How CO2 Regulations Will Affect the Texas Electric Grid

I was interested in quantifying some of the effects that CO2 emissions regulations would have on Texas's electric grid, specifically in the Electric Reliability Council of Texas (ERCOT) region. I look at some of the features of command and control regulations, a CO2 tax. or a cap and trade system, then I show results of a model I created to add a CO2 cost to each generation facility in ERCOT and look at how the CO2 cost affects plant dispatch, CO2 emissions, and electricity cost.

I have a lot of results in graphical form that would take too much space to explain here, but the gist is that at relatively low CO2 prices, the price of natural gas for fuel will keep coal-fired plants cheaper to operate, so coal-fired facilities will remain running all the time as base load generation, albeit with much smaller profit margins. It takes a very high CO2 price to result in switching from coal to efficient natural gas for base load generation, and this threshold CO2 price is pushed higher by high natural gas prices. So if CO2 regulations cause a shift towards natural gas-fired generation, and this increased natural gas demand drives up natural gas prices, then electricity costs go up from both the added CO2 cost and the increased natural gas costs. Of course we would also be switching to more renewables, but until these sources make up a large percent of total generation (they were 3% of generation in 2006), the effect on electricity prices will be minimal.

There isn't enough room to explain the assumptions behind the specific values I calculated, so if you are interested, I hope that you take a look at my report. It's relatively long, so if you're short on time, the results section is the best part.

One point that I omitted from my report for conciseness is how the supply chain location where a CO2 tax is applied will affect its impacts on the electricity industry. If the CO2 tax is levied upstream at fossil fuel suppliers, fossil fuel based electricity generators will see this cost as increased fuel prices, which are a market traded commodities. Thus, upstream application of a CO2 tax would affect electricity generators similarly to a regime where CO2 is traded on its own commodity market (i.e. cap and trade). I read some economics oriented reports arguing that upstream application should more cost-effectively reduce emissions, but this approach could reduce the economic viability of technologies such as carbon dioxide capture and sequestration (CCS) that significantly reduce emissions rates without decreasing fuel use. Do we regulate at the source of the carbon, or the source of the emissions? I think the source of emissions makes more sense, but one could argue either way.

Hopefully Clearing Up Some Misconceptions about CO2 Capture & Sequestration

I wrote the post below last week as a comment on "Clinton on Carbon Sequestration," and since it ended up being rather extensive, I decided to repeat it as its own post. If Sgt. Pepper's misconceptions regarding CO2 capture and sequestration are common, then I hope my comments are informative.

The third paragraph of this post that describes issues with carbon sequestration does not appear to be fully informed about the technology, and may be very misleading as written. First off, carbon sequestration is the act of permanent CO2 storage, separate from the capture of CO2 at an emissions source and its transport to a storage site. Sequestration is NOT an energy intensive process. Most of the energy used in a CO2 capture and sequestration (CCS) system is from the energy required to capture and compress the gas, which typically takes place at the emissions source. CO2 capture technology is primarily intended for power plants (most likely coal facilities), though there are some niche industrial applications such as cement and steel production. No one is proposing to capture CO2 at a mine mouth.

Referring back to the distinction between capture and sequestration, sequestration can hardly be considered in the “theoretical stage.” Injecting and storage CO2 underground has direct analogues in the oil and natural gas industries, and we already inject CO2 underground in Texas for enhanced oil recovery. Several pilot scale CO2 sequestration projects have been completed or are underway in Norway, Canada, and Texas (courtesy of UT’s Bureau of Economic Geology). The word “theoretical” implies a technology has, at best, reached the laboratory experimental stage. Several components of CO2 sequestration technology can be considered commercial, and others have reached pilot scale and are now being developed for commercial scale.

The remaining technological issues with sequestration mostly concern monitoring the gas over long time periods once it’s underground. No one wants CO2 to leak back into the atmosphere or into drinking water aquifers and such, and these challenges are unique to CO2 sequestration. Creating effective regulations for CO2 storage is as big of a barrier to the technology as any remaining technical issues, which is why Clinton praised the WY legislature for its leadership in this regard.

Certain capture technologies can be considered theoretical, or lab/bench scale, but others have reached pilot scale, are being planned for large scale demonstration, and have commercially proven analogies. Chemical absorption of CO2 has been performed in the natural gas processing and ammonia production industries for decades, and UT is among several institutions working hard to scale up this technology for use at coal power plants.

What Clinton is referring to regarding Wyoming is that the state should have a demonstration scale (over a million tons of CO2 per year) storage site there, presumably receiving CO2 from one of the state’s 7 large coal fired power plants (over 100MW) and sequestering the gas in one of its previously identified geologic storage sites. Storing CO2 near the emissions source makes obvious sense to cut down on transport costs, which are mostly capital costs (steel for pipelines,etc.)

And finally, everyone in this class should be well aware that CO2 capture and sequestration will not be “our answer” to global warming, because no single technology will be the answer. It will take several approaches to mitigate the effects of climate change, and CCS will be a vital piece of the puzzle if we continue to use coal for electricity.

I hope these comments clear up some misconceptions about CCS technology. I’d be happy to provide more references, but NETL and the Technical Summary IPCC Special Report on CCS are great places to start.

CCS is more important than FutureGen

As Ororo Munroe noted in his previous blogs, the Department of Energy announced earlier this week that it has canceled its support of the FutureGen project. Personally, I think this is unfortunate because it creates uncertainty in the investment of our government in coal-fueled energy technology. However, practically speaking, I don’t see this as a catastrophic event, as long as the DOE follows through on its commitment to some key technologies that will enable coal to be a desirable energy source in the future. Specifically, carbon capture and sequestration (CCS) should be demonstrated at commercial scale promptly and convincingly.

First, some notes about the New York Times article containing this news. The DOE gives the impression that the main reason for the cancellation is the ballooning cost. It notes that the estimated cost has nearly doubled from $1 billion to $1.8 billion, and it was expected to increase more. Conversely, in its web site the FutureGen Alliance corrected this figure by noting that the estimated cost to the DOE only increased from $0.8 billion to $1.1 billion due to inflation, with the additional necessary funds provided from industry partners and from operating plant’s revenue. I doubt that cost was the real reason FutureGen was canceled, but it is a convenient explanation. The real reason for this project’s cancellation is likely more complex, including also its poorly defined objectives, complicating partnerships with foreign governments, and misalignment with the desires of industry, as alluded to in a report from MIT. On the up side, the DOE deputy secretary notes that the White House is increasing “clean coal” research to $648 million this year, up 25% from last year. He also said that the FutureGen project would be revamped to simply piggyback some other new coal power plant that private industry is planning to build anyway. This approach may have less impact on the generation of hydrogen gas from coal, but it would still help develop and demonstrate CCS technologies. The end of the NY Times article notes “Ernest J. Moniz, under secretary of energy in the Clinton administration and an author of a report by the Massachusetts Institute of Technology on the future of coal, said the new approach could work well, but ‘I’d like to see us get going quickly.’” That’s interesting – here is an independent expert on the topic who doesn’t really care about the details of the FutureGen plant, but just wants it to move forward quickly.

In order to interpret Dr. Muniz’s expeditious ambivalence, I checked out the report from MIT, “The Future of Coal: Options for a Carbon-Constrained World,” published in 2007 by a multi-disciplinary group at MIT. A recurring theme in the report is the urgent need for “the successful large-scale demonstration of the technical, economic, and environmental performance of the technologies that make up all of the major components of a large-scale integrated CCS system — capture, transportation and storage.” Furthermore, it is important to “demonstrate CO2 capture for several alternative coal combustion and conversion technologies.…It is critical that the government RD&D program not fall into the trap of picking a technology ‘winner,’ especially at a time when there is great coal combustion and conversion development activity underway in the private sector in both the United States and abroad.” As an important side note, the report also directs Congress to disallow the grandfathering of new conventional coal plants from carbon emission penalties, in order to prevent the “perverse incentive” to build coal plants without CCS today.

So, from all of this it appears that carbon capture and sequestration is by far the main obstacle to the widespread use of coal in the future, both for our country and the world. It’s not that big of a deal that FutureGen is being scrapped/revamped, but it is extremely important that CCS technologies be developed as quickly as possible, and in a way in which it will be fully embraced by the energy industry.