By Taylor Kuykendall

A draft copy of a new report from a team appointed by the Department of Energy Secretary Ernest Moniz — himself appointed by President Barack Obama — lays out a potential policy pathway to "level the playing field" and provide "policy parity" for carbon capture and storage, or CCS, technologies.

From the outset, the report states federal environment and energy policy has "severely tilted the energy playing field" and insists upon specific policy approaches to incentivize carbon capture technology. The report, which outlines policies that could open a door that is quickly closing for coal suppliers, was requested by Moniz as a follow-up to a January report that studied the scale and speed of deployment of the technology.

"The white paper should focus on policy parity measures that advance CCS technologies," Moniz requested, adding that the report should address the incentives and policies needed as well as opportunities to remove regulatory obstacles, market failures, tax policies and possibly time-limited subsidies.

The potential effect of Obama's current and proposed energy and environmental policies have drawn scorn from fossil fuel dependent companies and communities. Julio Friedmann, the deputy assistant secretary for clean coal in DOE's Office of Fossil Energy, said at a May 2014 meeting of the National Coal Council that the department will "need the positive engagement" of stakeholders, including the industry, and urged them to "push forward" instead of "pushing back" on the EPA.

Moniz' request included a deadline that would ensure the paper would be completed in time for international climate talks in Paris. A draft paper marked "not for distribution" was posted on the National Coal Council, or NCC, website on Nov. 9 in advance of a webcast centered on the study scheduled for Nov. 12. The agenda calls for a report on "Leveling the Playing Field for Low Carbon Coal," and a "motion on the fate of the white paper."

The goals of the report conflict with some environmentalists' targets for the climate talks. In a recent report, Sierra Club urges Obama to take the country's reduction in emissions — a phenomenon it says is primarily based on reduced coal consumption — and use it as a success story.

The Sierra Club opposes policy incentives that would encourage CCS for electrical power in the U.S. In a Nov. 2014 interview with SNL Energy, Sierra Club's Beyond Coal director Bruce Nilles said the entire chain of coal production and burning is a dirty process and should be eliminated.

"Our goal is to have all coal and gas out of the electric sector by 2030 — so we urge the administration to focus its funding on non-fossil fuel investments and/or non-electric sector applications," Nilles said at the time.

The NCC is chaired by retired Southern Co. executive Jeff Wallace. Southern is the owner of the Kemper power plant, a carbon capture project in Mississippi that has been plagued by cost overruns.

The coal policy committee chair is Peabody Energy Corp.'s retired special advisor to the office of the executive chairman Fred Palmer and the study chair is Peabody president and CEO Glenn Kellow. The coal producer recently made headlines over a settlement with the New York Attorney General in which the company promised to bolster its disclosures to investors with stronger warnings of the risks of climate change policies.

Peabody was also a primary backer of the FutureGen 2.0 CCS project that was recently suspended after the DOE pulled its funding over a series of delays and failures.

Fred Eames, of legal firm Hunton & Williams LLP, served as the technical chair and lead author while the NCC's own Janet Gellici — former CEO of the American Coal Council — served as a contributing author. The council "was chartered in 1984 based on the conviction that an industry advisory council on coal could make a vital contribution to America's energy security."

A call for 'policy parity'

The report notes that CCS technologies have been explored by DOE but also said development has lagged due to insufficient government support and incentives.

"Existing incentives for CCS are simply too small to 'bridge the chasm – as the NCC put it earlier this year — between the cost and risk of promising but immature CCS technologies and other technology alternatives," the report states. "While CCS is commercially deployed in some industrial sectors and technically demonstrated at electric power plants, power generation with CCS remains expensive today compared to other technologies such as natural gas combined cycle or heavily subsidized renewables."

The report's authors claim without commercial-scale deployment, developers have no way to understand technical risks, frequency and duration of downtime and other factors that can only be known by operating a plant. It notes the world's first and only operating commercial scale plant operating with CCS, SaskPower's Boundary Dam plant in Canada, can capture 99% of the plant's carbon dioxide emissions but is only operated 40% of the time due to technical complications.

Given global demand for energy, the report says, CCS is crucial to meeting global greenhouse gas emissions goals. The technology, the authors add, will need policy support to achieve that.

"A decade from today, it will be agreed that the incentives which proved effective in leveling the playing field for CCS technology deployment were those which enabled project financing to occur," the report states. "These fall into two categories: those which provide up-front financial support for projects, and those which assure guaranteed revenue over the life of projects."

The report refers to current and proposed regulations as "cart-before-horse" policies that practically mandate CCS technology, without treating it as an immature technology. It said under those conditions, investors will choose to back projects using mature technology to meet policy mandates.

"Policy parity is important to meeting the diverse set of U.S. energy policy objectives," the report states. "Those objectives have consistently focused on providing a reliable, secure, low-cost supply of energy, and in recent years have increasingly directed energy production and consumption toward environmental objectives."

The report complains that subsidies for electricity from renewables is so broad, it has enabled renewable energy producers to sell into energy markets at a negative price. The result, the paper claims, is the effect of reducing market prices for fossil fuel burning and nuclear power plants in deregulated markets.

Policies built for coal

At the top of the NCC's policy wish list are financial incentives for developing and deploying CCS. The report calls a "contracts for differences" structure possibly the "single most important mechanism" to spur development if incentives underlying it are sufficient. Such a structure traditionally provides the developer the difference between the current value of an asset and the value of an asset at contract time, and the report suggests various methods of achieving that structure.

The report also calls for enhanced DOE grants to take on greater capital costs of deploying CCS projects, an electricity production tax credit consistent with that of renewables, investment tax credits, guaranteed output purchases to assure revenue, and a market set-aside for CCS projects. The report touts the ability of CCS to potentially offset capital costs by selling co-products of electrical production such as fertilizer and carbon dioxide for use in enhanced oil recovery.

"To date, DOE's Loan Guarantee Program has issued more than $34 billion in 'conditional commitments' in the form of either direct loans or loan guarantees, including $8.3 billion for a nuclear plant, $8.5 billion for automotive manufacturing and the remainder mostly to wind and solar projects," NCC notes. "No advanced fossil projects currently have a loan guarantee."

A 2014 Freedom of Information Act investigation by SNL Energy found that while the government has been offering the coal industry billions in loan guarantees, none of the potential projects got off the ground. Of the projects that started the initial loan process, all were eventually rejected or canceled, many in response to gas prices that proved too low to allow the potential projects to compete.

"No single proposed incentive should be viewed as a self-sufficient independent recommendation. A combination of support mechanisms spurred renewables development, and that is what is needed for CCS," the report claims. "If offering loan guarantees alone was sufficient to spur commercial CCS deployment, we would have more projects in development today."

The report also asks the government to streamline the process for siting and permitting CCS facilities and the related infrastructure. The NCC suggests removing barriers such as New Source Review that exposes risk to a plant adding CCS to its plants and easing burdens on operators who want to deploy enhanced oil recovery at their plants.

The NCC further asks the DOE to be a catalyst for additional commercial-scale demonstration projects with a goal of 5 GW to 10 GW of commercial-scale projects in operation by 2025. NCC said DOE must communicate to U.S. and global policymakers that fossil fuels will be used to a greater extent in the coming decades and as a result necessitates the need for CCS technology.

"First and foremost, DOE must be a tireless advocate in all venues for recognition that fossil fuels will be used in coming decades to a greater extent than today to fuel a more populous, developed, urban world," the report urges. "Those who deny these facts in the name of addressing climate change not only harm fossil fuels and ambitions for improved health and quality of life, but diminish the likelihood of meaningful CO2 emission reductions."

The report warns against the notion that natural gas displacement alone can handle global emissions targets. The NCC "postulated" that if all U.S. coal units were replaced by natural gas power, it would increase the cost of electricity by over $50 billion in 2020, rising to $90 billion per year in 2040, including a nominal 15% increase in the price of electricity, which would reduce U.S. GDP and employment by about 1.5%. They said the 1.5% change could result in a $240 billion decline in GDP and a loss of 2 million jobs.

"Policies that disproportionately advantage one resource and erect hurdles for others impede our nation's economic and environmental objectives while imposing undue hardship on our citizens," the report states. "Incentives for renewables will persist. CCS, which has greater carbon reduction significance but is not yet commercially available in the power sector, requires additional policy support in order to level the playing field."