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Bipartisan Support for Advanced Energy Legislation? Yes, for CCS Incentives!

February 25, 2016

Question: What policy can significantly reduce CO2 emissions from fossil fuel consumption and at the same time, increase domestic oil production while reducing our oil imports?  And, amazingly enough, is supported by environmental groups, the fossil fuel industry, labor, Republicans and Democrats in Congress, and the Administration?

Answer: Federal tax incentives to reduce CO2 emissions through the use of Carbon Capture and Storage (CCS) in combination with enhanced oil recovery (EOR).  Here are the details:

On February 25, 2016, as a major step toward that goal, the Carbon Capture Act was introduced by Congressman Mike Conaway (R, TX), and co-sponsored by a number of Republican and Democratic members of the House.

CCS is a critical tool for addressing climate change. Nearly two-thirds of global CO2 comes from coal and natural gas power plants, as well as manufacturing and industrial sources. And many of those sources are expected to be emitting CO2 for decades. China, for example, has nearly three times as many coal plants as the U.S. and they are mostly new. If the U.S. experience is any indication, they will be running and emitting CO2 pollution for the next half century unless technologies to capture and permanently store their CO2 emissions underground are deployed and brought to scale.

But to sufficiently develop CCS in China and the rest of the world, we need to start deploying it widely in the U.S.  Just as wind and solar costs have come down over the past two decades, in part because of federal incentives, getting many CCS projects up and running will ultimately bring their costs down as well. The subsequent deployment will generate the technical and financial learnings that occur with each project.  And as the market becomes more established, it will drive innovations that further reduce costs.

The Conaway bill, in conjunction with the commercial market for CO2 used in enhanced oil recovery, provides significant support to CCS, and helps move this technology down the cost curve. It does that first, by ensuring that projects can count on the incentive being available once projects come on line. This certainty helps projects secure financing. In addition, the incentive level for both EOR and saline storage will be gradually raised over time to $30/ton. This will ensure that CCS project development will accelerate over the next decade. The Conaway bill is an important step in getting CCS to a critical mass of projects that will make the technology globally affordable.

Moreover, the support for this bill is under a very big tent. It includes labor groups such as the AFL-CIO Industrial Union Council, and Utility Workers Union of America, environmental groups such as Clean Air Task Force and Natural Resources Defense Council, and a diverse set of companies including Occidental Petroleum, Archer Daniels Midland, and Peabody Energy.

Other recent actions give further encouragement to supporters of CCS as a climate-mitigating strategy, as well as a means to increase development of domestic natural resources. For example, the Administration recently renewed its call under the 2017 budget for a similar set of CCS incentives. Also, last September, the U.S. Senate’s Energy and Natural Resources Committee reported out an energy bill that included CCS-friendly provisions.

This year, we will also see several CCS projects move forward, such as the projected opening of NRG’s Petra Nova plant, which is applying CCS technology to an existing coal-fired power plant, on time and within budget. Other projects in the U.S. may break ground or begin operations, making 2016 quite possibly, The Year of CCS.  No question, it’s been a long time coming.

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