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October 3rd, 2013

Carbon Capture & Storage and EPA??s Emissions Mandate- Renaissance or Death Sentence for Coal?

by Andrew Price, President & COO

Two weeks ago, the U.S. Environmental Protection Agency (EPA) announced proposed limits to the carbon dioxide emissions of new coal and natural gas power plants. The move comes as a result of President Obama’s Climate Action Plan, presented in June of 2013, which identified reducing carbon pollution as a key pillar in fighting climate change and protecting public health. The effort is the first time the EPA has sought to regulate carbon emissions under the Clean Air Act. While the policy only affects new power plants, the EPA hopes to work with industry leaders, environmental groups, and local governments to establish regulations for the carbon emissions of existing power plants by June of 2014.

The standards will limit the carbon dioxide emissions of coal plants to 1,100 pounds per megawatt hour (MWh). This compares to the 1,800 pounds per MWh that coal plants emit on average. How can coal plants achieve a 40% reduction? Coal power plants would only be able to meet the standards by relying on carbon capture and storage (CCS), a process where carbon emissions from fossil fuel combustion are captured and injected into underground storage caverns.

New natural gas plants would be subject to a limit of 1,000 pounds per MWh. This is in line with emissions from current generation technology and does not require expensive CCS.

The EPA’s announcement comes as a blow to the U.S. coal industry, which is already struggling from competition with cheap and abundant natural gas. According to coal industry representatives and several legislatures, the EPA’s standards will hurt the economies of coal states and could jeopardize the entire industry. The high costs of CCS, which coal supporters say is a long ways from being commercially viable, would prevent the construction of any new coal plants. Environmental groups, on the other hand, are applauding the requirements as an important step towards decreasing carbon emissions and mitigating the effects of climate change. Some environmental groups, like the Clean Air Task Force, are actively working with utilities to pursue CCS technology while others, such as the Sierra Club, wish to end coal immediately and pursue natural gas and renewables.

Central to the debate is an innovative and very expensive new coal plant in Kemper County, Mississippi. The plant, shown above in a mid-September photo, represents the first test of CCS on a commercial scale. The utility Southern Company is working to construct the 582-megawatt plant, which will convert low-grade coal called lignite (with high moisture and ash content) into a synthetic gas to power turbines. The carbon dioxide produced by the gasification process will be removed with solvents and used by nearby companies to extract oil in old oil fields. If successful, 65% of the coal plant’s carbon dioxide emissions will be captured, sold for $50 million of revenue per year, and stored underground instead of in the atmosphere. Southern Company is also looking to sell CCS technology to China, India, and Germany, who are already working on similar plants or have abundant lignite deposits. 

Construction has been far from easy, however. So far the project’s price tag of $4.7 billion is $1 billion over budget due to setbacks in construction, local opposition, and legal battles with environmental groups. With an estimated cost of $7,388 per KW of output, the Kemper plant is more than double to cost of a traditional coal plant. The cost to construct a new efficient natural gas power plant is about $1,000 per kW of capacity. Seven advanced natural gas plants of the same size could be built for the same cost as the Kemper facility. The federal government has supported the project with over $400 million in subsidies and tax credits, but rate payers will still be responsible for $2.88 billion in costs.

While the Obama administration and the EPA consider CCS to be the “best available technology” under the Clean Air Act, others remain skeptical that massive amounts of money should be spent trying to green a dirty fuel source. If it succeeds, the Kemper plant would represent a bold step towards large-scale CCS technology and a lifeline to the coal industry. Advocates of clean coal argue that $/kW costs will fall as more plants are built and lessons from Kemper are incorporated into new designs. If the Kemper plant fails to meet expectations, it will be an expensive reminder that plants powered by cleaner and now cheaper natural gas do not require CCS technology. One thing is for certain: as long as the EPA standards hold up, the coal industry will have to adapt in order to say relevant.

Special thanks to CES Analyst Michael Lachance who researched and co-wrote this blog post. 

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