Proposed government–provided incentives to promote the
capture and use of CO2 for EOR: Options for incentivising
large–sca...
Judi Greenwald
Judi Greenwald is the Vice President for Technology and Innovation at the Center for Climate and
Energy Sol...
Patrick Falwell
Patrick Falwell is a Solutions Fellow for the Center for Climate and Energy Solutions, where he
reports to...
Ben Yamagata
Ben Yamagata is a Partner at the Van Ness Feldman Law Firm and the Executive Director of
the Coal Utilization...
QUESTIONS
 We will collect questions
during the presentation.
 Your MC will pose these
question to the presenters
after ...
A Diverse Coalition Recommends Incentives to Accelerate Commercial
Deployment of EOR Using Captured CO2
Webinar for the Gl...
Overview of presentation
• What is CO2-EOR?
• What is NEORI?
• What does NEORI recommend?
How does CO2-EOR work?
Commercial CO2 use in enhanced oil recovery is happening now,
and it’s bigger than most people realize.
Background on CO2-...
10
Map of Current U.S. CO2-EOR Activity
Why is CO2-EOR so important?
• Energy Security
oCan at least double U.S. reserves (20 billion barrels)
o27 to 62 billion b...
Project Participants & Observers
Coal and Coal-Based Generation
• Arch Coal
• Basin Electric Power Cooperative
• Summit Po...
1. Recommend and advocate for incentives and other
policies to support commercial CO2-EOR deployment
that are self-financi...
3. Increase policy-
maker, media, and
public awareness of
CO2-EOR, its benefits
and the need for
deployment incentives.
NE...
Consensus recommendations
released February 2012
• Incentives to use captured
CO2 in EOR
o Federal
• Reform of existing Se...
– A bipartisan group of Members of
Congress welcomed NEORI’s
recommendations
– This translated into the Conrad (D-
ND)-Enz...
NEORI recommends an expansion
of the 45Q program with new provisions
• Bridge the cost gap between what CO2-EOR operators ...
Proposed 45Q expansion
provisions
• Credits allocated for 10 years per project
• $/ton of CO2 used in EOR
• Two design obj...
Tranche structure of 45Q expansion
• Tranches and sub-tranches
– Pioneer (first mover)
• Power
• Industrial
– Power
– Indu...
20
More anthropogenic CO2 can become available at higher prices . . .
(Illustration with EIA 2011 data)
Power plant CO2
su...
21
More anthropogenic CO2 can become available at higher prices . . .
(Illustration with EIA 2011 data)
Power plant CO2
su...
22
Incentives are needed to cover the “cost gap” between EOR operator willingness to pay and the cost
to capture and trans...
Analytical Study
• “Cost gap” analysis
– Determine difference between willingness to pay by EOR
operators and cost of carb...
Program revenues
greatly exceed costs over time…
State-level Recommendations
Model complementary policies to federal incentives
• Severance tax reduction and/or extension ...
Adjusting annual tax credit values
based on oil price changes
• NEORI recently adopted a mechanism to adjust annual tax cr...
Adjusting annual tax credit values
based on oil price changes
• The 113th Congress could consider 45Q
expansion in the context of tax reform
• Many states can act
• You can help
Progno...
CONTACTS:
Judi Greenwald, C2ES
(703) 516-4146
greenwaldj@c2es.org
Brad Crabtree, GPI
(701) 647-2041
bcrabtree@gpisd.net
ww...
BACK-UP SLIDES
U.S. Department of Energy (2011), Improving Domestic Energy Security and Lowering CO2 Emissions with “Next
Generation” CO2...
CO2-EOR production doubles
within 20 years…
NEORI Analysis suggests
significant oil production and
revenues over time…
Time Phase
Cumulative
Incremental CO2-EOR
Oil P...
Oil production potential from CO2-EOR is vast…
Source: U.S. Department of Energy (2011), Improving Domestic Energy Securit...
Enhancements to 45Q Tax Credit
To avoid stalling important commercial CO2 capture projects under
development, there is an ...
Existing state-level policies to support CO2-EOR/CCS
Proposed Government-Provided
Incentives to Promote the Capture
and Use of CO2 for EOR
GCCS Institute Webinar - June 25, 20...
 ADA-Environmental Solutions
 Air Products and Chemicals
 Alpha Natural Resources
 Alstom Power, Inc.
 American Coal ...
Over time the electricity mix shifts toward
natural gas and renewables, but coal remains
the largest fuel source
Realities...
Based on DOE/EIA AEO 2013er
CURC’sThreePartTechnologyProgram
Address efficiency, reliability,
flexibility of the existing coal
fleet; improve/apply CO...
CURC’sThreePartTechnologyProgram
Address efficiency, reliability,
flexibility of the existing coal
fleet; improve/apply CO...
The CO2 Benefit from Improved Plant
Efficiency
43
Each one percent Improvement yields two percent less CO2 emitted
Note: t...
10 GW Advanced Coal Power Plant Projects
with Subsequent CO2 Capture Installation
Key Objectives of the Advanced Coal Powe...
How Does the Program
Work?
The tax receipts and other
royalty revenues received by
the federal government for the
crude oi...
Today – Capture Costs Greatly Exceed the Price Oil Producers Can Pay
46
Source: DOE/NETL CO2 Capture and Storage RD&D Road...
Captured CO2 Sold for EOR
for Energy and Jobs
Domestic Oil Supplies and CO2 Demand (Storage) Volumes from
“Next Generation...
Alternative to a Fixed Subsidy or Tax
related incentive: A Variable Subsidy
 CO2 prices are linked contractually to oil p...
Structure of Bid
 Applicant bids on a subsidy for CO2 capture for EOR
 Bid consists of two elements which are known to t...
Subsidy/Repayment Mechanism
 At a calculated market CO2 price below the strike
price, the project receives a subsidy base...
 Conclude discussions within the CURC
membership about the form and substance of
the legislative provisions that could be...
Thank you
Contact information:
Ben Yamagata
202-298-1800
www.coal.org
 Examples of how the Variable Subsidy would
work
Attachments
Example: Case 1
CO2 Strike Price Bid, $/tonne $60
CO2/Oil Price Rate Bid*, % 2.00%
Oil Price Index,
$/bbl
Calculated CO2
m...
Example: Case 2
CO2 Strike Price Bid, $/tonne $50
CO2/Oil Price Rate Bid, % 2.5%
Oil Price Index,
$/bbl
Calculated CO2
mar...
Example: Case 3
CO2 Strike Price Bid, $/tonne $60
CO2/Oil Price Rate Bid, % $0.5 + 2.5%
Oil Price Index,
$/bbl
Calculated ...
Comparison of Bids
Case 1 2 3
CO2 Strike Price Bid, $/tonne $60 $50 $60
CO2/Oil Price Rate Bid, % 2.00% 2.50% $0.5 + 2.50%...
QUESTIONS / DISCUSSION
Please submit your questions in
English directly into the
GoToWebinar control panel.
The webinar wi...
Please submit feedback to: webinar@globalccsinstitute.com
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Webinar: Proposed government–provided incentives to promote the capture and use of CO2 for EOR: Options for incentivising large–scale CCS/CCUS projects in budget constrained times

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It is widely recognised that additional large–scale early mover projects are needed to advance CCS/CCUS. These projects will reduce CCS cost through ‘learning by doing’ and by serving as platforms to demonstrate emerging lower-cost technologies. They will also increase public confidence in the safety and efficacy of CCS. However, high capture costs and lack of incentives are discouraging new large–scale projects from entering the planning pipeline and making it difficult for existing projects to reach a financial investment decision.

The National Enhanced Oil Recovery Initiative (NEORI) and the Coal Utilization Research Council (CURC) have each developed concepts for incentivising large–scale projects through a tax credit tied to the use of captured CO2 for enhanced oil recovery. Both organisations estimate that the government would recover its credit investment within 10 years from tax and royalty revenue received on additional oil production, and that the investment would become revenue positive for the government thereafter.

A Global CCS Institute webinar was held on Wednesday 26th June where Patrick Falwell, Solutions Fellow for the Centre for Climate and Energy Solutions (C2ES), on behalf of Judi Greenwald, Vice President for Technology and Innovation at the Center for Climate and Energy Solutions (C2ES), discussed the NEORI concept. Patrick was joined by Ben Yamagata, Executive Director of CURC, who discussed the CURC concept.

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  • (3) NEORI estimatesWith regard to our incentive proposal, our best estimate is that cumulatively it will add 9 billion barrels of incremental oil production and store 4 billion tons of CO2 over 40 years.  The program will initially cost the federal government money as incentives are paid out, but then revenue from incremental oil production begins to come in. Within 10 years, the net benefits to the federal treasury are $2 billion, and if we take the program out 40 years, the net discounted benefits would be a little over $100 billion.  In the early years of the program, before oil revenues begin to flow in, the highest net cost to the government in any year is $200 million.  (Go to next slide for chart that further explains these benefits)
  • A bidder makes his bid by bidding the cost gap: cost of capture and transport – CO2 revenue from EOR (oil price times contracted %). Treasury will pay the bid price adjusted by annual fluctuation in West Texas crude, as would be specified in the legislation. This example illustrates how the annual tax credit value would vary for a CO2 capture project with a $70 cost to capture and transport CO2.See the green or red boxes – they show the annual value of a tax credit under a given oil price and a given amount received for CO2 sold to an EOR operator. As you can see, a higher tax credit is awarded when oil prices are lower and when a CO2 capturer receives a lower payment for selling CO2 for use in EOR.
  • Oil production and federal revenues grow substantially over time.The federal incentive program’s maximum annual cost is $1.37 billion in 2024, but by then the federal government is receiving almost $4 Billion in revenues.
  • Incremental technically recoverable after subtracting 2.3 billion barrels already being developed by CO2-EOR. “Best practices” assumes “state of the art” technology characteristics used in DOE’s 2008 NETL study, Storing CO2 with Enhanced Oil Recovery, Report DOE/NETL-402/1312/02-07-08 and DOE NETL (2011). “Next generation” assumes technology characteristics used in DOE’s 2009 NETL study, Storing CO2 and Producing Domestic Crude Oil with Next Generation CO2-EOR Technology, Report DOE/NETL-2009/1350 and DOE NETL (2011). Estimates for incremental economically recoverable oil assumes an oil price of $85/bbl , a CO2 price of $40/ton and a project rate of return of at least 20%.
  • Webinar: Proposed government–provided incentives to promote the capture and use of CO2 for EOR: Options for incentivising large–scale CCS/CCUS projects in budget constrained times

    1. 1. Proposed government–provided incentives to promote the capture and use of CO2 for EOR: Options for incentivising large–scale CCS/CCUS projects in budget constrained times Webinar – 26 June 2013, 0600 AEST
    2. 2. Judi Greenwald Judi Greenwald is the Vice President for Technology and Innovation at the Center for Climate and Energy Solutions. She oversees the analysis and promotion of innovation in the major sectors that contribute to climate change, including transportation, electric power, buildings, and industry. Ms. Greenwald focuses on technology, business, state, regional, and federal innovation. She is a member of the Advisory Council of the Electric Power Research Institute and served on several National Academy of Sciences panels studying vehicles and fuels. She also served on the Resource Panel for the northeast Greenhouse Gas Initiative and the California Market Advisory Committee, and as a policy advisor to the Western Climate Initiative and the Midwest Greenhouse Gas Accord Advisory Group. She was previously the Vice President for Innovative Solutions at the Pew Center on Global Climate Change, C2ES’s predecessor organization. Ms. Greenwald has over 30 years of experience working on energy and environmental policy. Prior to coming to the Pew Center, she worked as a consultant, focusing on innovative approaches to solving environmental problems, including climate change. She also served as a senior advisor on the White House Climate Change Task Force. As a member of the professional staff of the U.S. Congress Energy and Commerce Committee, she worked on the 1990 Clean Air Act Amendments, the 1992 Energy Policy Act, and a number of other energy and environmental statutes. She was also a Congressional Fellow with then-Senate Majority Leader Robert C. Byrd, an environmental scientist with the U.S. Nuclear Regulatory Commission, and an environmental engineer and policy analyst at the Environmental Protection Agency. Ms. Greenwald has a Bachelor of Science in Engineering, cum laude, from Princeton University, and an M.A. in Science, Technology and Public Policy from George Washington University.
    3. 3. Patrick Falwell Patrick Falwell is a Solutions Fellow for the Center for Climate and Energy Solutions, where he reports to the Vice President for Technology and Innovation. Mr. Falwell analyzes clean energy and climate change policy at the state and federal level. He also monitors nationwide clean energy market developments and identifies opportunities to support clean energy growth. Mr. Falwell holds a Masters of Arts in International Economics and Energy, Resources, and the Environment from the Johns Hopkins School of Advanced International Studies and an undergraduate degree from Georgetown University. He previously worked as a research analyst for the U.S. Bureau of Labor Statistics (BLS) and the Consumer Price Index (CPI), where he conducted analysis of consumer expenditure behavior and national inflation data.
    4. 4. Ben Yamagata Ben Yamagata is a Partner at the Van Ness Feldman Law Firm and the Executive Director of the Coal Utilization Research Council – a coalition of industry and educational institutions with an interest in promoting clean coal technology. Mr. Yamagata’s practice encompasses federal and state legislative and administrative issues in the areas of energy, environment, natural resources, international trade (technology transfer and independent power project development), and transportation-related matters. Mr. Yamagata represents clients before the Departments of Energy, Commerce, Transportation, Defense and State, as well as the Office of Management and Budget and the Environmental Protection Agency, on both project-specific and programmatic issues that relate particularly to technology research, development, demonstration, and deployment relating to the use of coal and other fossil and renewable energy resources. Mr. Yamagata has advised clients on energy and environmental technology projects as well as provided counsel and representation in the structuring and advocacy for government programs such as the Department of Energy’s clean coal technology development and demonstration programs and financial incentive programs (e.g., loan guarantees and clean coal tax credits) that were authorized as part of the Energy Policy Act of 2005. Mr. Yamagata is a graduate of Harvard College and the George Washington University National Law Center University.
    5. 5. QUESTIONS  We will collect questions during the presentation.  Your MC will pose these question to the presenters after the presentation.  Please submit your questions directly into the GoToWebinar control panel. The webinar will start shortly.
    6. 6. A Diverse Coalition Recommends Incentives to Accelerate Commercial Deployment of EOR Using Captured CO2 Webinar for the Global Carbon Capture and Storage Institute June 25, 2013 Presenter: Judi Greenwald, Vice President for Technology & Innovation Center for Climate and Energy Solutions
    7. 7. Overview of presentation • What is CO2-EOR? • What is NEORI? • What does NEORI recommend?
    8. 8. How does CO2-EOR work?
    9. 9. Commercial CO2 use in enhanced oil recovery is happening now, and it’s bigger than most people realize. Background on CO2-EOR • The CO2-EOR industry has 40 years of commercial operational experience (beginning at significant scale in West Texas in 1972). • Today, CO2-EOR produces nearly 300,000 barrels of oil per day (100 million barrels annually), or about 6 percent of U.S. domestic production. Source: Melzer, 2012
    10. 10. 10 Map of Current U.S. CO2-EOR Activity
    11. 11. Why is CO2-EOR so important? • Energy Security oCan at least double U.S. reserves (20 billion barrels) o27 to 62 billion barrels with existing technology, 67 to 137 billion barrels with next generation techniques • Economic Opportunity oJob creation, increased tax revenues, reduced U.S. trade deficit (cumulatively) by $600 billion by 2030 • Environmental Protection oReduce U.S. GHG emissions by 10-20 billion tons oDrive innovation in carbon capture and storage technology oProduce oil with less environmental impact
    12. 12. Project Participants & Observers Coal and Coal-Based Generation • Arch Coal • Basin Electric Power Cooperative • Summit Power Group • Tenaska Energy Industrial Suppliers of CO2/Technology Vendors • Air Products • Alstom • Archer Daniels Midland • C12 • GE Energy • Jupiter Oxygen • Linde • Praxair Project Developers • Leucadia Energy Environmental NGOs • Clean Air Task Force • Natural Resources Defense Council • Ohio Environmental Council • Wyoming Outdoor Council Labor • AFL-CIO • United Transportation Union State Officials • Illinois, Indiana, Michigan, Mississippi, Montana, New Mexico, Texas and West Virginia Academic Institutions • Enhanced Oil Recovery Institute (University of WY) Observers • Oil and Gas – Chaparral Energy – Core Energy – Tellus Operating Group • Associations – Interstate Oil and Gas Compact Commission
    13. 13. 1. Recommend and advocate for incentives and other policies to support commercial CO2-EOR deployment that are self-financing through revenues from additional incremental oil production. 2. Prepare key analyses to inform and support incentive policies for anthropogenic CO2-EOR And… NEORI’s Three-Part Agenda
    14. 14. 3. Increase policy- maker, media, and public awareness of CO2-EOR, its benefits and the need for deployment incentives. NEORI’s Three-Part Agenda “We have endorsed, for example, the National Enhanced Oil Recovery Initiative’s recommendation that Congress create a production tax credit for power companies that capture CO2 from power plants and send it to oil companies to use to free trapped crude from underground rock formations.” - October 17, 2012
    15. 15. Consensus recommendations released February 2012 • Incentives to use captured CO2 in EOR o Federal • Reform of existing Section 45Q tax credit • Expanded 45Q program with added provisions o State • Model state incentives NEORI report available at: neori.org
    16. 16. – A bipartisan group of Members of Congress welcomed NEORI’s recommendations – This translated into the Conrad (D- ND)-Enzi (R-WY)-Rockefeller (D-WV) bill incorporating NEORI’s 45Q reform recommendations – Proposed improving functionality and transparency of existing program; helpful for obtaining private financing – Renewed bipartisan interest in the new Congress Conrad-Enzi-Rockefeller bill (S. 3581) introduced September 2012 on 45Q Reform
    17. 17. NEORI recommends an expansion of the 45Q program with new provisions • Bridge the cost gap between what CO2-EOR operators are willing to pay and the cost of capture • Credit goes to those who capture, but only once the CO2 is used for EOR • More than pays for itself because: – CO2 captured with incentive incremental oil production new sales revenue new tax revenue (under existing tax treatment) • No change in existing tax treatment for oil • Combine federal incentive with CO2 market price
    18. 18. Proposed 45Q expansion provisions • Credits allocated for 10 years per project • $/ton of CO2 used in EOR • Two design objectives – Minimize costs – Drive innovation • Competitive bidding/reverse auction • Divided into tranches and sub-tranches for different CO2 sources • Provision to adjust annual tax credit value based on changes in the price of oil
    19. 19. Tranche structure of 45Q expansion • Tranches and sub-tranches – Pioneer (first mover) • Power • Industrial – Power – Industrial • Low cost industrial • High cost industrial
    20. 20. 20 More anthropogenic CO2 can become available at higher prices . . . (Illustration with EIA 2011 data) Power plant CO2 supply potentially larger
    21. 21. 21 More anthropogenic CO2 can become available at higher prices . . . (Illustration with EIA 2011 data) Power plant CO2 supply potentially larger
    22. 22. 22 Incentives are needed to cover the “cost gap” between EOR operator willingness to pay and the cost to capture and transport CO2, especially for the larger man-made sources of CO2 . . . Core Scenario + Transp. Costs CO2 Market Price (*Starting 2013, Willingness To Pay) Representative EOR Incentive (for illustration purpose) (A) (B) (A-B) Power Plant Tranche ($/tonne) ($/tonne) ($/tonne) Pioneer - First of a Kind Projects $70 $33 $37 Projects #2-#5 $60 $33 $27 Nth of a Kind (Projects #6-onward) $55 $33 $22 Industrial - Low Cost Tranche ($/tonne) ($/tonne) ($/tonne) Pioneer- First of a Kind Projects $38 $33 $5 Projects #2-#5 $38 $33 $5 Nth of a Kind (Projects #6-onward) $38 $33 $5 Industrial - High Cost Tranche ($/tonne) ($/tonne) ($/tonne) Pioneer- First of a Kind Projects $65 $33 $32 Projects #2-#5 $55 $33 $22 Nth of a Kind (Projects #6-onward) $45 $33 $12
    23. 23. Analytical Study • “Cost gap” analysis – Determine difference between willingness to pay by EOR operators and cost of carbon capture, storage and transportation • “Revenue neutrality” analysis – Compare cost of new CO2-EOR incentives with new federal revenues directly resulting from incremental new CO2-EOR production in the form of royalties on Federal lands plus severance and corporate income taxes. Analysis suggests “revenue neutrality” within 10-year window and significant net positive revenues over long term
    24. 24. Program revenues greatly exceed costs over time…
    25. 25. State-level Recommendations Model complementary policies to federal incentives • Severance tax reduction and/or extension of existing severance tax reduction for oil produced with CO2 from anthropogenic sources. • Cost recovery approval for regulated entities. • Off-take agreements. • Tax credits, exemptions, or abatements for CO2 capture • State-level bonding of CO2 pipeline projects and/or capture and compression facilities. • Inclusion of CCS with EOR in electricity portfolio standards. See full report to see examples from specific states
    26. 26. Adjusting annual tax credit values based on oil price changes • NEORI recently adopted a mechanism to adjust annual tax credit values based on oil price changes • When oil prices rise, the tax credit value falls – Reduces the federal support when market conditions are more favorable • When oil prices fall, the tax credit value rises – Ensures that a project developer receives a sufficient incentive when CO2 sales revenue falls • If legislative scorekeepers assume oil prices will rise over time, this provision could help with scoring
    27. 27. Adjusting annual tax credit values based on oil price changes
    28. 28. • The 113th Congress could consider 45Q expansion in the context of tax reform • Many states can act • You can help Prognosis
    29. 29. CONTACTS: Judi Greenwald, C2ES (703) 516-4146 greenwaldj@c2es.org Brad Crabtree, GPI (701) 647-2041 bcrabtree@gpisd.net www.neori.org
    30. 30. BACK-UP SLIDES
    31. 31. U.S. Department of Energy (2011), Improving Domestic Energy Security and Lowering CO2 Emissions with “Next Generation” CO2-Enhanced Oil Recovery (CO2-EOR), DOE/NETL-2011/1504, citing Advanced Resources International (2011). 31 Source Type (Location) CO2 Supply (Mt/year) Natural Anthropogenic Colorado, New Mexico (Geologic) 33 - Texas (Gas Processing) - 6.4 Wyoming (Gas Processing) - 6.6 Mississippi (Geologic) 22 - Oklahoma (Fertilizer Plant) - 0.7 Michigan (Gas Processing) - 0.3 North Dakota (Coal Gasification) - 3 Total 55 17 Current CO2 Supply for EOR • Some CO2 for EOR already comes from industrial sources • Today, the U.S. EOR industry uses 72 million tonnes of CO2 per year — profitably and without serious reported injuries, accidents or environmental harm.
    32. 32. CO2-EOR production doubles within 20 years…
    33. 33. NEORI Analysis suggests significant oil production and revenues over time… Time Phase Cumulative Incremental CO2-EOR Oil Production (Barrels) Cumulative Net Present Value ($) Cumulative CO2 Storage (tonnes) 2013-2022 400 million $2 billion ~4 billion 2023-2032 2.5 billion $31 billion 2033-2042 6 billion $73 billion 2043-2052 9 billion $100 billion
    34. 34. Oil production potential from CO2-EOR is vast… Source: U.S. Department of Energy (2011), Improving Domestic Energy Security and Lowering CO2 Emissions with “Next Generation” CO2-Enhanced Oil Recovery (CO2-EOR), DOE/NETL-2011/1504. 34 Incremental Technically Recoverable Oil (Billion Barrels) Incremental Economically Recoverable Oil (Billion Barrels) Best Practices Next Generation Best Practices Next Generation Lower 48 Onshore 55.7 104.4 24.3 60.3 Total 61.5 136.6 29.6 67.2 Projected CO2- EOR Resources: • An additional 26-61 billion barrels of oil could economically be recovered with today’s EOR technologies, potentially more than doubling current U.S. proven reserves. • Moreover, “next generation” EOR technology could yield substantially greater gains, potentially increasing recoverable domestic oil from EOR to 67-137 billion barrels, and storing 20-45 billion metric tons of CO2 that would otherwise be released into the atmosphere in the long term.
    35. 35. Enhancements to 45Q Tax Credit To avoid stalling important commercial CO2 capture projects under development, there is an urgent need to improve the functionality and financial certainty of the 45Q federal incentive. Key Elements: • Designate the owner of the CO2 capture facility as the primary taxpayer; • Establish a registration, credit allocation, and certification process; • Change the recapture provision to ensure that any regulations issued after the disposal or use of CO2 shall not enable the federal government to recapture credits that were awarded based on regulations that existed at that time; and • Authorize limited transferability of the credit within the CO2 chain of custody, from the primary taxpayer to the entity responsible for disposing of the CO2
    36. 36. Existing state-level policies to support CO2-EOR/CCS
    37. 37. Proposed Government-Provided Incentives to Promote the Capture and Use of CO2 for EOR GCCS Institute Webinar - June 25, 2013 Ben Yamagata Coal Utilization Research Council (CURC)
    38. 38.  ADA-Environmental Solutions  Air Products and Chemicals  Alpha Natural Resources  Alstom Power, Inc.  American Coal Council  American Coalition for Clean CoalElectricity  American Electric Power**  Anglo American Thermal Coal  Arch Coal, Inc.*  The Babcock & Wilcox Company  Battelle/Pacific Northwest National Laboratory  Caterpillar Global Mining  Center for Coal Technology Research  Cloud Peak Energy**  CONSOL Energy, Inc.  Duke Energy Services  Edison Electric Institute (EEI)  Electric Power Research Institute (EPRI)  Energy Industries of Ohio  FutureGen Industrial Alliance  Global CCS Institute  General Electric Company  The Greater Pittsburgh Chamber of Commerce  Illinois Coal Association  Illinois Department of Commerce and Economic Opportunity  Kentucky Coal Association  Kentucky Office of Energy Policy  LG&E Energy  Mitsubishi Heavy Industries America  Lehigh University  The Linde Group  National Rural Electric Cooperative Association  Ohio State University  Peabody Energy  Pennsylvania Coal Alliance  Penn State University  Praxair, Inc.  Pratt & Whitney Rocketdyne  Schlumberger Carbon Services  Southern Company*  Southern Illinois University  State of Ohio, Air Quality Development Authority  Tenaska, Inc.  Tri-State Generation & Transmission Association  United Mine Workers of America  University of Kentucky  University of North Dakota’s Energy & Environmental Research Center  University of Texas @ Austin  University of Utah  University of Wyoming  West Virginia Coal Association  West Virginia University  Western Research Institute  Wyoming Mining Association Who Are CURC’s Members? Companies in red indicate 2013 Steering Committee Members * CURC 2013 Co-chairs ** CURC 2013 Vice-Chairs
    39. 39. Over time the electricity mix shifts toward natural gas and renewables, but coal remains the largest fuel source Realities -- • Coal provides reliable, affordable power to the US population and economy • Abundant and inexpensive natural gas, stringent and expensive environmental regulations, and projected tepid growth in demand is resulting in retirements/idling of coal and replacement, if any, with natural gas • A requirement to reduce CO2 emissions from existing units may mean more retirements Why the 3-Part Program -- Coal – a primary energy resource -- is essential to the US economy. This proposal defines the application of technology as the way to insure the use of coal
    40. 40. Based on DOE/EIA AEO 2013er
    41. 41. CURC’sThreePartTechnologyProgram Address efficiency, reliability, flexibility of the existing coal fleet; improve/apply CO2 & other criteria pollutant mitigation measures Near term program – Existing coal fleet Financial incentives program to encourage coal-fueled facilities (CTL, SNG, chemicals, electricity) to capture and use CO2 to recover crude oil Through accelerated permitting and regulatory clarification incentivize the construction of advanced coal power plants that will install CCS when commercially available RD&D program to improve today’s coal-use technologies (“evolutionary” technologies) Initiate R&D programs for transformational technologies (“revolutionary” technologies) Long term program– Technologies for the future A 3-Part Technology Program to take Coal from 2013 to 2050 & Beyond 2013 2025 2050 Mid term program – Encourage new coal builds using state-of-the-art technologies
    42. 42. CURC’sThreePartTechnologyProgram Address efficiency, reliability, flexibility of the existing coal fleet; improve/apply CO2 & other criteria pollutant mitigation measures Near term program – Existing coal fleet Financial incentives program to encourage coal-fueled facilities (CTL, SNG, chemicals, electricity) to capture and use CO2 to recover crude oil Through accelerated permitting and regulatory clarification incentivize the construction of advanced coal power plants that will install CCS when commercially available RD&D program to improve today’s coal-use technologies (“evolutionary” technologies) Initiate R&D programs for transformational technologies (“revolutionary” technologies) Long term program– Technologies for the future The Mid-term Program for CO2 recovery 2013 2025 2050 Mid term program – Encourage new coal builds using state-of-the-art technologies
    43. 43. The CO2 Benefit from Improved Plant Efficiency 43 Each one percent Improvement yields two percent less CO2 emitted Note: the “supercritical” units at 39% to 40% net efficiency up to 42% are also often defined as “ultra supercritical” units; A-USC are “advanced ultra supercritical” Source of chart: Babcock Power 10 GW ultra supercritical program
    44. 44. 10 GW Advanced Coal Power Plant Projects with Subsequent CO2 Capture Installation Key Objectives of the Advanced Coal Power Plant Program: • Facilitate the early construction and operation of advanced coal plants that achieve ultra supercritical temperature & pressure conditions (40+% conversion efficiency) • Equip with advanced pollution controls to achieve near zero emissions (fitted with advanced clean coal technologies) • Committed to installing carbon capture systems when such technology is deemed commercially available Mechanisms that could be authorized to provide incentives for the construction of ultra supercritical power plants: • “safe harbor” for qualifying advanced coal plants so that once constructed they are not subject to additional regulatory requirements • accelerated permitting and mechanisms to minimize regulatory delays • tax incentives granted if carbon capture system is installed on the new unit at time of initial construction
    45. 45. How Does the Program Work? The tax receipts and other royalty revenues received by the federal government for the crude oil recovered by use of coal-derived CO2 is sufficient to help offset the financial incentive that would be provided to the CO2 capture entity participating in this program. The CURC Accelerated CO2/EOR Program What is the CO2-EOR Program? It is a coal-based demonstration program (5-10 GW(e)) that provides financial assistance for carbon dioxide capture from existing or new coal fueled facilities for sale and use in domestic enhanced oil recovery (EOR) operations.
    46. 46. Today – Capture Costs Greatly Exceed the Price Oil Producers Can Pay 46 Source: DOE/NETL CO2 Capture and Storage RD&D Roadmap, December 2010. PROBLEM: $20-40/ton payment for CO2 by EOR producer does not cover $70-100 capture cost Key Features of the Accelerated CO2/EOR Program • 10 years and 5 to 10 GW(e) of facilities using coal • Can be used to support on-going CCS demonstrations, next set of plants using current CCS technology & new technology from the CURC/ERPI Roadmap • Focused only on new & existing coal (and pet coke) projects that capture CO2 for EOR • Qualifying projects receive assistance for 15 years • Limited to the CO2 capture system-only for retrofit or greenfield projects • Injection wells classified as Class II EOR wells for purposes of a UIC permit under the SDWA • Tax receipts/revenues and royalties identified to support (“pay for”) the CO2 subsidy – no added taxes o Cumulative federal taxes and royalties received will “pay back” incentives provided in about 10 years for retrofit and 5-6 years for greenfield cases (initial federal funding required) o Cumulative federal revenues are 3-5 times the cumulative subsidy in nominal dollars after 30 years
    47. 47. Captured CO2 Sold for EOR for Energy and Jobs Domestic Oil Supplies and CO2 Demand (Storage) Volumes from “Next Generation” CO2-EOR Technology Benefits of CO2-EOR • Improves Balance of Trade $3.5 trillion over 60 years • Promotes Energy Security Reduces imports by 2 MMbpd1 • Increases Domestic Activity $60 Billion/year (wages, royalties, taxes, profits)1 • Creates Jobs 622,000 new jobs1 1 Source : NETL Report, “Improving Domestic Energy Security and Lowering CO2 Emissions with “Next Generation” CO2 EOR,” June 2011
    48. 48. Alternative to a Fixed Subsidy or Tax related incentive: A Variable Subsidy  CO2 prices are linked contractually to oil prices  Uncertainty in future oil prices (and, thus, CO2 revenue) affects financing, increasing cost of capital for these capital-intensive projects  Fixed subsidy could over- or under-subsidize project depending on future oil prices  Variable subsidy reduces CO2 price risk and facilitates project financing, thus reducing capture cost and required subsidy  Potential for direct payment to government in addition to “income tax and royalty” revenue CURC Accelerated CO2/EOR Program jointly developed by CURC and CONSOL Energy (Dr. Frank Burke)
    49. 49. Structure of Bid  Applicant bids on a subsidy for CO2 capture for EOR  Bid consists of two elements which are known to the project developer • CO2 strike price based on the project’s revenue requirement for CO2 capture • Rate (CO2 price as a function of oil price) used to calculate a CO2 market price based on a publicly available oil price index (e.g., West Texas Intermediate (WTI) crude) CURC Accelerated CO2/EOR Program jointly developed by CURC and CONSOL Energy (Dr. Frank Burke)
    50. 50. Subsidy/Repayment Mechanism  At a calculated market CO2 price below the strike price, the project receives a subsidy based on the difference between the strike price and the market price  At a calculated market CO2 price above the strike price, the project pays the government an amount based on the difference between the market price and the strike price  Subsidy/repayment would be reconciled over some period (annually?) CURC Accelerated CO2/EOR Program jointly developed by CURC and CONSOL Energy (Dr. Frank Burke)
    51. 51.  Conclude discussions within the CURC membership about the form and substance of the legislative provisions that could be considered to effectuate the 3 Part Program  Continue discussions with interested Members of Congress and staff to determine potential support for some, or all, of the 3 Part Program Next Steps for the CURC 3 Part Program & the CO2/EOR programs
    52. 52. Thank you Contact information: Ben Yamagata 202-298-1800 www.coal.org
    53. 53.  Examples of how the Variable Subsidy would work Attachments
    54. 54. Example: Case 1 CO2 Strike Price Bid, $/tonne $60 CO2/Oil Price Rate Bid*, % 2.00% Oil Price Index, $/bbl Calculated CO2 market price, $/tonne Subsidy / Repayment, $/tonne CO2 60 $23 $37 80 $30 $30 100 $38 $22 120 $45 $15 140 $53 $7 160 $61 ($1) 180 $68 ($8) * In the CO2/Oil price ratio, the CO2 price is in units of $/MCF and the oil price is in units of $/bbl. If oil is $100/bbl, for example, the CO2 price in this example is $2/MCF, or $38/tonne. CURC Accelerated CO2/EOR Program jointly developed by CURC and CONSOL Energy (Dr. Frank Burke)
    55. 55. Example: Case 2 CO2 Strike Price Bid, $/tonne $50 CO2/Oil Price Rate Bid, % 2.5% Oil Price Index, $/bbl Calculated CO2 market price, $/tonne Subsidy / Repayment, $/tonne CO2 60 $28 $22 80 $38 $12 100 $47 $3 120 $57 ($7) 140 $66 ($16) 160 $76 ($26) 180 $85 ($35) CURC Accelerated CO2/EOR Program jointly developed by CURC and CONSOL Energy (Dr. Frank Burke)
    56. 56. Example: Case 3 CO2 Strike Price Bid, $/tonne $60 CO2/Oil Price Rate Bid, % $0.5 + 2.5% Oil Price Index, $/bbl Calculated CO2 market price, $/tonne Subsidy / Repayment, $/tonne CO2 60 $38 $22 80 $47 $13 100 $57 $3 120 $66 ($6) 140 $76 ($16) 160 $85 ($25) 180 $95 ($35) CURC Accelerated CO2/EOR Program jointly developed by CURC and CONSOL Energy (Dr. Frank Burke)
    57. 57. Comparison of Bids Case 1 2 3 CO2 Strike Price Bid, $/tonne $60 $50 $60 CO2/Oil Price Rate Bid, % 2.00% 2.50% $0.5 + 2.50% Oil Price Index, $/bbl Subsidy / Repayment, $/tonne CO2 60 $37.27 $21.59 $22.12 80 $29.70 $12.12 $12.65 100 $22.12 $2.65 $3.18 120 $14.55 ($6.82) ($6.29) 140 $6.97 ($16.29) ($15.76) 160 ($0.61) ($25.76) ($25.23) 180 ($8.18) ($35.23) ($34.70) CURC Accelerated CO2/EOR Program jointly developed by CURC and CONSOL Energy (Dr. Frank Burke)
    58. 58. QUESTIONS / DISCUSSION Please submit your questions in English directly into the GoToWebinar control panel. The webinar will start shortly.
    59. 59. Please submit feedback to: webinar@globalccsinstitute.com

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