Existing CCS Policies

Most existing federal and state CCS policies fall into one or more of the following categories:

Polices that promote new CCS technology. These policies include R & D as well as funding for demonstration projects.

Policies to establish how future CCS projects should be regulated. These policies govern construction, operation or closure of CCS projects.

Policies that commercialize wider deployment of CCS either directly through mandates or incentives, or indirectly through climate policy aimed at reducing carbon dioxide emissions.

Existing Federal CCS Policies

Incentives

Below are three major tax credits aimed specifically at CCS. The credits are identified by the section of the tax code where they are found.

§48A: Power Sector Tax Credits:

Provides a 20 percent investment tax credit for certified qualifying advanced coal projects using integrated gasification combined cycle technology (IGCC) and a 15 percent investment tax credit for certified qualifying advanced coal projects other than IGCC. These credits were established in the National Energy Policy Act of 2005.

§48B: Industrial Gasification Tax Credits.

Provides investment tax credits for certified industrial gasification projects. These credits were established in the National Energy Policy Act of 2005.

§45Q: The program is capped at 75 million metric tons. EOR is eligible for $10/ton of CO2 and saline injection is eligible for $20/ton. The 'Emergency Economic Stabilization Act of 2008' created a new carbon dioxide sequestration credit which provides a tax credit for each of qualified CO2 that is captured and disposed of in secure geological storage or used for enhanced oil or natural gas recovery project.

Federal Loan Guarantees

Federal loan guarantees lower financial risks so that private investment can flow into energy projects. They can do this for CCS in two important situations:

For projects that use new technology, they reduce the financial risks that arise from technical uncertainty.
For large projects, they address the financial risks of scale, lowering financial risks that would prevent investors from making multi-billion dollar investments in a project.

There is a risk to the government that a project could default on a loan, but one advantage of a loan guarantees is that they are less expensive than grants or tax credits and the increase the likelihood that the project developers will secure a loan because of the government guarantee to the lenders that they will be repaid. By the early summer of 2010, the Department of Energy (DOE) had issued loan guarantees for a total 13 clean energy projects. [1]

Title XVII of Energy Policy Act of 2005 provides incentives for a wide array of new energy technologies. For CCS projects, the guarantees include:

$6 billion allocated to coal‐based power generation and industrial gasification facilities that incorporate carbon capture and sequestration (CCS) or other beneficial uses of carbon

A loan guarantee for a loan can cover no more than 80% of the total Project Cost.

Projects must meet the criteria of Title XVII of the Energy Policy Act of 2005, meaning projects must reduce, sequester, or avoid air pollutants or anthropogenic greenhouse gas emissions; deploy new or significantly improved technology; and demonstrate a reasonable prospect of repayment

Matching Grants – The Clean Coal Power Initiative (CCPI)

CCPI is a 10-year, $2 billion matching grant program aimed at demonstrating cleaner coal technologies, including CCS. Grants are awarded competitively with the private sector providing at least 50% costs of the project.

Since 2002, 18 projects have been selected by DOE . Three projects have been completed and seven are still under active development. DOE’s National Energy Technology Laboratory administers the CCPI program. Nearly all of the funds allocated by Congress to the program has been assigned to projects. CCS projects awarded grants in the program include:

Round 1

Demonstration of Integrated Optimization Software at the Baldwin Energy Complex (Complete)

Round 2

Mesaba Energy Project (Active)

Round 3

American Electric Power (AEP) Project (Active)

Hydrogen Energy California (HECA) Project (Active)

NRG Energy Project (Active)

Summit Texas Clean Energy Project (Active)

Regulating CCS

Monitoring Measurement and Verification (MMV)

When CCS could be installed on plants—Best Available Control Technology (BACT)

The Clean Air Act requires new or modified pollution sources such as industrial facilities and power plants to meet Best Available Control Technology (BACT) requirements. Until recently, these requirements did not address carbon dioxide. Now however, consideration of greenhouse gases (including CO2) is being phased in:

Effective Jan 2, 2011, large sources that must obtain air permits for other pollutants and also could emit 75,000 tons of CO2 equivalent per year and must address CO2 in the permits.

In July 2011, all new facilities that could emit 100,000 tons of CO2e will be required to included greenhouse gas provisions in there permits.

In July 2011, all sources will need operating permits if they emit at least 100,000 tons of greenhouse gases per year.

These provisions do not require the use of CCS. EPA notes in its guidance documents that sources must at least consider CCS, taking into account technical maturity and cost. Historically, BACT has driven over time the adoption of new pollution controls as costs fall and technical uncertainty diminishes. CCS is likely to follow a similar path, where decisions on plant permits first consider, and then increasingly adopt CCS as BACT for control of carbon dioxide.

EPA is also preparing regulations under New Source Performance Standards (NSPS) that could include CO2 limitations that drive CCS.

Existing State CCS Policies

State policies are important in deploying CCS. State programs often provide more direct support for projects that use CCS than federal programs.

For example, the Mississippi Public Service Commission granted approval to Mississippi Power to rate base the Plant Ratcliffe IGCC plant in Kemper County, Mississippi. The plant will capture and store 65% of its CO2. Even though the Department of Energy (DOE) provided CCPI funding worth $290 million to the project, the rate basing decision was worth billions of dollars.

Below are examples of important state CCS policies that illustrate the range of programs adopted by states. The policies fall into the following categories:

1. Programs that promote CCS or projects that use CCS

In addition to the rate base decision described above for Plant Ratcliffe, several states have created laws that allow “pioneer” projects to be built. They include:

Indiana- In March 2009, Indiana adopted a law that allows the Indiana Finance Authority to enter into a long-term contract to buy the natural gas from a proposed coal-to-natural gas plant to be located near Rockport. By providing a long-term customer, the plant can obtain both private financing and a federal loan guarantee. The plant plans to capture and store about 90% of the carbon dioxide emissions.

Illinois- In 2009, Illinois adopted Senate Bill 1987, the ‘Clean Coal Portfolio Standard Law’, finalizing a year-long push for a clean coal portfolio standard in Illinois. Among other things, the legislation creates a framework for developing coal gasification projects with carbon dioxide (CO2) capture and storage, and authorizes the development of two clean coal projects in Illinois: one 500 MW coal-to-electricity power plant and one coal-to-natural gas power plant. For the first project to the project must complete detailed engineering, raise consumer electricity rates no more than 2.15%. A separate law commits $18 million in state funding to studies that will lay the groundwork for a proposed gasification plant expected to be located in Taylorville, IL.

Other states, such as Pennsylvania, offer IGCC plants that are CCS ready special tarrifs to sell electricity at higher prices, making cleaner plants more economic,

2. Grants and tax incentives

FEED study funding

Major capital projects like plants with CCS must develop Front End Engineering Design or FEED studies. These FEED studies can cost tens of millions of dollars. States like Illinois have supplied $2 million to $18 million to pay for portions of these FEED studies.

Tax incentives

Many states offer tax incentives for CCS projects. For example, Texas has intensive legislative CCS incentives that fall into the following categories:

Property tax abatements
Permitting certainty
Clarifying regulatory frameworks

More information about Texas’s CCS legislative efforts is available at Clean Coal Technology Foundation of Texas’ site located here.

3. Broader policies that limit CO2 and indirectly support CCS

States have passed laws that reduces CO2 emissions and indirectly support CCS. One important example is the “California Standard.”

Regulations established as a result of California’s passage of AB 32 set an 1,100 lb CO2/MWH standard for “all new long-term commitments for baseload generation to serve California consumers.” While not directly tied to CCS, to meet these standards with coal plants means CCS equipment on a power plant that reduces emissions 50%. Similar laws have been adopted by other Western states including Washington (2007) and Oregon (2010).

[1] http://belfercenter.ksg.harvard.edu/files/Al-Juaied%20Analysis%20of%20Financial%20Incentives%20web.pdf

What CATF is doing in federal policy:

CATF is working closely with the Administration and leaders in Congress to develop climate policies and regulations grounded in science, technology, and the law
- Provide non-partisan, data-driven analysis that has won the trust of Senate and House members and staff, and help to identify and defend policy designs that will achieve the greatest climate benefit at the least cost.
- Strengthen laws and regulations to clean up coal and implement carbon capture and storage.