The American Clean Energy and Security Act of 2009 (ACES) Carbon Capture and Sequestration (CCS) provisions appear at first blush like a wish list for the coal industry and other CCS proponents.  Between directing the Environmental Protection Agency (EPA) to create an improved regulatory framework for CCS, authorizing billions in new ratepayer-generated funds to support early commercial CCS projects, and authorizing EPA to make direct payments to companies that sequester CO₂, the bill, as developed by Congressmen Henry Waxman and Ed Markey, appears intent on removing regulatory and economic barriers to commercializing CCS technology.  Those incentives come with a lofty condition, however, as the final section in the CCS subtitle lays out the expectation that CCS will reach commercial viability by the middle of the next decade - and become a necessary element of any new coal-fired power plant. Should ACES become law, the expectations for CCS commercialization will high, but the stakes for the coal industry will be even higher.

A Regulatory Framework for CCS

ClimateIntel has reported previously on the legal and regulatory barriers investors and project developers face in moving forward with large-scale CCS projects under the current (or even EPA’s proposed) regulatory framework.  ACES would amend both the Clean Air Act (CAA) and the Safe Drinking Water Act (SDWA) to address some of these key barriers: First, ACES would give EPA’s air program new authority under the CAA to regulate the siting and permitting of these CCS facilities to help prevent atmospheric releases of sequestered CO₂.  Also, EPA’s drinking water regulatory program would gain additional authority necessary to impose financial assurance requirements on owners and operators of CCS facilities, building on EPA’s existing authority to regulate those facilities to protect water resources.

In contrast, on some issues ACES reverts to traditional fact-finding and reporting in lieu of charging forward with rulemaking.  The bill would establish a multidiscliplinary task force to study and report on various legal issues associated with CCS regulation, including options for management of long-term liability at CCS facilities-another issue previously examined on ClimateIntel.  The Bill would also direct the Department of Energy (DOE) and the Federal Energy Regulatory Commission to prepare a Report to Congress on barriers to constructing and operating the extensive web of pipelines that would be needed to transport CO₂ to suitable sequestration or enhanced oil recovery sites.

 A Dedicated Funding Stream for Early Movers

In addition to regulatory certainty, the CCS industry has struggled to generate the capital needed to take CCS from a promising demonstration technology to a proven commercial-scale application.  ACES would establish a quasigovernmental corporation, the Carbon Storage Research Corporation (CSRC), to subsidize early CCS commercial projects using an assessment fee passed through to rate-payers.  The CSRC would operate as a division of the nonprofit Electric Power Research Institute (EPRI), under the direction of a Board of Directors composed of representatives from industry, municipal governments, and nongovernmental organizations.  Absent opposition from 40 percent of state regulators, the CSRC would collect a small assessment fee on each kilowatt-hour of fuel-based electricity delivered directly to retail consumers, tailored to each utility based on their energy mix, providing up to $1 billion per year in funding for CCS projects for the next ten years.

The bill also provides further incentives for CCS during the operational phase of a facility,  establishing an EPA program to reward early movers with cash payments for each ton of CO₂ collected at either electric power or industrial facilities.  EPA would structure the funding levels to encourage early deployment and higher levels of capture and sequestration efficiency.

Combined with the CCS funding provided through the American Recovery and Reinvestment Act and Omnibus bills, the additional $1 billion in annual CSRC funding and the per-ton incentives provided by EPA should provide the investment capital and operating incentives needed to advance a critical mass of early commercial projects notwithstanding the many ongoing technical, legal, and market uncertainties.

Aggressive Performance Standards for New Coal-Fired Facilities

Perhaps the most important provision for the CCS industry is the technology-forcing Performance Standard for New Coal-Fired Facilities established under section 116 of Title I.  Despite considerable advances in boiler technology, EPRI estimates that new coal-fired facilities in 2008 still emit approximately 1830 pounds of carbon dioxide per megawatt-hour (lbCO₂/MWh) in the absence of CCS or other emissions mitigation technologies.  Emissions at coal-fired facilities using Integrated Gas Combined Cycle (IGCC) technology can be as low as 1400 lbCO₂/MWh.  Under the proposed law, however, electric generating units (EGUs) permitted after 2015 would have to adhere to a 1,100 lbCO₂/MWh emission standard, regardless of the status of CCS commercialization.  By 2020, newly permitted facilities would have to meet an 800 lbCO₂/MWh emission standard.  While new coal-fired EGUs permitted prior to 2015 would not be subject to an immediate emissions limitation, they would have to be sited and constructed in a manner that would allow them to adjust to the 1,100 lbCO₂/MWh limit if and when EPA determines that a minimum critical mass of CCS-enabled electric generating capacity comes online (2.5 gigawatts in the United States or 5 gigawatts worldwide).

The structure of the proposed CO₂ performance standard is significant.  Under the CAA’s New Source Performance Standard framework for criteria pollutants, Congress left it to EPA to determine what levels of control would be appropriate, “taking into account the cost of achieving such reduction and any non-air quality health and environmental impact and energy requirements.”  The statutorily mandated 1,100 lbCO₂/MWh performance standard under the ACES, however, would prevent construction and permitting of any new coal-fired facility, even IGCC facilities, after 2015 without the use of CCS technology.

ACES generously funds, and  provides regulatory support for, the nascent US CCS industry.  In establishing a strict performance standard, however, Congressmen Waxman and Markey have demonstrated that they also expect a great deal in return.

For further information about this topic, please contact Akin Gump.