Carbon Capture Will Require Large Public Subsidies to Support Coal and Gas Power

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In April, the Center for Global Energy Policy (CGEP) at Columbia University released a report concludingย that, without major new subsidies from the American public, technologies for capturingย heat-trapping carbon dioxideย from coal and natural gas-fired power plants will remainย uneconomical.

However, CGEP, which has a history of strongly supporting the interests of the fossil fuel industry, concludes in this report that the government should implement new publicly financed policiesย in order to ensureย investors are willing to take the risk of investing in carbon capture โ€” and use the public to backstop that risk so those investors makeย money.ย 

The report,ย Capturing Investment: Policy Design to Finance CCUS Projects in the U.S. Power Sector, goes into great detail about the various approaches that might be required to support carbon capture for both coal and gas-fired power plants, depending on the multiple financial operating models for those plants. It also analyzes the impacts of the existing tax policy,ย known as 45Q, that supportsย carbon capture, use, and storage, or CCUS.

The authors of the report set out to answer the following question: โ€œWhat are the specific U.S. policy design parameters that could provide investors and lenders with net cash flows that are both high enough and certain enough to attract private capital to CCUSย projects?โ€ย 

Or to put it another way, how much money will the public have to subsidize coal and natural gas plants to implement CCUS so that investors can be assured of aย profit?

As the following graphic from the report notes, with any CCUS project for gas or coal plants, there is a finance gap that must be filled in order for investors to achieve profitability. Of course, one way to do that is raise the prices charged to customers. The report is clear that โ€œhigher power prices are needed to generate the revenue needed forย profitability.โ€ย 

Graph of prices need to support CCUS.
Graph of prices need to support CCUS. Credit:ย Capturing Investment: Policy Design to Finance CCUS Projects in the US Power Sector

While prices for renewable energy continue to fall, this report is suggesting that prices for gas and coal-fired power will have to increase if CCUS isย implemented.ย 

The report also leaves no doubt that this will require significant policy changes and subsidies, concludingย that โ€œadditional incentives are needed to stimulate private investment in CCUS projects and to scaleย deployment.โ€

Carbon capture is currently a favored approach for the fossil fuel industry because it is premised on long-term use of fossil fuels. One reason investors are hesitant to put their money into risky carbon capture projects is the fact that renewable power generation offers a better investment opportunity โ€” while also being carbonย free.ย 

And even if CCUS technology could remove all carbon dioxide from natural gas power generation and that carbon could be safely sequestered somewhere without producing more fossil fuels in the process, it still would do nothing about the growing problem of methane emissions from natural gas, oil, and coalย production.ย 

Renewables Are aย Betterย Investment

The timing of this report coincides with the current U.S. trend of closing coal and gas power plants and replacing them with renewable energy projects. At the same time, the United Kingdom recently went a whole month without using any coal-fired power, andย 2020 representsย the first year that renewables are expected to produce more power than coal in theย U.S.ย 

In CGEP‘s report, the trio of energy researchersย analyzed prices for both coal and natural gas combined-cycle powerย plants.ย 

However, the coal industry is widely acknowledged to be dying, and experts are saying it will not recover from the current coronavirus crisis.ย With this context, a better focus would have been concentrated on the potential of CCUS for natural gas alone. Theย oil and gas industry itself has been trying to sell natural gas with carbon capture as a climate solution in order to compete with renewableย energy.ย 

The CGEP report reviews the economics of CCUS for the two main types of financial ownership used for natural gas power plants in the U.S.:ย investor owned utilities (IOUs) and privately owned independent power producers (IPPs).ย 

The following table summarizes the reports’ย estimates for what it would cost for investors to get a satisfactory return on investment for a current natural gas combined-cycle (NGCC) power plant, both with and withoutย carbon capture technology for eachย ownership approach. The prices are per megawatt-hour of powerย produced.


Revenue requirements for natural gas power generation Source:ย Capturing Investment: Policy Design to Finance CCUS Projects in the US Power Sector

The addition of CCUS to a natural gas-fired power plant would add between $18.57 and $29.07 to the cost per megawatt-hour (MWh) of power produced, on top of the existing costs to generate that power withoutย CCUS.ย 

For comparison, according to a new analysis done by Bloomberg New Energy Financeย (BNEF)ย and reported by a writer on Forbes, โ€œthe global benchmark levelized cost of electricity for onshore wind and utility-scale [solar] PV has fallen 9 percent and 4 percent respectively since the second half of 2019 โ€” to $44/MWh and $50/MWh,ย respectively.โ€ย 

However,ย onshore wind power projects in the U.S. now reportย costs as low as $26/MWh, excluding subsidies or tax credits. And wind and solar prices continue toย fall.ย 

As the CGEP report points out, adding carbon capture to coal and natural gas plants will require a massive subsidy by the publicย โ€” either via direct subsidies or higher power prices. Meanwhile, renewables offer a more effective long-term method of decarbonizingย power while alsoย costingย less.

Tifenn Brandily, the lead author of BNEFโ€™s new report, highlighted the speed at which the economics of renewablesย hasย changed:ย 

โ€œOn current trends, the [levelized cost of electricity] of best-in-class solar and wind projects will be pushing below $20/MWh this side of 2030. A decade ago, solar generation costs were well above $300, while onshore wind power hovered above $100/MWh.โ€

This is the energy market in which CGEP is making the argument for large financial support of CCUS for fossil fuelย power plants. These researchers’ own rigorousย analysis of the economics of fossil fuel power production using carbon captureย has actually made a very convincing argument about why that isย a path not worthย pursuing.ย 

Another Strike Against Carbon Capture for Fossilย Fuels

Yet another challenge of adding carbon capture technology to coal-fired power plantsย isย water consumption,ย reports a team of researchers from the University ofย California,ย Berkeley.

The research, published in May in the journal Nature Sustainability,ย found that 43 percentย of locations forย global coal-fired power plant capacity โ€œexperiences water scarcity for at least one month per year and 32 percentย experiences scarcity for five or more months per year.โ€ย ย 

While retrofitting facilities with CCUSย โ€œwould not greatly exacerbate water scarcity,โ€ the UC-Berkeley teamย concluded thatย for areas already feeling pinched by water supplies, the addition of water-intensive carbon capture technologies would further contribute to that scarcity. In addition, the process itself requires power, which means running the power plants longer andย usingย moreย water.

DeSmog has previously reported on the advantages of renewable energy consuming and using much less water than fossil fuel-powered plants.ย Producing electricity via fossil fuels actually requires large amounts of freshwater, primarily forย cooling.

Climate change is already causing water scarcity issues. The most recent update of the World Resources Institute Global Water Risk Atlas notesย that 17 countries are facing โ€œextremely highโ€ water stress in the next twoย decades.ย 

With the western U.S. facing the worst megadrought in 1,200 years,ย a state which may last for 100 years, water use is going to become an increasingly important factor in policy decisions. Adding water-intensive carbon capture technology to already water-hungry coal power plants seems extremely shortsighted given otherย options.

Subsidizing Carbon Capture:ย Another Fossil Fuel Industryย Bailout

All over North America,ย evidence abounds that the oil and gas industriesย canโ€™t survive without help fromย taxpayers.

Since the COVID-19ย pandemic began, the U.S. oil and gas industry has been receiving a number of bailouts, including royalty relief and lease suspensions for federal lands, while the Trump administration has suddenly asked for big retroactive rent billsย from wind and solar companies.ย 

Using the coronavirus crisis as justification, the current administration in Mexico, which owns a number of aging fossil fuel plants,ย has made several recent moves that may serve as stumbling blocks forย renewables investments. And Canada, long a supporter of Alberta’s tar sands, is continuing to bail out the oil industry.ย 

Using more public moneyย to support uneconomical carbon capture technologies representsย yet anotherย potential subsidy for the same industries that are causing the climateย crisis.ย 

Meanwhile, if the energy markets were allowed to function as free markets without politicians fighting the adoptions of renewable energy, there is little doubt that no one would be investing in carbon capture for natural gas plants โ€” and coal plants would likelyย justย closeย down.ย 

Carbon capture is just one more attempt by the coal, oil, and gas industries to convince the public that fossil fuels can be part of a climate solution โ€” something the oil and gasย industry has been pushing since at least 2006. But when looking at the numbers, fossil fuels, a majorย cause of climate change, don’t add up to aย solution.ย 

Main image: Haynes Generating Station, a natural gas power plant in Seal Beach, California. Credit: Jon Sullivan,ย CC BYNCย 2.0

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Justin Mikulka is a research fellow at New Consensus. Prior to joining New Consensus in October 2021, Justin reported for DeSmog, where he began in 2014. Justin has a degree in Civil and Environmental Engineering from Cornell University.

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