providing funds or underwriting risk; and
(4) Ensure continuity of financial assurances, when ownership
of sites is transferred.
To the degree society wishes to reduce greenhouse gas emissions,
and the portfolio of emission reduction technologies includes CCS, then
an effective financial assurance and indemnification framework will
balance the above-listed goals with needed incentives to foster the
safe deployment of a limited number of early mover, demonstration
projects. The long-term indemnity model proposed in Senate Bill 699 is
a step forward in accomplishing this objective.
However, if the intent of Senate Bill 699 is also to establish a
financial assurance structure that ensures sufficient funds are
available to pay for long-term stewardship at the time ownership of the
demonstration projects is transferred, then the Bill would benefit from
the modifications that I outline above. Finally, ensuring that the
language of Senate Bill 699 clearly articulates the intent of Congress
in assessing, collecting and using fees from the developers of CCS
demonstration projects will help to avoid future litigation.
The Chairman. Thank you very much. Let me ask a few
questions.
Ms. Greenberg, let me ask you first. This project that you
folks are involved with with Archer Daniels Midland that's
beginning here in September, as I understand, the first of
September you're going to start injecting a thousand tons of
CO2 per day.
Ms. Greenberg. That's correct.
The Chairman. How have you dealt with the issue of
potential liability in connection with that project?
Ms. Greenberg. Thank you for your question, Senator. The
Midwest Geological Sequestration Consortium approached Archer
Daniels Midland back in 2007 having done considerable amount of
geologic site characterization in the Illinois Basin region
itself and then more specifically in that area of Illinois. So
we came to ADM with a significant amount of geologic knowledge
and understanding of what the benefits of the rock units in the
area are for carbon capture and storage.
We were very fortunate in that Archer Daniels Midland has a
considerable amount of experience in the operation and handling
of liquid carbon dioxide. So while the subsurface component of
storing carbon dioxide was new to them and unfamiliar to them,
the surface and operational handling of that carbon dioxide was
actually something they were quite familiar with. So we were
able, through a series of board meetings and meetings with
their legal counsel and a variety of other individuals in the
core processing and operations to bring them along with respect
to their comfort level with respect to carbon--excuse me,
carbon capture and storage.
In addition to that I will say that the carbon capture
storage, this project and the plume of carbon dioxide stored in
the subsurface is expected to stay wholly with on underneath
ADM owned lands. So there has been no additional liability
protection that's been undergone for the particular project.
The Chairman. OK.
Mr. Klara, let me ask you. We had a hearing earlier this
week here where we had various experts talking to us about
enhanced oil recovery and the use of CO2 in enhanced
oil recovery. The complaint that we heard pretty loud and clear
was they didn't have enough CO2. That there was a
much more demand for CO2 to--for use in enhanced oil
recovery than they could find.
There was very little concern raised. We didn't--the
subject of the hearing was not focused on liability, potential
liability. But my impression is that this whole issue of
liability is one that the oil and gas industry basically blew
right past in all of their use of CO2 as enhanced
oil recovery.
Am I wrong about that? Is there anything in place to deal
with the liability problems that they encounter in use of that
CO2?
Mr. Klara. I'll even give you a step backward in terms of
just within the Department's portfolio. There are upwards of 25
plus projects that are drilling. Many have already injected
CO2 in the ground. That several of those projects do
relate to EOR, many don't.
The department has no ability to provide indemnifications.
So the requirement for proposers was that you would have to
figure out a way to find indemnification elsewhere or we would
be unable to accept the project. We were able to fill our
portfolio of projects.
I think, as Sallie indicated, what has happened amongst all
the projects is it really required a lot of due diligence on
their part in finding partners that really believed in the need
for future CCS. Were willing to--and I think generally
speaking, use their private mechanisms of assurances to deal
with the liability issues. Now having said that, certainly we
are aware as well that there are many potential proposers that
will not come to the table with ideas because of the fear of
liability.
So what I can tell you is the projects that are out there,
especially the ones like EOR, where there's a value added
aspect to it, that the liability issue seems to not get much
chatter and attention.
The Chairman. Thank you very much.
Senator Barrasso.
Senator Barrasso. Thank you very much, Mr. Chairman.
I would like to ask Ms. Trabucchi just along the line of
what Mr. Klara was talking about, the issue of giving the
private sector some legal framework that they can understand
and then maybe bringing others to the table. This bill does
provide steps that an applicant must demonstrate to receive the
long term indemnification. One of the things that the
indemnification agreement section of the bill says. The
language says, ``The Secretary may agree to indemnify a project
1 year after the completed application is submitted.''
Does the term may provide adequate certainty for a company
and for potential investors?
Ms. Trabucchi. In my view actually it does.
I think what your investment community is looking for and
what your capital markets are looking for in the form of
certainty is the appreciation that the return on their
investment will mature with time and gain value. I think if you
create an indemnification provision that says will, no matter
who you are. You enter into the cooperative agreement. You will
receive indemnification.
What ends up happening is you provide the potential for
perverse incentive where you have created a cap of liability.
If it's an arbitrary limit, say it's just a random number. Then
you are encouraging those actors to manage to that number
without perhaps taking the necessary steps in place to do the
performance based limits that are so much a function of the
cooperative agreement.
So what I like about the use of the word may, is it leaves
it to the Secretary to make a determination whether or not that
indemnification is negotiated at the outset of the cooperative
agreement based on the information provided by the site or
whether that indemnification is negotiated throughout the life
of the site. As information becomes available because these are
experimental projects, the Secretary may decide that, you know,
they're not doing their due diligence managing the projects
correctly. So, no, we're going to protect the public's risk by
not offering indemnity.
So in my view I think it provides adequate coverage.
Senator Barrasso. Great.
Ms. Trabucchi. Certainty to the capital market.
Senator Barrasso. That's kind of what I heard from Mr.
Watson as well, along with that thought process.
Could I ask you as well, Ms. Trabucchi, if this bill were
signed into law how you think it would impact investor interest
including interest in carbon capture and sequestration projects
even beyond the first ten?
Ms. Trabucchi. You mean more for scaling up for commercial
applications?
Senator Barrasso. Yes.
Ms. Trabucchi. You know, in my view what--in my view the
bill if signed into law as it's currently configured would
certainly foster capital investment in the ten demonstration
projects with certainty. I think beyond that my sense is the
capital--you know, it's the early entrants. It's the curve of
your financial markets.
So those who are the early entrants who are willing to bear
the risk are likely to bear the greater reward. So I think what
this bill will do is create more of a competitive interest
within the capital markets to invest in the ten projects. I
think the real question is after those ten projects is there
sufficient capacity for greater commercial application?
If there is additional capacity then what you're going to
have is perhaps a more mature functioning market whereby your
investors are more likely to be willing to invest because
somebody else absorbed the risk on their behalf. So I'll leave
it at that.
Senator Barrasso. Thank you.
Mr. Klara, if I could just visit with you for a second?
Researchers around the world are looking at geo-engineering as
a potential approach to this issue of excess carbon dioxide.
The focus of the one bill that we're looking at today, Direct
Air Capture, follows a similar approach of using technology in
innovation. Do you think the geo-engineering or direct air
capture is a potential option at this point?
You know, there's been a lot written. Even the New York
Times earlier this week had an article about it.
Mr. Klara. Certainly it represents a very high risk option
in terms of just the availability of technology to do so. Just
generally speaking the portfolios, certainly in our portfolio,
have focused primarily on looking at capturing large, high
percentage quantities, which the bill recognizes. We have
looked at, to some degree, these options for direct air
capture. In every case we're just finding insurmountable
barriers in terms of cost.
Senator Barrasso. Cost.
Mr. Klara. Other things like, for example Princeton is
mentioned. Another issue there too, which you may be aware, at
the end of the day it's going to all be about how many tons you
take out of the atmosphere. So obviously out of the air when
it's 380 parts per million, you have to process a lot of air to
get one ton of carbon dioxide. That's another factor that leads
into this cost issue.
So is it possible? Perhaps. Are there many technological
barriers to it? Absolutely.
Senator Barrasso. You know it's interesting in that recent
article that Columbia professors disagreed with the Princeton
professors as the cost and what the technology would be which
makes me get to the final question, Mr. Chairman, is that what
do think about the use of prizes as an effective way to try to
spur private investment and then looking for ways to lower the
cost?
Mr. Klara. Certainly within our program we've never taken
that approach. But if that approach certainly stimulates, you
know, the best minds in the country, if not the world, to do
so, we'd certainly encourage that.
Another aspect too, that we've tried in the past is often
what happens in an area you kind of get bogged down in
discipline. So for example, it's obviously geologists, chemical
engineers. So we even tried to expand beyond that to get some
interest from any diverse, you know, subset of education
leaders, scientists. So if the prize can kind of encourage that
as well I think that would be very valuable.
Senator Barrasso. Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Manchin.
Senator Manchin. Thank you, Mr. Chairman. To all of you,
thank you for being here.
If I could and I think the first question will go to Mr.
Klara. But you know the whole thing that with technology today
and where we stand with CCS we faced this with acid rain back
in the 1980s as you recall. At that time you all had worked and
developed a technology with scrubbers, low nox boilers. There
was an alternative with how we would fix it. It was fixable
because it was technology.
You all have an impressive record at NETL. I've been there
many times and have gone through the process. Are you close to
getting something that's commercial able and also affordable
other than just the capture and storage? Because with the
CO2, I mean, the SO2 that we were able
to, the sulphur, that we were able to capture. We were able to
create a whole nother industry.
Mr. Klara. Right.
Senator Manchin. With the low nox boilers. But now the
Federal Government has taken a position unless we can find a
way to effectively capture CCS you can't move forward with any
projects. It doesn't make any sense at all because technology
has not developed or matured enough.
How close are you and how much--I know that the Department
of Energy, you all have been on the front end. Are you still in
that position or are they putting all their effort toward you
all finding the cure?
Mr. Klara. Certainly within the CCS portion of our program,
we have a program designed to try to reduce those barriers. As
you point out many good points, right now it's a very expensive
technology and likely too prohibitive under many scenarios to
go forward. We have a 10-year plan, roughly a 10-year plan.
Senator Manchin. But basically you all agree that the
Federal Government has taken a position, everything stops,
nothing happens unless CCS is implemented. We don't have the
technology in place. Would that be a fair statement?
Mr. Klara. I can only comment on the technology side. On
the technology side it's a very expensive option right now.
However, if you look at our portfolio that there are many
developments potentially emerging that we believe within a 10-
year span will drive these costs and risks down to such a point
that then it might be a whole new dynamic of how these
technologies----
Senator Manchin. Such as scrubbers and low nox did for the
acid rain?
Mr. Klara. Exactly. In fact when developing these kinds of
technologies we often look at those kind of past learning
curves to try to get some insights into the kind of timing we
might need to drive those costs and increase those performance.
Senator Manchin. Is NETL playing a significant role in
administering? Do you all see that in the future you're going
to play a significant role or is DOE are they fracturing this
off and going in different directions?
Mr. Klara. Yes, we have--I don't have any indications that
would not say that NETL would play a key role.
Senator Manchin. How's your funding?
Mr. Klara. Adequate.
Senator Manchin. What was the recommendation from DOE for
your funding?
Mr. Klara. For what year, sir?
Senator Manchin. For this coming year.
Mr. Klara. For fiscal year 2011?
Senator Manchin. 2011.
Mr. Klara. With a continuing resolution, we stayed
stagnate.
Senator Manchin. How about 2012?
Mr. Klara. For 2012, there is a slight reduction due to the
fiscal constraints we're all under.
Senator Manchin. Alright. Also, with what's going on around
the country, around the world, you have India. You have, of
course, China. We hear so much about what China has been doing
as far as in this arena.
Do you see them making significant strides because there's
no limit or no restraints on them from being able to use
different types of technology?
Mr. Klara. From what we've seen on the technical side is
that they definitely are showing interest. In fact, we have
technical collaborations with most of those countries relative
to what our researchers are doing and what they're doing. So
from a technology standpoint, we've seen a lot of interest and
potential there.
I would kind of use an analogy that if you look back at the
kind of technologies you're mentioning for NOX and
SOX that have been developed out of the Federal
Government that those are the technologies that are leading the
way in these emerging countries. So, you know, using that as
the potential analogy and, you know, I would say that----
Senator Manchin. Is China using, I mean, are they using the
scrubbers and the low NOX boilers? Are they going
NOX and SOX in China?
Mr. Klara. Yes, there are using the----
Senator Manchin. For their new are they retrofitting their
old or taking their old?
Mr. Klara. They're using the latest technologies, many and
most of which have come out of the Federal Government's past
portfolio. All indications are, at least from a technology
exchange standpoint, that they would continue to do that with
U.S. leadership and the technologies that we develop.
Senator Manchin. Would it be a fair statement to say that
we don't have the technology in place to basically that would
handle the CCS, if you will, carbon capture whether it's the
storage or the--have we come close to finding any technology
that would be able to take the waste of carbon CO2
and turn that into a useable fuel?
Mr. Klara. At this point we categorize those as reuse
opportunities. So generally speaking with storage you put it
underground and it's----
Senator Manchin. I know from that. But----
Mr. Klara. Yes. But from a standpoint of looking at
CO2 reuse opportunities which means converting
CO2 to some other product.
Senator Manchin. Right.
Mr. Klara. Like aggregates or----
Senator Manchin. Yes.
Mr. Klara. Other chemical products. We have a small
portfolio looking at that. It does become a key issue that
CO2 is such a stable molecule that it's often very
expensive, high pressures, high temperatures, to convert it to
these other products.
So people are looking at trying to look at creative
mechanisms, chemistry and otherwise, to make that a reality.
But right now in nearly every case that is in our portfolio,
the costs are still too prohibitive for that options, those
options.
Senator Manchin. So CCS is about the only viable option
that we have right now?
Mr. Klara. Even with CCS it's very costly. But yes, it does
appear to be the lower cost option of those other alternatives.
Senator Manchin. Thank you, sir.
The Chairman. Senator Portman.
Senator Portman. Thank you, Mr. Chairman. Thanks to the
panelists here. I'm going to follow up, if I could, on some of
the questions that Senator Manchin raised.
We had testimony earlier this week in committee regarding
oil recovery, tertiary recovery particularly and the use of
CO2. The comment was made by some of the industry
experts that there's not an adequate supply of CO2
for that kind of recovery. So I guess, Mr. Klara and others,
feel free to chime in, in talking about the uses of
CO2 understanding that it's very expensive to
convert it to an energy use as you said.
But what's the relationship here between capture,
transportation, sequestration on the one hand and on the other
hand this need that the oil and gas industry appears to have
for additional CO2 for recovery efforts?
Mr. Klara. In a sense it's a chicken and an egg scenario.
The problem becomes that right now there are capture
technologies that go out there and capture CO2 in
large quantities that could be used for everything from EOR and
other. The problem there is it's too costly of a source
currently with the capture technologies that we have available.
So what I would say, relative to EOR, that it's the
logical. If CCS becomes well deployed into the future that EOR
will certainly be one of the first options that are pursued as
we start to unroll CCS out. But that will be pursued only when
we get the cost of these technologies down.
As I was commenting to Senator Manchin is that if we look
at our 10 year road map, we are hopeful that we can drive the
cost of those technologies down over the course of 10 years. At
that time we would potentially be able to capture these large
quantities of CO2 at costs that can be acceptable to
the oil industry for enhanced oil recovery.
Senator Portman. Is EOR sequestration?
Mr. Klara. A good point there as well. With those kinds of
exchange options you will logically hear well, aren't you just
putting carbon in the ground to produce carbon? There's a
little bit of truth to that.
We've looked at it from a resource portfolio standpoint
right now if you look at today's practices for EOR. How much
CO2 you put in the ground for how much oil you
recover. You put about 80 percent of the carbon in the ground
compared to the emissions you'd produce from the oil.
Now if we go into a CCS dominated environment where all of
sudden there's a cost to the CO2 and maybe a cost to
keep it underground.
Senator Portman. Right.
Mr. Klara. We've looked at new reservoir management
practices where all of a sudden now you could put 120 percent
of the carbon in the ground that you'd produce. So the bottom
line is we still do believe that there's a storage potential to
that if indeed CCS begins to roll forward. CO2 gets
a value to be stored underground.
But it's a very logical and important point to make.
Senator Portman. It would seem to be. What are the best
geological formations for sequestration currently? What parts
of the country are they?
Mr. Klara. The good news is we've done a lot of study on
options for storage.
Senator Portman. You've got regional partnerships?
Mr. Klara. Yes, absolutely.
Senator Portman. You've got, what, 18 going around the
country. So you've got some experience now.
Mr. Klara. Yes. In fact we're already on our third version
of a national atlas for the United States and Canada, nothing
like it anywhere in the world. The bottom line is depending on
the projection of how much reduction CCS would have to
accommodate.
If that reduction is pretty large, what tends to happen is
you really have to have the final backstop in these saline
formations. EOR could play a key role. But when you're talking
billions of tons potentially that's just a lot of volume to be
dealing with.
So these saline aquifers--salt water, undrinkable--these
are the real prime targets for the ultimate storage opportunity
relative to CCS. Just to show you why CCS and sequestration
tends to get a lot of hoopla that it does, the magnitude of
these storage formations are huge even though the emissions are
huge.
So for example, with our estimates so far, we found that
the storage opportunities are widespread under at least 43
States. We've also found that they're huge, especially relative
to the saline formations. That if you would look at the U.S.
emissions in a given year, we have hundreds to thousands of
years of capacity to store all those emissions.
So again, another reason why sequestration tends to be such
an attractive option people don't want to get away from because
it has that ability to store these huge, huge volumes, if
needed.
Senator Portman. Those of us, including Senator Manchin and
myself, who are interested in this technology and want to move
it forward. We like the fact that there's some hoopla, as you
said, associated with it. Hope that the department and the
industry, frankly and others in academia continue to focus on
this.
It seems to me we're close to the technology that's
commercial able on the capture side which seems to me is your
biggest scientific challenge. Then on the sequestration side
obviously there's a lot of issues including political issues
that aren't science based. But we are committed to working with
you on that and hope that again, after this hearing and others,
that you're getting the message that there are lots of folks
who believe that this hoopla is justified and that this is a
way for us to make great gains using the coal resources that we
have here in this country.
Thank you.
Mr. Klara. Thank you.
Senator Portman. Thank you all.
The Chairman. Senator Shaheen.
Senator Shaheen. Thank you, Mr. Chairman. Thank you all for
being here this morning. I'm not sure exactly who to direct
this question to because I was not here for all of the--all of
your testimony. I apologize for that. So I'll just throw this
out and see who responds.
Does S.669 address the most serious barriers that companies
who are doing carbon capture and sequestration will face? If we
pass this is, is this going to open the opportunities for
companies to actually move forward in a way that will make this
technology commercially viable? I'm particularly interested in
this because we have a company in New Hampshire called
Powerspan, that is--actually has their technology being tested
in Ohio at First Energy, that First Energy utility is doing.
They believe their technology is very competitive in terms
of cost with any of the other technologies that are out there.
So if we were to pass this does this provide real opportunities
for companies like Powerspan to move forward? Who would like to
answer that?
There's no penalty. You can just step right up.
Ms. Greenberg. Senator, I'll speak to a portion of that.
Senator Shaheen. OK.
Ms. Greenberg. From the project perspective we spend a lot
of time talking to a variety of stakeholders about issues
related to carbon capture and storage. So I think from the
perspective of companies being able to manage the real and
perceived risks that they face from the public and various
other stakeholders that this bill would go a long way toward
addressing the liability issues which is one of the key issues
that's brought up repeatedly from those stakeholders.
Senator Shaheen. Anybody else want to add? Yes?
Ms. Trabucchi. Yes, I'll actually follow on what Sallie
just said. I think that one of the significant elements of the
bill is that it sends a positive signal to the capital markets
that there's perceived value in carbon capture and storage.
That there should be a public/private sharing of the risks
associated with that and the rewards associated with that.
I think that again, if there's a public policy goal that
CCS can satisfy then what this bill does is it provides that
necessary signal to say investment in this, these projects,
these 10 projects, is warranted. Because at some point in the
future that investment will pay off either in a public policy
reward and/or in financial rewards. I think that the
indemnification provisions, the marriage that's been created by
this bill with performance standards, the timing of when the
liability relief happens coupled with dollar values and limits
of liability, I think it's a nice coupling. I think it sends a
positive signal.
Mr. Watson. Senator, a bit more simplistic answer, but I
don't think I'll be allowed back in the office if I don't make
this point. The primary barrier to commercialization of CCS is
the lack of a price on carbon. So we can make progress with
bills like this but beyond applications like EOR or maybe you
can get closer to it and have it be economical. Ultimately
you're going to need a policy that creates a market for CCS.
Senator Shaheen. Thank you. I appreciate your making that
point.
There was some discussion earlier about China. Is there--
has there been any thought given to the idea of trying to set
up a real cooperative effort with China? I mean, obviously,
they stand to benefit significantly and they're working hard on
this technology as well.
So has there been any thought given to our setting up a
real formal working effort to try and see if we combine all of
our scientists whether we could come up with a commercially
viable technology faster?
Ms. Greenberg. Senator, that's an excellent question. I
would like to say that those efforts are already underway at a
significant level both through the U.S. State Department, U.S.
Department of Energy. We have hosted several delegations of
Chinese scientists at the Illinois State Geological Survey to
share with them the knowledge that we're getting first hand
through our experiences.
The Director of our program, Dr. Robert Finley, has been to
China as well. So there are very strong, individual, scientific
partnerships and collaborations in place. I believe DOE just
funded an international collaboration which is through Lawrence
Berkley and the University of West Virginia and Tsinghua
University in China.
So there really is actually quite, on the technical side,
quite a lot of activity.
Senator Shaheen. Thank you. Thank you, Mr. Chairman.
The Chairman. Senator Hoeven.
Senator Hoeven. Thank you, Mr. Chairman.
It seems to me that the 2 big issues in getting the
technology to move forward for carbon capture and sequestration
are cost and liability. This legislation really goes to the
liability aspect. I and our State of North Dakota, we've
actually put a legal and regulatory regime in place that
addresses the liability aspects. It's modeled after the
Interstate Oil and Gas Compact Commission model legislation
which some of you may be familiar with.
So it does appear to me that this legislation makes a very
good attempt to deal with the liability aspect. I think that
would be very helpful. Following this--and I hope I don't--I'm
going to take a stab at your name. I know I'm going to get it
wrong, Trabucchi, mentioned I think getting ten projects going
would be phenomenally helpful.
Ms. Trabucchi. I'll take it.
Senator Hoeven. Nobody wants to be first. Everybody wants
to be second or third. Wants this commercially viable hence
going to the question that I'd like each of you to address for
a minute.
Mr. Watson got at it in a way. But not the way that I think
we need to do it. The concept of mandating something I think is
problematic particularly with our financial constraints that we
have in the Federal Government today.
We have got to find a way to address the cost aspect where
we use the CO2 in a productive way. Hence, you know,
tertiary oil recovery or maybe some type of coal to liquids
conversion where you've got to, you know, an easier ability to
capture that CO2 in the process, but if you would
address that cost driver. How do we put this CO2 to
use in a way that justifies a cost that will enable us to move
this forward verses a mandate?
Mr. Watson, you could sure weigh in on this one too. Maybe
you even want to start. But I'm looking for ideas on how we use
it so that we can handle that cost aspect of moving this
forward.
Mr. Watson. Thank you, Senator. I think costs coming down
is a function of experience and a function of the market. My
point was that until we have a kind of policy in place that
creates a market for CCS we're just not going to have the level
of experience with it and the kind of deployment and economies
of scale that will ultimately bring those costs down.
Senator Hoeven. I don't mean to interrupt. But I mean
revenue, revenue generation. The cost will come down as the
technology gets better. It always does.
But some revenue aspect that helps us make this
commercially viable.
Mr. Watson. The EOR application seemed to be the most
immediate one that could provide some source of revenue.
Senator Hoeven. Right. Somebody well we're 10 years away.
We've been 10 years away for the last 10 years.
We're constantly working to try to get more enhanced oil.
We do that in our State. I mean, based on electric puts a down
hold on the waiver and fields get paid for it.
But we want to do more with conventional coal fired plants.
We can't seem to find somebody to take the CO2.
Either it's not concentrated enough. It's too expensive, all
these kinds of things.
We want to try to get coal to liquids going. Would that
help pay for it?
Mr. Watson. There are other smaller applications like the
food services industries and others. Mr. Chairman, I'm
reasonably certain you're not looking to re-litigate climate
policy here right now. But you know, one of the values of the
structures that were being considered was that it did create a
value for that CO2.
Without a policy like that, absent these other
applications, you really don't have one.
Senator Hoeven. Other uses. Anybody? Obviously enhanced oil
recovery. What else?
Where do we use the CO2? How do we get it in a
useable form that generates revenue that helps bring this cost
equation together?
Go ahead. Anybody? Any ideas? Any thoughts?
Ms. Trabucchi. I don't have the technical background to
answer that specific question. But what I can say is I
understand where you're coming from which is the financial and
capital markets are looking for value proposition.
Fundamentally it's revenue minus costs equals profit. If you
can't generate a positive margin there has to--just purely on
the function of price and cost, then there has to be some other
proposition that fosters the need for the product, the
technology, whatever it may be.
So, you know, I hear where you're coming from. I don't
personally have the expertise to tell you what other
technologies might be in use. But what I can say is your
capital markets and your financial markets are very interested
in this very same question.
If that's answered you're going to have more investment
sooner.
Senator Hoeven. Absolutely. So Mr. Klara, Ms. Greenberg in
the lab and in your brainstorming sessions, what are we going
to do with this CO2 that's going to generate some
revenue for us?
Mr. Klara. The key obviously and you've addressed it, is
that we have to come up with technologies that reduce the cost
of the capture. I mean, at the end of the day it's the cost
signal that's going to dictate, even if it's used for EOR.
Just to give you some dynamics. EOR, a lot of those
agreements are business confidential. But generally speaking
you can say in the neighborhood of $20 a ton would be what you
might purchase CO2 for, for EOR.
Right now with the best technologies we have it will cost
you $60 a ton or more. But we are looking at sets of
technologies that we believe can drive those costs down by two-
thirds. So we do believe they're successful in the next 10
years that will start driving those, the cost of capture down.
Certainly at least with regard to EOR that the price signal
might start to approach a price signal that might all of sudden
it does open the flood gates for those opportunities which then
just lets the technology base start rolling out.
Ms. Greenberg. Senator, if I could just add 2 things that
you touched on in your question that are also important to
this. That is the purity of CO2. So technologies
that give you less volatiles and added elements are important.
Then also transportation and infrastructure that will get
anthropogenic CO2 from the locations where it is
being produced to the places where you're going to be doing
enhanced oil recovery.
Senator Hoeven. Mr. Chairman, with your indulgence?
Exactly. Again, that goes to the cost equation. You have to
have a pipeline to get it to the oil field typically or to the
wells in the field. You have to have certain maturity on the
wells. You have to have certain density of the wells. You have
to have a certain concentration of the CO2.
All those things are vital to make it, you know, a
commercially viable proposition. What I'm picking up from you
and maybe Mr. Klara, I guess, you got there, is we really
haven't come out with something other than enhanced oil
recovery. We've got to drive the cost equation down further to
make that commercially viable.
That's where you see the situation today.
Mr. Klara. We do have a small portfolio looking at
CO2 reuse where you could convert the CO2
to aggregate plastics, anything that has carbon in it. Again,
right now the state of that research is that those
opportunities right now are much more expensive than getting
those materials off the market today. They are looking at novel
chemistry approaches etcetera to try to drive that cost down.
So those are other potential markets. But when you start
looking at the magnitude of the CO2, those markets
typically don't have enough capacity, even if we do drive those
costs down, to make a big dent in emissions. But what they
could do is, again, promote the idea of CO2 capture
and promote the idea of there are some opportunities to use
this CO2 in a value added way.
Senator Hoeven. Thank you.
The Chairman. Let me just follow up on the point that you
made, Ms. Greenberg, about transportation and the need there.
At the current time there is no Federal agency with authority
to site CO2 pipelines. Should we change that and
give FERC that authority?
Ms. Greenberg. I think that if enhanced oil recovery at the
use of anthropogenic CO2 is a goal in, as Senator
Hoeven was saying, in doing something with our CO2.
Then anything that the Federal Government can do to facilitate
the siting and building of a pipeline infrastructure is
certainly advantageous.
The Chairman. Good. Let me ask, Mr. Klara. You had said
about $20 a ton is the price that people are--that companies
are paying for CO2 for enhanced oil recovery. Is
that what I understood you to say?
Mr. Klara. Yes, and generally speaking you're like $10 to
$30 per ton. So I just used $20 as a----
The Chairman. Right. Because yesterday, one of our
witnesses said that. I asked him what the price of
CO2 was in the Permian Basin. He was saying that it
had been about a dollar an MCF, but that he'd seen a recent
contract where they had agreed to pay $2 per MCF.
Is that--I'm not quick enough to tell you how you convert
MCFs to tons. Can you tell me whether that is pretty much what
you said or not?
Mr. Klara. Yes. That should be in the ballpark. Yes.
The Chairman. OK.
Mr. Klara. I can't remember the conversion off the top of
my head. But yes, those are close numbers. But a point I want
to make is that CO2 pricing is complicated. It's
often related to the oil prices.
So how these agreements get made have some complexity to
it. So if the oil price goes up high or goes down, that also
impacts, you know, what the price is that somebody pays for the
CO2. So it's an ever changing, you know, with the
oil prices, well, it's ever changing what it is.
But a good number and you kind of got to think in tons, but
you know, $10 to $30 per ton is a nice range of probably where
most, if not all, of the price for CO2 for EOR kind
of resides.
The Chairman. OK.
Senator Manchin.
Senator Manchin. Thank you, sir.
I think just in general I'm speaking that what does the
cost of carbon capture add to the price of energy as far as the
house? Any of you all can talk about that. What is done in the
legislation that we can continue to pursue? If this is passed
on what would that be to the consumer? What does it mean to the
manufacturers?
I know that in a realm of coal fired electricity being what
drives most of our industry right now. Manufacturing because of
its competitive cost, it has gone up dramatically and it seems
to keep going up dramatically. Can you put a price on that?
Mr. Klara. If we were to look at off the shelf technologies
today for CO2 capture and transport and storage, but
capture by far is 80 percent of the cost for that.
Senator Manchin. Are you talking about even retrofitting
existing plants?
Mr. Klara. Yes.
Senator Manchin. Such as a mountaineer plant.
Mr. Klara. So if you were to look at a retrofit
opportunity, it could add as much as 80 percent to the cost of
electricity adding CCS. If you were to look at a new technology
like gasification, and the reason why it gets so much interest
is that it's more conducive, you'd add maybe about 35 percent
to the cost of electricity.
If you look, take a snapshot forward on a road map saying
what might happen in 10 years if the research portfolio is
successful? Our desires would be we drive that cost down to
maybe a 20 percent increase in cost of electricity and a 10-
percent increase in cost of electricity if all is successful.
But there's still going to be a cost increase.
Senator Manchin. We understand.
Here's my concern. We're competing with all these
manufacturing, these Third World developing countries, whether
it be China coming on so strong taking most of our jobs, if you
will. You have India. You have all the different.
They're dealing with a much lower cost base on their energy
than what we are as I understand. We used to be in a 4 to 6
cent range as far as commercial on a kilowatt hour.
Mr. Klara. Right.
Senator Manchin. You start driving that up 20, 40, 60, 80
percent expeditiously before. You just give them a greater
competitive advantage. That doesn't make sense to us as
Americans why we would lose more jobs because of our high cost
of manufacturing when we don't have the proven technology, I
think, is the point that I'm making. Why the money should be
put on the technology or on the research to find the
technology.
Do you see us putting a very disadvantaged competitive
situation here with China, India?
Mr. Klara. I'm a technologist. But certainly it's a
worldwide issue and just to go to your point. Now, how that
gets addressed is way beyond my----
Senator Manchin. Do any of you all want to speak to that? I
know you knowing what your cost is. At West Virginia we pulled
out of the FutureGen because of liability at the end result. We
were on the forward down to the wire and we supported all noise
at the back. They were willing to take the whole liability.
You don't have any comment on that one do you? I don't
blame you. Any of you all have a comment on this competitive
advantage or disadvantages that we're putting ourselves in by
moving before we have technology?
I think what I'm saying we're moving policy before
technology is readily available and that we can put a cost to
it, to the point that we can still be competitive worldwide.
Mr. Watson.
Mr. Watson. Senator, well I'm not sure I follow you. This
bill wouldn't mandate anyone to use CCS.
Senator Manchin. But the reality is is the Federal
Government is not giving any permits. We're not expanding. You
can't build anything. You can't do a thing.
They've got you tied up with EPA and everything else
because unless it has CCS attributed to it, you're not going to
get a permit.
Mr. Watson. I'm not aware that that's the case, Senator. My
understanding is that power plants are being permitted and
built.
Senator Manchin. Oh, please give me the list where ever you
found one?
Mr. Watson. I'd be happy to get that for you.
Senator Manchin. You're saying new coal fired plants
without CCS is being built?
Mr. Watson. Yes, sir. I'd be happy to get you something.
[The information referred to follows:]
----------------------------------------------------------------------------------------------------------------
Current Generating
Power Plant Owner State Operating Status Capacity
----------------------------------------------------------------------------------------------------------------
Dry Fork Station Multiple WY Under Construction 385.00
----------------------------------------------------------------------------------------------------------------
Edwardsport IGCC Duke Energy Indiana Inc. IN Under Construction 618.00
----------------------------------------------------------------------------------------------------------------
Formosa Point Comfort Formosa Plastics Corp TX Under Construction 286.20
----------------------------------------------------------------------------------------------------------------
Goodland Energy Center Goodland Energy Center LLC KS Under Construction 25.00
----------------------------------------------------------------------------------------------------------------
John W. Turk, Jr. UPC Multiple AR Under Construction 600.00
----------------------------------------------------------------------------------------------------------------
Longview Power Multiple WV Under Construction 700.00
----------------------------------------------------------------------------------------------------------------
Plant Ratcliffe IGCC (David) Mississippi Power Co. MS Under Construction 596.10
----------------------------------------------------------------------------------------------------------------
Prairie State Energy Campus Multiple IL Under Construction 1,600.00
----------------------------------------------------------------------------------------------------------------
Sandy Creek Multiple TX Under Construction 900.00
----------------------------------------------------------------------------------------------------------------
Spiritwood Energy Cogen Plant Great River Energy ND Under Construction 99.00
----------------------------------------------------------------------------------------------------------------
Two Elk One North American Power Group WY Under Construction 290.00
----------------------------------------------------------------------------------------------------------------
Virginia City Hybrid Energy Virginia Electric & Power VA Under Construction 585.00
Center Co.
----------------------------------------------------------------------------------------------------------------
Senator Manchin. Please, please, please.
Ms. Greenberg, do you know of any?
Ms. Greenberg. Not off the top of my head.
Senator Manchin. I don't either. I don't either.
Mr. Klara, how about you? Do you know any new power plants
being built, coal fired power plants?
Mr. Klara. I'd have to look into that.
Senator Manchin. OK.
The Chairman. Thank you all very much. Think it's been a
useful hearing. Appreciate your excellent testimony.
That will conclude our hearing.
[Whereupon, at 10:12 a.m., the hearing was adjourned.]
[The following statement was received for the record.]
Prepared Statement of Ben Lubbon, Managing Director, Jude Benedict &
Associates, in behalf of OriginOil and the Algal Biomass Industry
Thank you Chairman Bingaman, Ranking Member Barrasso, and members
of the Committee; I appreciate the opportunity to submit public comment
for the record to promote algae-to-oil technology's capability and its
rapid development of carbon capture and storage (CCS).
After listening to the hearing and reading written testimony; one
item was apparent; algae-to-oil technology's capability to capture and
sequester carbon was unfortunately not mentioned. Yet, this was not a
fault of any one individual; the technology is advancing in great
strides ahead of communicating these efforts to Capitol Hill.
Fortunately, due to the avenue of public comment; I am able to inform
you of the attributes of this promising technology.
s. 757 applies to algae technology
Algae carbon bio-capture technology is a post-combustion process.
It involves no geo-sequestration; a pre-combustion process injecting
CO2 into the ground. Therefore, S. 699 does not apply to
Algae Technology.
s. 757 is a great start
First, the bill needs a short title: the Direct Air Carbon Capture
Act would suffice.
S. 757 has two provisions: (1) a direct air carbon dioxide capture
prize and (2) the initiation of a nine member Carbon Capture Task Force
appointed by the administration.
However, ``algae carbon bio-capture'' is at a pilot-to-commercial
stage at three coal-fired power plants in Australia. In the Land Down
Under, they are advancing free enterprise deploying US technology. In
the Land of the Manhattan Project and putting Men on the Moon, a prize
short sells our proprietary knowledge. We as a Nation are better than
this. Amending this bill should include financial and legislative
support.
algae-to-oil direct air carbon capture is safer and produces multiple
revenue streams
Geo-sequestration: Injecting anything into the ground and not
thinking it will end up in the water table defies common sense.
Environmental groups, with just cause; will tie up geo-sequestration
projects in the environmental study and review process. And then, there
will be the challenges in the Courts.
Algae Carbon Bio-Capture: Direct-air carbon capture is a multiple
proactive ``win-win-win!''
The post-combustion process sucks CO2 directly from the
flue stack. Algae growth thrives in closed-loop industrial bolt-on bio-
reactors and reclaims dirty polluted brackish water. A multitude of
products from drop-in biofuels, pharmaceuticals, neutraceuticals, oil-
based chemicals, plastics, human food and supplements, animal feed and
fertilizer; are just a few of algae's revenue producing drivers.
Research has proven algae cures blindness in mice; cures for cancer are
soon to follow. The final kicker, the remaining biomass left in the
closed-loop system, is burned as ``biochar'' which sequesters the
CO2 and is used as a soil supplement.
Algae Technology is also a major job creator. With wind, solar and
geo-sequestration technologies; once a project is constructed, there
are few jobs to maintain the facility. Algae technology, on the other
hand, is labor intensive throughout construction, maintenance and
production phases of the co-located power plant algae refinery. Jobs
downstream from supply distribution networks will be exponential.
algae technology's negative
Skeptics and cynics claim if algae technology is so great; then why
isn't it a thriving free market enterprise? Yet, this rings true for
all promising technology to overcome throughout History. Fossil fuels
still get subsidies; the algae industry just wishes for an even playing
field. Furthermore; legislative government support is far more
imperative than federal financial aide. Long-term legislative federal
stability is what the investment community demands to minimize risk
before they will support the free-market.
The pre-combustion geo-sequestration process is also an unproven
technology with challenges to overcome.
conclusion
Previous CCS legislation includes billions of dollars to be
allocated. ``Bio-capture'' and geo-sequestration are both viable
choices and deserve parity. Both bills deserve further review at the
committee level before going to a floor vote. There are several regions
worthy of geo-sequestration; and, there are some that are questionable.
There are no silver bullets in our pursuit for energy independence;
there's just a lot of silver buckshot. We must promote them all in a
full climate capitalism approach rather than argue about the ideologies
of climate change. Before any decisions are made per energy policy; our
government leaders need to hear more from its entrepreneurial energy
leaders who are taking monumental risks in the name of energy
independence and national security.
Thank you for your consideration.
APPENDIX
Responses to Additional Questions
----------
Responses of Sallie E. Greenberg to Questions From Senator Bingaman
Question 1. In the project that you have been involved with in
Illinois that partners with Archer-Daniel Midland, have you encountered
any unexpected events or unknown risks that your project team did not
expect to? Is there anything that has impacted your views of the risks
associated with geologic CCS?
Answer. Three categories of unexpected events or risks have
occurred during the course of the Illinois Basin--Decatur Project
(IBDP) in Decatur, Illinois: 1) Geologic/Operational, 2) Material
Compliance, and 3) Regulatory Response.
Geologic/Operational events occurred during the drilling the
injection well at IBDP when we encountered a carbonate rock unit with
dissolution features, which caused a loss of circulation of drilling
mud. Mitigating this ``lost circulation zone'' resulted in the loss of
time and increase in cost to drill the well. Risks such as this are
common when little direct geologic information, such as stratigraphic
well logs and samples, is available. Risk mitigation for the second,
deep monitoring well, benefitted from the knowledge of the lost
circulation zone and a mitigation strategy was put into to place, such
that minimal time was lost and limited cost incurred. Events such as
these speak to the necessity of Applicants under S.699 needing to have
substantial geologic data available when applying for liability
assurance from the Secretary.
Material Compliance with Underground Injection Control (UIC) Class
VI regulations may prove to be difficult. An example from the IBDP is
in our preemptive decision to use chrome steel in the lower 2,000' of
the injection interval. This decision was made in anticipation of the
Class VI regulations (which were in the rulemaking process at the time)
that would require the use of carbon dioxide (CO2) resistant
well construction materials. We were initially unable to find chrome
steel casing for the injection well and ultimately found the material
in a yard in Aberdeen, Scotland. The material was shipped to our
location, inspected, and approved for use. This material shortage
potential may result in operators using materials that do not meet the
UIC regulations and will have to be closely monitored.
Lastly, while not an environmental or operational risk, but a
significant risk for researchers and future commercial investors, is
the lack of knowledge of dense-phase CO2 and oil field (or
deep subsurface) technologies applicable to carbon capture and storage
(CCS) on the part of regulators. To date, our permitting process has
extended over 3+ years and continues to be extended as the Class VI
regulations are put into place. That lack of knowledge has to be
remedied by targeted training, otherwise wider deployment beyond the
research phases and the long-term monitoring responsibility of the
Environmental Protection Agency will be hampered.
Question 2. I am aware that you have worked very deeply in the
areas of public outreach, awareness, and acceptance issues of geologic
CCS. Based on your research--what have been the biggest areas of
concern for public stakeholders? Do you have any recommendations for
project developers as they undertake these types of large-scale CCS
projects?
Answer. The most commonly expressed concerns we encounter relate to
two areas: 1) subsurface misconceptions, and 2) surface technical and
nontechnical issues.
Public concerns about the concept of CCS stem from misconceptions
about the nature of the subsurface. Members of the general public often
perceive that CO2 will be stored in large underground
caverns and lack knowledge of the actual process of storage, which
takes place in small rock pore spaces. This perception is further
compounded by the perceived uncertainty of earthquake impacts on stored
CO2. In fact, the most frequently asked questions we
encounter are, ``What will happen to stored CO2 in the event
of an earthquake?'' and ``Will CO2 injection cause
earthquakes?'' Additional subsurface concerns focus on the displacement
of brine during CO2 injection and the perception that brine
migration will result in contamination of fresh water or migration to
the surface. With careful explanation, physical models, and
demonstration tools, these concerns can be addressed and alleviated.
Future project developers should avail themselves of CCS communication
experts and utilize best practices manuals to develop public engagement
strategies. Engaging and informing the public will be essential to
commercial deployment.
Surface technical and nontechnical issues are also of great concern
to the public, especially landowners in close proximity to CCS
projects. We have experienced landowners who after discussions express
no further concern with the subsurface storage concept of CCS, but
rather are concerned with what bringing a CO2 pipeline
through their driveway will do to their property values and/or ability
to use the area. Issues such as the perceived decrease in property
value due to stored CO2, liability over stored
CO2 after the close of a project, and distrust of government
to adequately regulate project developers and protect citizens are
often expressed. Project developers will need to be held to the highest
performance standards in order to warrant the trust of the public. In
addition, liability funds or other financial mechanisms will need to be
adequately managed, regulators properly trained, and commercial
projects successfully operated for long periods of time in order to
minimize public concerns.
______
Responses of Chiara Trabucchi to Questions From Senator Bingaman
Question 1. Can you speak briefly on what you think the real vs.
perceived risks for a given geologic CCS project are?
Answer. There are a number of studies which have attempted to
identify and assess the range of risks potentially related to CCS
during the project lifecycle, and which give rise to the need for
financial responsibility (see, for example, Donlan and Trabucchi, 2010;
Trabucchi et al., 2009; Trabucchi and Patton, 2008; Bacanskas et al.,
2009; WRI, 2008; DOE, 2007; OSPAR, 2007).
Briefly stated, CCS may adversely impact human health and the
environment through a variety of pathways (see, IPCC, 2005 for a broad
based discussion of these impacts from the operational phase of a
CO2 capture unit, and Bacanskas et al., 2009 for how adverse
impacts could impact human and ecological receptors during the
lifecycle of a CO2 storage operation). Specifically, CCS
risks include, but are not limited to: (1) groundwater contamination;
(2) surface/subsurface trespass, (3) asset infringement, (4) bodily
injury; (5) property damage; (6) ecological damage; and/or (7) business
interruption.
Delimiting factors that will influence the degree of injury at a
particular CCS project include site-specific geology and geochemistry,
proximity to population centers, infringement of valuable (sub)surface
resources, increasingly scarce sources of potable surface and ground
water, and protected or sensitive (endangered) habitats. The nature and
degree to which one or more of these factors are applicable to a
particular CCS project will shape its risk profile and create the
potential for financial consequences in the form of corrective action
(e.g., mitigation, remediation expenses) and/or compensatory damages.
Establishing permitting and performance-based standards to ensure sound
siting, design, operation and management of the CCS project will
contribute to risk mitigation and limit the degree to which harm or
injury, and attendant compensatory damages arise.
Question 2. Where do you think the hardest economic step or gap is
for project developers? CCS project financiers? What can project
developers do to reduce the risks perceived by project financers? In
other words, what is the financial community the most concerned with
for CCS projects?
Answer. When considering whether or not to invest in a project,
developers and financiers will assess the degree to which the project
will realize a net positive return on investment. A generally accepted
practice in investment valuation is conducting a discounted cash flow
analysis. This type of analysis considers the present value of the
project's forecasted cash flows, net of the project's initial
investment. If the net present value (NPV) is greater than zero, then
the project is accepted. If the NPV is less than zero, then the project
is rejected. Essentially, developers and financiers are seeking value
creation which will result in positive cash flows, and therefore
positive return on investment.
Project financing that relies on this type of analysis necessitates
the ability to identify and value the stream of a project's cash flows.
To effectively assess the project's NPV, a degree of certainty is
required with respect to: (1) the cash flows generated by the project;
(2) the cost of investing in the project; and (3) the terminal value of
the assets comprising the project, i.e., either salvage, or sale.
Projects with positive cash flows, minimal costs, and high terminal
value represent strong investment potential to project financiers.
In my view, the limited analytic evaluation of the range of
potential impacts, and corresponding financial consequences
attributable to individual CCS projects, has hindered project
financing. On a project-specific basis, answers are needed to the
questions: ``What are the dollar amounts that need to be managed?''
``Under what set of circumstances, will amounts present?'' ``Across
what time frame will these dollars be needed?'' I believe that focus on
anecdotal references with respect to possible financial consequences
arising from CCS projects has contributed to unreasonable expectations
and misunderstandings with respect to the amount and timing of funds
necessary for the responsible deployment of CCS. As a result, the
developer and project financier's ability to accurately forecast key
variables in the project's NPV, i.e., the `cost of investing in the
project' and `the terminal value of the project's assets', is limited.
As long as financiers are unable to reduce a CCS project to its net
present value, they are unlikely to place their investment capital
behind the technology.
In addition, the public debate on `liability' as it relates to the
long-term stewardship of CCS projects, i.e., who should bear financial
responsibility for paying claimants when damages occur, has clouded the
ability of project financiers to accurately assign a risk premium to
their calculus of whether CCS represents a viable business venture. In
my view, S. 699 is a measurable step forward in offering a measure of
certainty with respect to this issue.
Question 3. You state in your testimony on page 5 that the bill
should include a requirement for the explicit evaluation of potential
human health and environmental impacts from a financial perspective.
Would a requirement for a financial risk analysis on a per applicant/
project basis fulfill this need?
Answer. Yes, as long as the requirement for a financial risk
analysis explicitly includes consideration of the financial
consequences arising from possible human health and/or environmental
impacts on a per applicant/project basis.
References
Bacanskas, Lisa, Anhar Karimjee, Kaylene Ritter, Toward practical
application of the vulnerability evaluation framework for geological
sequestration of carbon dioxide, Energy Procedia, Volume 1, Issue 1,
Greenhouse Gas Control Technologies 9, Proceedings of the 9th
International Conference on Greenhouse Gas Control Technologies (GHGT-
9), 16-20 November 2008, Washington DC, USA, February 2009, Pages 2565-
2572, ISSN 1876-6102, DOI: 10.1016/j.egypro.2009.02.021.
Donlan, Michael and Chiara Trabucchi, Valuation of Consequences
Arising from CO2 Migration at Candidate CCS Sites in the
U.S., Energy Procedia, Volume 4, Proceedings of the 10th International
Conference on Greenhouse Gas Control Technologies (GHGT-10) (2011)
Pages 2222-2229, doi:10.1016/j.egypro.2011.02.110.
Intergovernmental Panel on Climate Change (IPCC). 2005. Special
Report on Carbon Dioxide Capture and Storage. Prepared by Working Group
III of the Intergovernmental Panel on Climate Change [Metz, B.,O.
Davidson, H. C. de Coninck, M. Loos, and L. A. Meyer (eds.)] Cambridge
University Press, Cambridge, United Kingdom and New York, NY, USA.
OSPAR Commission. 2007. OSPAR Guidelines for Risk Assessment and
Management of Storage of CO2 Streams in Geological
Formations. OSPAR Convention for the Protection of the Marine
Environment of the North-East Atlantic. Reference Number: 2007-12
Trabucchi, Chiara, Michael C. Donlan, Sarah Wade, A Multi-
Disciplinary Framework to Monetize Financial Consequences Arising from
CCS Projects and Motivate Effective Financial Responsibility.
International Journal of Greenhouse Gas Control: GHGT9 Special Issue.
October 2009.
Trabucchi, Chiara and L. Patton. 2008. Storing Carbon: Options for
Liability Risk Management, Financial Responsibility. The Bureau of
National Affairs, Inc., Daily Environment, Vol. 2008, No. 170, 09/03/
2008.
U.S. Department of Energy (DOE). December 22, 2006; (Revision 1
April 2007); (Revision 2 October 2007). Final Risk Assessment Report
for the FutureGen Project Environmental Impact Statement; Contract No.
DE-AT26-06NT42921.
World Resources Institute (WRI). 2008. CCS Guidelines: Guidelines for
Carbon Dioxide Capture, Transport and Storage. Washington
DC: WRI.
______
Responses of Scott Klara to Questions From Senator Bingaman
Question 1. While you state in your testimony that the official DOE
position is that the bills are still under review, is it your opinion
that a program such as that S. 699 is a program that your office could
oversee and facilitate? In other words, do you have workforce and
technical capabilities to administer the indemnity program laid out in
the bill?
Answer. The Administration is still reviewing S. 699 and S. 757 and
does not have a position on either bill at this time. However, as part
of the plan proposed by the Interagency Task Force on Carbon Capture
and Storage:
``Efforts to improve long-term liability and stewardship
frameworks should continue. By late 2011, EPA, DOE, Department
of Justice (DOJ), DOI, and Treasury should further evaluate and
provide recommendations to address long-term liability and
stewardship in the context of existing and planned regulatory
frameworks. Of the seven options identified by the Task Force,
the following four approaches, or combinations thereof, should
be considered: (1) reliance on the existing framework for long-
term liability and stewardship; (2) adoption of substantive or
procedural limitations on claims; (3) creation of an industry-
financed trust fund to support long-term stewardship activities
and compensate parties for various types and forms of losses or
damages that occur after site closure; and (4) transfer of
liability to the Federal government after site closure (with
certain contingencies). Open-ended Federal indemnification
should not be used to address long-term liabilities associated
with CO2 storage.''
Question 2. Are there currently projects in the CCS program that
would be of the scale and caliber that would qualify for the program
specified in S. 699?
Answer. The DOE has multiple CCS demonstrations projects underway
(through the Clean Coal Power Initiative, FutureGen 2.0, and Industrial
Carbon Capture and Storage) as well as a set of large-scale injection
tests through the Regional Carbon Sequestration Partnerships (RCSPs)
that would likely fit the project definition contained in the bill.
However, the Administration is still reviewing S. 699 and S. 757 and
does not have a position on either bill at this time.
______
Responses of Matt Watson to Questions From Senator Bingaman
Question 1. EDF has worked very closely with the states in helping
to develop the regulatory mechanisms for geologic CCS projects. Is
there one state in particular that has most accurately quantified risk
and liability for these projects that we could use as model or example
for thinking about this federal legislation?
Answer. Although no state has created a fully adequate model, North
Dakota and Texas each have experience to share that the Committee could
find useful. Both states have examined these issues in the context of
setting fees for trust funds and processing of permits.
Question 2. Have you encountered any CCS projects that have
incurred liabilities (even at the pilot to demonstration scale)?
Answer. We are not aware of any CCS projects that have incurred
liabilities.
Question 3. You mentioned the coal plants and siting at the
hearing--to get specifically at the issue of coal plant siting--what
are the requirements for new coal plant construction under BACT
regulations? Can you provide a list of coal plants under siting and
construction?
Answer. Senator Manchin raised the issue of coal plant permitting
during the hearing. If I understood him correctly, his belief is that
CCS is not a fully-developed, commercially-available technology and,
yet, EPA regulations are requiring permit applicants for coal-fired
generating units to employ CCS--and that permits were being denied
because applicants weren't planning to use CCS.
To our knowledge, there has been no case in which a permitting
agency has denied an air permit for a coal-fired power plant on the
grounds that the applicant failed to employ CCS as a control technology
for greenhouse gas emissions.
Under the Clean Air Act's Prevention of Significant Deterioration
(PSD) Program (Sec. Sec. 165-169), any major stationary source of air
pollutants that is to be constructed or undergo a major modification
must obtain a permit that includes an emissions limitation for each
pollutant regulated under the Clean Air Act. The emissions limitation
is based on a source-specific analysis, conducted by the state or
federal permitting authority, to identify the Best Available Control
Technology (BACT) for that source. In Step 1 of a BACT analysis, all
available pollution control options are identified. In Step 2,
technically infeasible options are eliminated. In Step 3, the list of
available and technically feasible controls are ranked in terms of
environmental effectiveness. In Step 4, economic, energy, and
environmental impacts are considered in determining whether each
control option is ``achievable.'' After identifying the most
environmentally effective control option that is achievable, the
permitting authority then specifies an emissions limitation for the
source that reflects the maximum degree of reduction achievable for the
pollutant considering economic, energy and environmental impacts.
Although a source is required to meet the emissions limitation, it is
not required to install the control technology used in the BACT
analysis to derive the emission limit.
After conducting extensive stakeholder outreach, the Environmental
Protection Agency released guidance for state permitting authorities to
use in identifying BACT for sources requiring PSD permits for their
greenhouse gas emissions. In that guidance, EPA specifically discussed
the potential for CCS to be identified as BACT by a permitting
authority:
[A]lthough CCS is not in widespread use at this time, EPA
generally considers CCS to be an ``available'' add-on pollution
control technology for facilities emitting CO2 in
large amounts and industrial facilities with high-purity
CO2 streams. Assuming CCS has been included in Step
1 of the top-down BACT process for such sources, it now must be
evaluated for technical feasibility in Step 2. CCS is composed
of three main components: CO2 capture and/or
compression, transport, and storage. CCS may be eliminated from
a BACT analysis in Step 2 if it can be shown that there are
significant differences pertinent to the successful operation
for each of these three main components from what has already
been applied to a differing source type. For example, the
temperature, pressure, pollutant concentration, or volume of
the gas stream to be controlled, may differ so significantly
from previous applications that it is uncertain the control
device will work in the situation currently undergoing review.
Furthermore, CCS may be eliminated from a BACT analysis in Step
2 if the three components working together are deemed
technically infeasible for the proposed source, taking into
account the integration of the CCS components with the base
facility and site-specific considerations (e.g., space for
CO2 capture equipment at an existing facility,
right-of-ways to build a pipeline or access to an existing
pipeline, access to suitable geologic reservoirs for
sequestration, or other storage options).
While CCS is a promising technology, EPA does not believe
that at this time CCS will be a technically feasible BACT
option in certain cases. As noted above, to establish that an
option is technically infeasible, the permitting record should
show that an available control option has neither been
demonstrated in practice nor is available and applicable to the
source type under review. EPA recognizes the significant
logistical hurdles that the installation and operation of a CCS
system presents and that sets it apart from other add-on
controls that are typically used to reduce emissions of other
regulated pollutants and already have an existing reasonably
accessible infrastructure in place to address waste disposal
and other offsite needs. Logistical hurdles for CCS may include
obtaining contracts for offsite land acquisition (including the
availability of land), the need for funding (including, for
example, government subsidies), timing of available
transportation infrastructure, and developing a site for secure
long term storage. Not every source has the resources to
overcome the offsite logistical barriers necessary to apply CCS
technology to its operations, and smaller sources will likely
be more constrained in this regard. Based on these
considerations, a permitting authority may conclude that CCS is
not applicable to a particular source, and consequently not
technically feasible, even if the type of equipment needed to
accomplish the compression, capture, and storage of GHGs are
determined to be generally available from commercial
vendors.\1\
---------------------------------------------------------------------------
\1\ Environmental Protection Agency, ``PSD and Title V Permitting
Guidance for Greenhouse Gases,'' p. 35-36 (March 2011).
In discussing consideration of CCS under Step 4 of the BACT
---------------------------------------------------------------------------
process, EPA noted that:
[A]t present CCS is an expensive technology, largely because
of the costs associated with CO2 capture and
compression, and these costs will generally make the price of
electricity from power plants with CCS uncompetitive compared
to electricity from plants with other GHG controls. Even if not
eliminated in Step 2 of the BACT analysis, on the basis of the
current costs of CCS, we expect that CCS will often be
eliminated from consideration in Step 4 of the BACT analysis,
even in some cases where underground storage of the captured
CO2 near the power plant is feasible. However, there
may be cases at present where the economics of CCS are more
favorable (for example, where the captured CO2 could
be readily sold for enhanced oil recovery), making CCS a more
viable option under Step 4. In addition, as a result of the
ongoing research and development described in the Interagency
Task Force Report noted above, CCS may become less costly and
warrant greater consideration in Step 4 of the BACT analysis in
the future.\2\
---------------------------------------------------------------------------
\2\ Id. at 42-43.
EPA's analysis of control options was primarily focused on power
plant efficiency measures that could be put in place as a means to
reduce the quantity of greenhouse gases emitted per unit of energy
produced.\3\
---------------------------------------------------------------------------
\3\ Environmental Protection Agency, ``Available and Emerging
Technologies for Reducing Greenhouse Gas Emissions from Coal-Fired
Electric Generating Units,'' p. 26-35 (October 2010).
---------------------------------------------------------------------------
While there have been several coal plant cancellations over the
past two years, these cancellations have primarily been the product of
reduced energy demand resulting from the increasing costs and financing
difficulties, the economic downturn and low natural gas prices--not
regulatory requirements relating to greenhouse gases. Further, the
requirement to obtain an air permit for greenhouse gases under the
Clean Air Act only recently took effect, becoming operative on January
2, 2011. And while natural gas power plants are increasingly considered
a more financially attractive option for new fossil fuel-based
generation, there are coal-fired projects pending in various stages of
development. The SNL Financial power plant data base describes the
twelve coal fired power plants listed below as under construction.
----------------------------------------------------------------------------------------------------------------
Current Generating
Power Plant Owner State Operating Status Capacity
----------------------------------------------------------------------------------------------------------------
Dry Fork Station Multiple WY Under Construction 385.00
----------------------------------------------------------------------------------------------------------------
Edwardsport IGCC Duke Energy Indiana Inc. IN Under Construction 618.00
----------------------------------------------------------------------------------------------------------------
Formosa Point Comfort Formosa Plastics Corp TX Under Construction 286.20
----------------------------------------------------------------------------------------------------------------
Goodland Energy Center Goodland Energy Center LLC KS Under Construction 25.00
----------------------------------------------------------------------------------------------------------------
John W. Turk, Jr. UPC Multiple AR Under Construction 600.00
----------------------------------------------------------------------------------------------------------------
Longview Power Multiple WV Under Construction 700.00
----------------------------------------------------------------------------------------------------------------
Plant Ratcliffe IGCC (David) Mississippi Power Co. MS Under Construction 596.10
----------------------------------------------------------------------------------------------------------------
Prairie State Energy Campus Multiple IL Under Construction 1,600.00
----------------------------------------------------------------------------------------------------------------
Sandy Creek Multiple TX Under Construction 900.00
----------------------------------------------------------------------------------------------------------------
Spiritwood Energy Cogen Plant Great River Energy ND Under Construction 99.00
----------------------------------------------------------------------------------------------------------------
Two Elk One North American Power Group WY Under Construction 290.00
----------------------------------------------------------------------------------------------------------------
Virginia City Hybrid Energy Virginia Electric & Power VA Under Construction 585.00
Center Co.
----------------------------------------------------------------------------------------------------------------