Climate Law Update: Climate Change & Sustainable Energy News : Thelen Reid Law Firm : Renewable Energy, Construction, Project Finance Lawyers & Attorneys

Carbon capture and sequestration, as the process is known, involves injecting carbon dioxide, a chief greenhouse gas produced by burning fossil fuels, into underground formations to prevent it from reaching the atmosphere.

Promoted heavily in some quarters, the technology has become controversial with environmentalists, partly because of its association with coal. Just this week, the environmental group Greenpeace issued a scathing critique of the technology's use in conjunction with coal, concluding it won't be available in time to save the planet's climate and could consume up to a 40 percent share of a power plant's capacity (see press release here; access report here).

The California project will be located at a plant near Bakersfield operated by Clean Energy Systems. Late last year, the company described the operation as using either natural gas or synthetic gas derived from coal (see text of press release here). Carried out under the auspices of the West Coast Regional Carbon Sequestration Partnership, a public-private partnership partially funded by the energy department, about a million tons of compressed carbon dioxide is expected to be pumped into a geologic formation more than a mile underground.

Adam Gottlieb, a spokesman for the California Energy Commission, which manages the regional partnership,  said he did not believe the plant, expected to be in operation by mid-2010, would rely on coal as a fuel source. The commission's statement suggested that the technology could also be used by industries such as cement plants and refineries. 

"If we can have other industries embrace this technology, not only for economic reasons but for environmental reasons, it's a win-win all around," he told Climate Law Update. 

Keith Pronske, Clean Energy's chief executive officer, told Climate Law Update his plant, which relies on aerospace technology, would likely use natural gas but could rely on other fuels, including renewables.

"What we're focused on is the carbon capture part and it's to have clean energy with captured carbon dioxide from a multitude of fuels," Pronske said. He said carbon dioxide could also become a commercial commodity, sold to be injected under old oil fields as a way of increasing their productivity.     

In the other project, to be carried out by the Midwest Regional Carbon Sequestration Partnership, another million tons of the gas is expected to be injected into a sandstone formation in Ohio about 3,000 feet under an ethanol production facility. That project is slated to get about $61 million. Both projects also anticipate additional millions of dollars coming from industry. 

The projects are the fifth and sixth to be funded by the department in the current phase of its  carbon sequestration program involving the regional partnerships. In addition to promoting at clean coal, the department said the technology would help meet President Bush's recently stated goal of stopping the growth of greenhouse gas emissions by 2025 (see Climate Law Update story here). 

Regarding FutureGen, the energy department in January backed away from its original plan to spend upwards of $1 billion to build a virtually zero-emissions power plant, eventually slated for a site in Illinois (see press announcements here and here). Under the new program, the department outlined a plan to solicit proposals for multiple plants, toward which the government would supply between $100 million and $600 million per project. About $1.3 billion is anticipated to be available over the years, the department estimated.

One goal of the government's overall effort is to reduce the whopping $100- to $300-ton cost of the technology (see DOE background information here).

(Photo: Artist's conception of hypothetical FutureGen plant, Department of Energy) 

The report noted that many in the industry favor free allocations, as a way of reducing the costs of complying with carbon dioxide reductions. But discouraged that approach, warning of potential excessive profits and noting the "overly generous" allocations under the first phases of Europe's trading system. 

With electric power generation responsible for about 40 percent of the nation's carbon dioxide emissions, or about 2.7 billion tons annually, according to the report, the industry has a big stake in the outcome of any legislation.

The issue is not confined to the federal level. In states such as California, which is contemplating a cap-and-trade program to help the state meet the demands of its groundbreaking AB 32, regulators are also wrestling with the subject. California officials are expected to make a recommendation on the allocation question this summer (see Climate Law Update story here).    

Under Lieberman-Warner, credits covering about 45 percent of the emissions would be distributed for free in 2012, according to the report, while another 573 million tons worth would be handed out to distribution companies. Those allowances would then be auctioned off to raise money for energy efficiency programs or to provide customer rebates. The Bingaman-Specter bill, on the other hand, would provide about 80 percent of the allowances for free in 2012.

At a hypothetical value of $10 a ton -- no one really yet knows how much the credits would be worth -- the value of the free credits allocated to the 100 largest utilities under the Lieberman-Warner approach would be about $10.4 billion. That comparable figure under the competing measure would be more than $18 billion.

Restricting the amount of free credits is clearly favored by at least one sponsor of the report, the Natural Resources Defense Council. In a statement accompanying the release of the assessment, Dan Lashof, science director of the environmental group's climate center said (see full text of statement here):

"Billions of dollars in allowances are at stake under the proposals to cap and reduce global warming pollution. The value of pollution allowances should benefit consumers and smart programs that deliver real pollution reductions, not polluters." 

Along with the NRDC, the report was sponsored by Ceres, a coalition of investors and environmental groups, as well as two utilities, Pacific Gas and Electric Company and Public Service Enterprise Group of New Jersey.

The report also shows stark differences between utilities based on whether credits are distributed based on the utility's emissions, or its electricity output. The emissions-based method would "penalize companies that have invested in low- and zero-carbon technologies in advance of the cap-and-trade program," the report noted.

Under an emissions scenario, the Southern Company, described by the Wall Street Journal's online site Environmental Capital as "coal heavy," would get $600 million in credits under the proportions outlined under the Lieberman-Warner bill, as opposed to $734 million if the allowances were doled out based on emissions.

For a company such as Northern California's PG&E, reliant on hydro, nuclear, natural gas and renewable generation, the differences would be even more dramatic. The company would get as little as $2 million to $4 million in allowances under the emissions scenario but receive between $99 million and $174 million if allocations were based on output, according to the report.

On a somewhat different subject, the report made another fairly startling point: Since 1990, overall carbon dioxide emissions from power plants have gone up by 29 percent; but emissions of other pollutants, including sulfur dioxide and nitrogen oxide, have dropped more than 40 percent. The difference, suggested the report's authors, was that the latter two pollutants are regulated under the Clean Air Act, while carbon dioxide has not been.      

 (Photo: Lake Almanor, California, part of PG&E hydroelectric system; Wikipedia)

The first report, issued by the nonprofit Environmental Integrity Project, discovered in the EPA data a nearly 3 percent increase in carbon dioxide emissions. It said that was the biggest one-year increase in nearly a decade. It also found that California, often viewed as a leader in greenhouse emissions-cutting efforts, was one of the ten states with the largest increases between 2006 and 2007. The others were Texas, Georgia, Arizona, Pennsylvania, Michigan, Iowa, Illinois, Virginia and North Carolina. However, the report noted that California generates significantly less carbon dioxide per megawatt of electricity than the national average. The report largely was based on the EPA’s “Clean Air Markets” database and it also cited information from the energy department.

It contrasted with the earlier government report, which included figures up to the year 2006. That report, which considered emissions from a wide variety of human sources, showed an overall reduction of about 1.5 percent in greenhouse gas emissions between 2005 and 2006. Among other information, it showed about a 2 percent drop in carbon dioxide emissions from fossil fuel combustion to generate electricity, and a slightly lower reduction from such emissions from all fossil fuel burning. The report attributed the figures, which came against a history of generally rising emissions since 1990, to a variety of reasons related to the weather, the economy and increased uses of natural gas and renewable sources for power generation. It was not immediately known whether the two reports’ estimates of power plant emissions were directly comparable.

Eric Schaeffer, the founder and director of the Environmental Integrity Project, in the organization’s statement announcing its report described its findings in cautionary terms:

“The current debate over global warming policy tends to focus on long-term goals, like how to reduce greenhouse gas emissions by 80 percent over the next 50 years. But while we debate, carbon dioxide emissions from power plants keep rising, making an already dire situation worse. Because carbon dioxide has an atmospheric lifetime of between 50 and 200 years, today’s emissions could cause global warming for up to two centuries to come.”

The report said the data "make clear why national environmental groups have expended so much effort trying to stop the construction of a new batch of conventional coal-firec power plants, which would make a bad situation worse."

Until 2002, Schaeffer directed the EPA’s office of regulatory enforcement. He left the agency in a dispute over what he considered the Bush administration’s laxity in enforcing air pollution laws.

The energy department report, originating from the Lawrence Berkeley National Laboratory, examined the plans made by 15 private and public utilities in the West for how they might deal with a new era of carbon regulations and costs. It discovered wide variances in their assessments but it concluded that they might have too rosy a picture of carbon prices under such mechanisms as a cap-and-trade system. Such programs are widely believed to be on their way as individual states go forward with greenhouse gas reduction plans and regional entities, such as the Western Climate Initiative develop their own strategies, including a market. Congress is also exploring legislation to establish a national market.

“Most utilities’ base-case carbon price assumptions are near the low end of the spectrum” compared to those developed by the energy department’s Energy Information Administration, the report said. It said most of the utilities analyzed their prospective portfolios’ costs in light of future carbon regulations. But it seemed to warn that they might be taking too narrow a view, and it also explicitly noted that planners were often ignoring indirect impacts that could flow from carbon regulations such as changes in wholesale electricity market prices, coal plant retirements and capital costs of generation. The report recommended that utilities take a close look at what the future might hold:

“Given the potentially far-reaching financial consequences, utilities shold consider the potential cost sof future carbon regulations – and the uncertainty of that cost – when developing their long-term resources strategies. The starting point in this process is to develop specific assumptions about the nature and timing of future carbon regulations that might realistically be implemented, at either the state or federal level, over the lifetime of the investments considered in the plan.”

It recommended that utilities evaluate their portfolios “across a broad range of carbon emission price projections” and that they consider evaluating “a diverse set of low-carbon” resources and look at portfolios “that include the maximum achievable energy efficiency potential.” In fact, the report discovered that utilities may already be moving in that direction, reporting:

“Energy efficiency and renewable generation are the dominant low-carbon resources being pursued by utilities in the West. All utilities selected preferred portfolios that include an expansion to utility-funded energy efficiency programs and new renewables, and half of the utilities selected portfolios in which energy efficiency and renewables together provide 50 percent or more of all incremental resource needs.”

The report also found only limited interest in nuclear power and carbon sequestration. But it found that most had included natural gas.

(Wikipedia photo: Castle Gate Power Plant, Utah)

The panel, which adopted its final report February 11, clearly foresees that virtually no individual nor business will avoid the impact of meeting the anticipated reductions:

   Policies implemented under AB 32 and the Governor’s Executive Order for 2050 must address all sectors of California’s economy so that all significant sources of GHG emissions participate in both the challenges and opportunities afforded by this critical piece of state legislation. This broad-scaled approach is the most likely to create a level playing field, and address new alternative energy sources and fuels that could be used in multiple sectors. For example, policies need to recognize that electricity and biofuels will likely compete with more traditional transportation fuels in the future; therefore, policies that address only the electric sector or only the petroleum refining sector are unlikely to achieve the goals of AB 32.

The report outlines 55 recommendations for meeting the challenges posed by the state's political leaders covering virtually all sectors of the economy, including financial institutions; transportation; energy use by industry, commerce and residents; electricity and natural gas; agriculture; forestry and water. Among the eye-catching projections in the report: California's future sources of electricity and transportation and heating fuels will have to be virtually carbon-free by 2050. Renewable energy technologies, including wind and solar, the report said, offer the "technical potential" to generate all of the state's electricity, despite a number of technical and implementation obstacles that will need to be overcome.

Among the report's recommendations is the establishment of a "California Carbon Trust" that could use money, likely coming from an auction of emission allowances, to encourage reductions in carbon beyond whatever cap is established and to further other goals, such as funding research and development projects. It also includes recommendations for residential planning efforts to encourage "transit villages," new forms of automobile insurance designed to give drivers financial incentives to spend less time behind the wheel, and taking steps to encourage the development of renewable energy so that one-third of the state's power can be generated by such means.

The full air board, which is the lead agency implementing California's greenhouse gas-fighting efforts, was scheduled to get its first formal look at the report on February 28. The board is chaired by Mary Nichols, a Schwarzenegger appointee.