CCS: Competitive Today. We Cannot Wait until Tomorrow

Both Waxman-Markey Bill and the Stimulus Plan offer key mechanisms to make carbon capture and storage (CCS) technologies competitive.

Climate change is a fact, and it is caused largely by emissions of carbon dioxide (CO2). We must seek ways to use coal more cleanly and efficiently to reduce CO2 emissions. One effective means of reducing such emissions is to capture CO2 and store it underground, a technology known as carbon capture and storage (CCS). However, no U.S. power plant currently employs full-scale CCS technology. More strong hurricanes, of the strength of Hurricane Katrina or worse, are examples of future climate disasters that CCS could help mitigate. By failing to act now to integrate CCS technologies at power plants, we will suffer later.

Critics argue that CCS is an extremely expensive technology and will take many years before becoming inexpensive enough to use on a large scale. Furthermore, if we are aiming to phase out fossil fuels, environmentalists argue, why are we pouring billions into a technology that will support the continued generation of energy from coal? Ironically, utilities have a similar argument. They don't like the risks and costs associated with CCS. Both groups are wrong.

First, electricity from renewables costs the same as, or even more than, early CCS. Onshore wind plants may have lower costs but they are restricted in location and thus in the power they produce. Coal is a reliable, non-intermittent resource that supplements these alternatives. It would be foolish for Americans to abandon an abundant domestic resource that is imperative to their energy supply. Coal, managed well, could carry the country into the next century.

Second, all the bits of CCS—capture, transport, and storage—have been done in isolation or on smaller scales. Since last year, American Electric Power Mountaineer has employed CCS on a smaller scale of about 30 megawatts and, as such, is a unique example of CCS technology working today. As CCS scales up from this small size, the risks of capture and transport are negligible, making larger plants possible. Because renewables, for various reasons, cannot be implemented at the large scale sufficient to meet the 80 percent emissions reduction goals, we must deploy CCS for larger-scale commercialization. As a crucial means of decarbonizing some industrial processes, CCS will reduce emissions across industries, allowing chemical producers, for example, to meet their targets.

In the short term, CCS seems expensive, but in the long term it is less expensive than any current alternatives. Research I have conducted at Harvard University's Belfer Center for Science and International Affairs indicates that an early CCS plant would operate at a cost of about $150 per metric ton of CO2 emissions avoided. By 2030, later-generation plants would carry a cost of $35 to $70 per metric ton of avoided emissions. This is good news—demonstrating that the range of estimated costs for plants in the near future will parallel carbon prices.

But what about today?

The Waxman-Markey Bill could change opinions on the viability of CCS, but it is currently stalled in the Senate. There may not yet be a cap-and-trade program for CO2, but the bill would provide incentives for early CCS development. For such projects, the bill grants a credit of $90 per ton of CO2 avoided. Although this would encourage early CCS deployment, it would not meet the full costs. State governments could then step in to bridge the final divide between the Waxman-Markey Bill and the cost of building the first plants. Yet, the Waxman-Markey Bill's credit incentive has significant benefits. It not only would reduce costs but also has the advantage of signaling strong support for CCS, and may generate significant investment in total. Even without cap-and-trade, these provisions in the bill are necessary mechanisms to support CCS. If they are not put in place, we will face larger costs later on.

Comparable to the advantages of the Waxman-Markey Bill, the stimulus plan offers such mechanisms as loan guarantees, grants, and sequestration tax credits. Loan guarantees similar to those put in place for nuclear power have the potential to lower costs effectively for CCS projects. Due to institutional barriers, however, the Department of Energy (DOE) has failed to issue a single loan guarantee under the 2005 program. DOE must overcome those barriers to support CCS. Because grants provide a known upfront payment to investors, they reduce the cost of CCS. Sequestration tax credits have similar advantages. No single mechanism is likely to be sufficient to ameliorate the expense of early CCS. Instead a mix of mechanisms can reduce the cost from $150 down to the $35 to $70 per metric ton for future CCS plants.

These combinations must be matched with a high, stable carbon price to make deployment of early CCS possible. As the industry matures beyond the first few projects, the government can adjust its support to reflect cost information from early projects—including information from scale and learning.

A range of different types of support is necessary to meet the costs of early CCS technology, including, for example, emissions allowance allocations, loan guarantees, capital grants, and sequestration tax credits. We need to act quickly. The costs of failing to take action—the damages of climate change—will be a price we do not want to pay, and disturbingly greater than the cost of supporting CCS.

Mohammed Al-Juaied is completing a Master's Degree in Public Administration at the John F. Kennedy School of Government at Harvard University. He was a 2008–2009 visiting scholar with the Belfer Center's Energy Technology Innovation Policy research group where he focused on the economics and policies of CCS.