Carbon Capture’s Perfect Storm

Carbon dioxide is best known as a pollutant, a greenhouse gas notorious for its contributions to climate change and association with other man-made emissions that cause a host of health problems.

But it can also be a valuable commodity, one that a growing coalition of coal companies, oil producers and even some environmental groups say could be leveraged to benefit many players in the energy industry. And it can be done while also reducing carbon emissions.

There are a multitude of uses for carbon and other greenhouse gases, but the most economically promising uses carbon to help push more oil out of the earth. This practice, known as CO2 enhanced oil recovery, is the main option that could make carbon capture a regular practice in the power or industrial sectors, says Kurt Waltzer, a managing director for the Clean Air Task Force.

Companies have been using naturally-occurring carbon dioxide for decades to force more oil out of the ground after they have retrieved all they can with pumps and by injecting water or gas.  That’s because carbon helps to retrieve the very last of the oil that is economically recoverable from a formation. During the first sweep, pumps lift about 10 to 20 percent of a reservoir’s oil. Secondary recovery techniques—which usually involve injecting water or gas—allow developers to retrieve another 10 to 20 percent. After that, pushing carbon underground can help bring another 20 percent to the surface.

But as those natural formations of carbon are depleted, oil producers have started looking to commercial sources that capture and sell their carbon emissions.

This has created a “perfect storm” to advance the practice, says Charles McConnell, executive director of Rice University’s Energy and Environment Initiative and a former assistant secretary at the Energy Department.

Right now, oil producers get about 20 percent of their carbon from man-made emissions. And proponents of the practice say that figure could grow quickly because oil producers are willing to pay a premium price of about $30 per ton of carbon. But they say there are a few things holding that growth back beyond the technological challenges of recapturing carbon. On the top of that list are federal tax policies and climate regulations that some believe favor natural gas and renewable energy over cleaner coal.

KILL FOSSIL FUELS OR MAKE THEM CLEANER?

The National Enhanced Oil Recovery Initiative is the main group pushing for enhanced oil recovery using carbon. Its participants range from one of the biggest coal companies—Arch Coal—to GE Oil and Gas and the Natural Resources Defense Council.

The Great Plains Institute and the Center for Climate and Energy Solutions brought together that coalition, but the Energy Department’s National Energy Technology Laboratory was one of the first research institutions to start exploring how enhanced oil recovery could bring carbon capture technologies to scale, says Waltzer.

The benefits for oil companies are clear. NEORI says using carbon could more than double economically recoverable U.S. oil reserves. Power plants using coal could sell the carbon they capture at price that would fluctuate with the price of oil. That money could then finance the carbon capture technologies that may be necessary under new EPA rules. And it could help keep electric costs lower for consumers.

But for environmental groups, the pros and cons are trickier.

On one hand, the amount of carbon needed to get to all the oil that is recoverable could reduce about two to four years worth of carbon emissions released by U.S. power producers and industrial sources.

On the other, reusing carbon to produce fossil fuels arguably props up the coal and oil industry instead of forcing more attention on renewable energy sources.

DOE estimates about 30 to 60 billion barrels could be retrieved using enhanced oil recovery.* That process would require about 10 to 20 billion tons of carbon dioxide, two to four times the amount of carbon that U.S. power plants and industry contribute each year.

There are other benefits, Waltzer says. If oil producers are concentrating on getting oil out of existing reservoirs, they are less likely to develop new ones.

And once oil companies are eventually done with a formation, the infrastructure used to pump in the carbon could be used to turn the remaining oil reservoir into a storage facility for future captured carbon, says Brad Crabtree, vice president of fossil energy for the non-partisan Great Plains Institute.

For the Clean Air Task Force, the decision to support the practice is based on those upsides and a determination that the U.S. will continue to extract and use fossil fuels for years to come and any possibilities for limiting the environmental impacts of that likelihood should be explored.

“A few years ago after climate legislation failed in Congress and there was the financial crisis and basically a political shift in the country, we asked ourselves what is one thing that everybody could work on regardless of their views of energy policy that they can support that would be both good in terms of producing domestic energy…while also reducing net CO2 emissions,” Crabtree said.

But other environmental advocates would rather see a shift away from coal plants, with or without carbon capture technology, and toward natural gas and renewable energy. And they are hoping for efficiency improvements in vehicles to cut back on the amount of oil needed to produce gasoline in the U.S.

“As long as there’s a market for petroleum, then we ought to be using enhanced oil recovery to drive carbon capture and storage,” Waltzer said. “By itself, that’s not going to address the question of how do you deal with the issue of using fossil fuels for transportation, but as long as we are doing that we ought to use the opportunity.”

And Waltzer says regardless of where fossil fuel use in the U.S. is headed, this is also a chance to spur less expensive technologies that could be used in countries that are definitely going to continue burning coal, like China and India.

CARBON CAPTURE’S COSTLY LIFE

Right now, most of the captured carbon that oil producers use comes from industrial facilities, like iron and steel manufacturers or fertilizer producers, instead of power producers.

Capturing carbon from those sources is comparably inexpensive. But those facilities also produce far less carbon than power plants. That makes moving the carbon more expensive now than it would be if it was coming from a higher-volume source.

Still, carbon capture from coal-fired power plants has so far proven expensive. Take, for example, Southern Company’s $5.5 billion Kemper County coal-gasification facility, which was initially estimated to cost $2.4 billion. Southern has reported a number of cost overruns and delays. Coal proponents have said that’s because the technology isn’t ready for commercialization. Environmentalists say Kemper’s problems could be because of the huge scale of the project. The Kemper plant will be the first to use a new type of gasification technology, in addition to being the first to capture carbon from a large coal plant.

The Boundary Dam power station in Canada is retrofitting to add carbon capture at a cost of $1.4 billion and hasn’t seen the same cost overruns, Waltzer says.

Some of Kemper’s costs will be offset by selling carbon to enhanced oil recovery projects in Mississippi. There is already a pipeline in place to move the carbon to a facility 60 miles away. Southern’s subsidiary, Mississippi Power, also plans to sell other byproducts—ammonia and sulfuric acid.

Mississippi Power expects the sale of all three to total between $50 and $100 million per year, depending in part on the price of oil.  That is an important offset, considering that the plant will use between 20 and 25 percent of the power it produces just to capture the pollutants. But that is an improvement from ten years ago, when researchers found that it would take about half of the energy produced to run the capture equipment, said Richard Esposito, a research geologist for Southern Company.

CARBON TAX CREDITS IN CONGRESSIONAL MORASS

Despite the variety of interests behind enhanced oil recovery with carbon, there are some major obstacles.

NEORI’s focus is on federal tax policy. The group’s goals are embodied in a bill sponsored by Sen. Jay Rockefeller, D-W.Va.

There is already a $10 per ton tax incentive for companies capturing carbon and selling it to oil companies. But that credit can only be used until it has been claimed for 75 million tons of carbon, regardless of how many companies seek it. After that, it won’t be available to anyone.

And businesses thinking about making the investments needed to capture large amounts of carbon are hesitant to proceed without knowing for sure when that pool might run out.

“The intent of the policy is very good, it’s just not structured in a way that is stimulating private sector investment in new technology,” Crabtree says.

NEORI wants to change the way the credit works by linking it to the price of oil. That way if prices go up, the value of the credit declines, protecting consumers. If oil prices go down, the value increases, protecting investors.

It would also make the credit available on a competitive basis, so only companies capturing carbon at the lowest cost receive the incentive. NEORI thinks that would drive down the cost of the practice over time and eventually make carbon capture economic without the credit.

There would also be a dollar limit on the amount of incentives available.

These changes would likely have to hitch a ride with tax legislation, something that is unlikely to happen any time soon in Congress. And some proponents think the Obama administration is not pushing for using carbon for enhanced oil recovery because it would rather allow coal plants to fade out and be replaced by cleaner energy sources.

“A lot of people are still working under the misguided idea that governmental cap and trade carbon taxes are going to be a sufficient way to create the technology transformation,” says McConnell, who has pushed for CO2 enhanced oil recovery for years. “Ain’t gonna happen.” McConnell says carbon capture technology development will be much slower until it becomes more of a priority in federal funding.

Still, the practice is likely to grow, albeit, supporters say, at a slower pace than is possible. About six percent of oil in the U.S. is coming from 77 enhanced oil recovery projects, Esposito said.  And naturally occurring carbon is running low.

McConnell says as enhanced oil recovery plateaus, likely within the next three to five years, carbon capture will grow too. It’s only a matter of time.

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