CO2 waste disposal fee

December 20 2014 - Peter Baldwin

This is where we are on the atmospheric CO2, according to the recent IPCC 5th Assessment Report.

The worldwide CO2 emissions in 2013 were 36.1 Gt. The chart shown below models a full spectrum of scenarios included in the assessment along with a 2014 estimate. Currently, we appear to be tracking on the RCP8.5 trajectory.

This is where that CO2 came from in 2011 and an associated forecast:

The U.S. emissions from Electric Power were 2023 Mmt (2.023 Gt) in 2012. The overall U.S. total was 6363 Mmt (6.363 Gt) emitted, but a 979 Mmt (0.979 Gt) credit for land use is an applied, yielding a U.S net of 5383 Mmt (5.383 Gt).

Power plants accounted for 37.5% of the net, with the land use credit or 31.8% of the overall CO2 produced.

There are those who advocate that renewables are the way forward, and they are correct, but appreciate neither the scale of the problem, nor the path toward that realization.

Renewables represented less than 2.0% of the world energy consumption in 2012, while the U.S. alone is slightly higher at 2.2%. Natural gas and coal represented 50% of the U.S. total. We have to deal with these emissions as we transition to the renewables future, and we have a long way to go.

The gas industry and their advocates have “sold” the notion that natural gas is that “bridge” and therefore, the answer.

Natural gas is a fuel.  When burned in a power plant it produces huge amounts of CO2, albeit “½ of coal”, but huge amounts nonetheless.

The U.S Energy Information Agency produced a generation mix forecast for their Annual Energy Outlook 2014. Their Reference Case scenario shown below and indicates coal-fired resources producing approximately 1,600 billion kilowatt-hours, with natural gas-fired units producing at, more or less the similar level.

There are High & Low Resource companion cases, as well. 

The following table approximates the Gt CO2/year emissions by type of fuel and in total for each of the three cases. It also indicates the power produced for each case.

The estimates include the EPA emissions targets of 1000 lb-CO2/MWh for Natural Gas Combined Cycle Power Plants and 1100 lb-CO2/MWh for Simple Cycle variants, as well as the assumption that these NGCC power plants are “half of dirty coal”. Coal is therefore approximately 2000 lb-CO2/MWh.

In all three cases, the CO2 emitted remain above 2.0 Gt per year in 2040, under the current & proposed regulatory framework.

If you believe the Carbon Conundrum, as presented below, the U.S. needs to limit CO2 output to 1.3 Gt in total in order to meet the 2°C/450 ppm target according the Mike Orcutt, as published in the M.I.T Technology Review.

Power Plants represented 37.5% of the net CO2 output in 2012. At this rate, their 2040 contribution would need to be 0.5 Gt.

To make the 0.5 Gt target with any of these EIA 2040 projections, power plants of all types need to capture approximately 80% of their CO2 emissions. 

The “bridge” to a renewables future is Carbon Capture & Storage, not natural gas.

McKinsey Cost Curve, published in 2007, provides a useful roadmap for action. The curve presents a set of actions available to us to reach 450 ppm, include coal-to-gas conversions, underlined in green, CCS and nuclear, both underlined in red. It is important to notice that the magnitude of these other options dwarf the coal-to-gas shift.

Unfortunately, the current/proposed EPA Power Plant Standards, as described below, have effectively eliminated CCS and nuclear from consideration.

The IPCC AR5 report specifically indicates that many scenarios cannot reach 450 ppm CO2 equivalent concentration by 2100 in the absence of Carbon Capture and Storage (CCS) and nuclear, reinforcing what the cost curve indicates.

We must address two overriding issues in order to meet any kind of Climate goal assuming there is one:

1.       Any regulatory standards must be technology neutral and not distort the competitive balance with “pet ideas” or favored solutions, nor provide dispatch order preference. The market mechanisms must be allowed to work without biasing outcomes.

2.       We need to establish a price/cost for CO2. Today, the price/cost is zero.

  There is a built-in assumption that if the EPA is involved, their requirements are likely to be way too stringent on behalf of the public interest. In this case, however, the EPA is implementing a set of regulations that appear to be little more than self-serving.

Based on the emission thresholds established in their recent regulatory initiatives, the EPA, with the help of “the Gas Team”, has made it clear that they have no interest in capturing CO2, most likely because they have no viable plan to deal with CO2, if captured. Instead, the EPA has written a standard that is so obviously skewed toward natural gas-fired units without CCS, that they have effectively made their CO2 problem “disappear”. They have done very little about our CO2 problem.

Specifically:

-        The EPA levels of 1100 & 1000 lb-CO2/MWh for Natural Gas Simple and Combined Cycle gas turbine power plants respectively, allow all these plants to be built without doing anything about their CO2 emissions.

-        These regulatory levels are the same levels of the current technology level Natural Gas powered units. They offer that these levels are consistent with the “Best Available Commercial Technology” or BACT, but this is the same thing as saying “Business as Usual”.

-        Under these standards, a coal-fired power plant would have to be equipped with CCS and would be 4-5x more expensive with half the efficiency of a natural gas-fired power plant without CCS, completely distorting any semblance of a “level playing field”. The Gas Team likes this part.

-        The EPA would have you believe that the price of natural gas is the underlying cause of the shift away from coal. Although convenient in deflecting criticism, such claims are disingenuous. The regulatory thresholds are the principal drivers.

-        Neither the EPA New Source Performance Standard and nor its companion Clean Power Plan make mention of Climate Change, except in the abstract.

-        There is no notion of a “CO2 target” to act as a driving force for improvement.

-        In addition, there is no mechanism to establish a cost for emitting CO2.

-        Unfortunately, this “Business as Usual” approach, is only dressed up to look like action and progress, but in that process, the approach is completely undermining the development of CCS and nuclear technologies, the very technologies essential to meeting a 2°C/450 ppm target .

-        There is always discussion about driving the cost down with learning curve effects….We are not on the learning curve!

There is broad consensus among those that take Climate Change seriously that the most important action we can take is to establish and allocate the true cost associated with CO2 emissions.

Two commonly discussed options include:

-       Cap and Trade

-       Carbon Tax

Cap and Trade comes in two parts.  The “Trade” is easy.  The “Cap” is arbitrary, political and given to political influence. Does anyone really trust politicians to set “Caps” objectively and in a timely manner?

Really?

There are issues with the Carbon Tax approach, as well:

-        What do we call it… and is it a “tax”?

-        How is the tax established? By whom?

-        Where in the process is the tax assessed?

-        In addition, what do we do with the money?

The “Fee & Dividend” is one Carbon Tax approach. This concept returns any tax proceeds, minus any administrative costs, back to individuals and businesses in the form of a dividend or rebate. Politicians favor this concept for the obvious reasons. Some variations on this theme can also include a disproportionate re-distribution of wealth element.

Unfortunately, the proceeds in the “Fee & Dividend” concept are not used to address the problem directly. The rebate is not an incentive to drive conservation efforts and in some cases may have the reverse effect. At best, the approach relies on some sort of politically contrived fuel price to influence behavior, but then only indirectly.

The approach is too complicated and requires political involvement to implement. We need to use the money to fix the problem.

I would like to propose a more direct approach where the carbon tax is actually used address the problem directly. The principal elements of the approach are:

1.       Implement a “CO2 Waste Disposal Fee” that actually reflects the cost of dealing with the CO2 life cycle.

2.       Use the proceeds to build and operate CO2 pipelines to remote locations for underground storage in perpetuity.

3.       Federal Government assumes the role of Operator in Perpetuity using some form of a “Cemetery” business model.

4.       The “CO2 Waste Disposal Fees” are assessed where the CO2 is generated, i.e., the power plant or refinery. These organizations have well document and proven cost models that can serve a basis to objectively assess cost and needed cost recovery fees.

5.       The costs will be absorbed into the energy price, either in raw or converted form, and thereby influence both investment decision and consumer choice.

6.       “CO2 Off-take Agreements” for productive use of CO2 are encouraged and become credit to system cost.

7.       There is no such thing as “Clean CO2”. It is just CO2. The Waste Disposal Fee has to be fuel agnostic…no favorites allowed.

8.       The Renewable Energy Portfolio and accompanying dispatch order preferences must be earned in the competitive process, without subsidies or preferences, allowing load factors to be sorted out in the market place.

Professor David Victor, University of California made the comment:

“We are the first generation to experience the effects of Climate Change…..

…..and, the last generation to be able to do something about it!”

I believe that this approach is where we will end up. The only question is how long will it take us to get there and how many other approaches will we have tried first.