CCS: Economics and Communications Challenges

Egan Energy
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June 3, 2010
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BALTIMORE, MARYLAND–May 21, 2010–Written by John Egan for Industrial Info Resources (Sugar Land, Texas)–Pre-commercial demonstrations of carbon capture and sequestration (CCS) technology in the U.S. continue to show that CCS technology is sound, but CCS is increasingly being questioned on economic and communications grounds, according to a breakout session at the 12th Annual Electric Power Conference & Exhibition in Baltimore. And the session made it clear that answers to the economic and communications questions are proving more elusive than many in the industry had imagined.

“I operate in a Regional Greenhouse Gas Initiative (RGGI) state, which means I have to buy carbon-dioxide emissions allowances to stay in business,” said a Maryland-based representative of AES Corporation (NYSE:AES) (Arlington, Virginia). “RGGI’s allowance auction sets carbon prices at about $2 per ton. Right now, carbon is my second-largest cost after fuel. We’re already operating in the red because of the RGGI mandate. If carbon costs go much above $2 a ton, I am out of business.”

This statement, and others like it, proved difficult for panelists to answer. One panelist from Schlumberger Limited (NYSE:SLB) (Houston, Texas) said the industry “still hasn’t fundamentally answered the question, ‘Do we really need to do CCS?’ ” The Schlumberger representative made it clear that he and his company believed the answer is “Yes,” but he also recognized that the answer was not nearly as clear for the general public–and a healthy percentage of the electricity business.

Another Electric Power panelist, an executive at Marshall Miller & Associates (Bluefield, Virginia), voiced no doubts about the need for these projects: “CCS is not a question of ‘if,’ but ‘when.’ Coal is here to stay. The industry has a lot to do in a very short amount of time. There is no silver bullet. We’re seeking good legislation and working to avoid bad regulation.”

The Obama administration is seeking mass deployment of CCS by 2020, but recognizes that the industry is on a “steep learning curve to get there,” said Traci Rodosta, an official with the U.S. Department of Energy’s National Energy Technology Laboratory (NETL).

Carbon prices are gradually coming into focus as various pre-commercial CCS projects ramp up, legislation is drafted, and carbon markets continue to operate. Unfortunately, the price signals sent by the different sources are wildly different, which makes economically sound decision-making about CCS especially difficult.

The panelist from Schlumberger noted that one vendor–not his company–has estimated that it could capture carbon-dioxide emissions from coal-fired power plants for about $37 per ton. Adding in another $5 to $10 per ton for transportation costs brings all-in costs to nearly $50 per ton, which is the upper range contained in the recently introduced American Power Act, drafted by Senators John Kerry (D-Mass.) and Joseph Lieberman (I-Conn.).

But utilities operating in the Mid-Atlantic area, which is part of RGGI, buy emissions allowances for $2 per ton. And carbon is trading for between 50 cents and $8 per ton in European markets, according to Steve Carpenter, the panelist from Marshall Miller & Associates. These kinds of prices prompted the audience member from AES to ask, “Why would I build a CCS project at a cost of $50 a ton, if I could buy carbon for $2 a ton?”

Questions like this are becoming more frequent and more difficult to answer, panelists and audience members agreed. One audience member who does public outreach on CCS projects said members of the general public are starting to ask difficult questions about why the U.S. is rapidly traveling down the CCS road when there are unanswered questions about whether CCS will do anything meaningful to slow the global rise in carbon-dioxide emissions.

“These are the kinds of questions being asked by educated members of the general public, like dentists, lawyers, and accountants,” said an audience member who works for a major utility-industry equipment supplier. “You can’t blow them off with platitudes.”

Rodosta, the DoE NETL official, acknowledged that CCS poses significant communications challenges: “The public doesn’t understand CCS. People are anxious about the potential for a catastrophic failure. However, once the technology and the safety issues are explained, people seem to accept that it is safe.”

To amplify Rodosta’s point about the public not understanding CCS, the Schlumberger speaker shared newspaper articles and reader comments about local opposition to CCS projects. An article in an Ohio newspaper carried the headline, “700 Protest Against Carbon Dioxide Plan.” The article quoted a local judge commenting on a proposed CCS project: “Folks, if it was a good thing, it wouldn’t be coming here.” One reader made the statement that carbon dioxide in a super-critical state was akin to mercury, which the Schlumberger speaker said was not even close to being factually accurate. Another reader posted a comment confusing carbon dioxide with carbon monoxide.

To underscore the magnitude of the communications challenges facing CCS projects, speakers shared recently coined acronyms that are variations on the well-known NIMBY (Not in My Backyard) phenomenon. One new CCS-related acronym was NUMBY–Not Under My Backyard. Another was NOPE–Not on Planet Earth. A third was BANANA–Built Absolutely Nothing Anywhere Near Anyone.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. IIR’s quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what’s happening now, while constantly keeping track of future opportunities.


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