OnLocation, and our parent company KeyLogic, have decades of experience studying and modeling carbon capture, utilization, and storage (CCUS) technology and policy. This work is highlighted in a newly published Power Magazine article, CCUS: Big Opportunity and Hard Questions.
CCUS has been portrayed by some advocates as a panacea for fossil-fired power and pilloried by critics as a dangerous diversion from serious decarbonization. The reality is more complicated than saying the truth lies somewhere in the middle. Our analysis identifies the policy issues that must be addressed for a successful CCUS rollout, and also what “success” might mean – that is, where are the likely markets for American CCUS technology.
As discussed in the article, there appears to be a consensus that CCUS is an essential part of the net-zero carbon solution. According to the IEA, CCUS is a necessary tool for use in keeping the increase in global temperatures below 2C and reaching net-zero by 2050. The Biden Administration agrees: the Council on Environmental Quality recently reported that to reach the President’s decarbonization goals the nation will “likely have to capture, transport, and permanently sequester significant quantities of carbon dioxide.”
Carbon Capture: A Technology that Works
The issue is not whether CCUS technology works. The technical success of the Petra Nova project in Texas should lay that question to rest. By the end of the project’s three year demonstration period it was able to capture, transport, and sequester 95% of the targeted CO2 volumes. But as the article shows, Petra Nova is also a cautionary tale. The project was mothballed in 2020, not because of technical failings but because of high costs. The project’s economics were predicated on using the captured CO2 for enhanced recovery of high-priced oil, and when oil prices were lower than expected the project became nonviable.
Another complication for CCUS is the decline of coal generation. CCUS was originally promoted as a means of keeping coal-fired generators operating in a low carbon economy, but coal power in the United States is being rapidly displaced by more economic natural gas-fired and renewable energy. This development changes the CCUS story for the United States, but it does not end it. As the article points out, one advantage of CCUS technology is that it is adaptable and likely necessary for a range of applications beyond coal burning power plants:
- Natural Gas and CCUS. Even a renewable and battery-centric grid will need dispatchable thermal power for cycling and reliability. This will probably be primarily natural gas simple and combined cycle plants. These plants can be equipped with CCUS, but as the article illustrates most R&D dollars over the last two decades have been spent on developing coal CCUS technology that is not directly interoperable with natural gas combined cycle/turbines. Therefore, a near-term push from R&D for gas-fired CCUS plants is needed to adapt existing CCUS technology to the combustion characteristics of gas-fired generators.
- CCUS Overseas. The domestic coal power market for CCUS has soured because no new plants are being built and the existing fleet – mainly old subcritical units – is a poor target for expensive retrofits. But the story is different overseas, particularly in Asia where there is over 1,600 GW of coal-fired capacity, largely new, high-efficiency plants. It is unlikely that national leadership will choose to retire all of this new and expensive investment or shut the mines that supply it. Due to market conditions and limited retrofit opportunities in the U.S., the business target for coal CCUS will likely shift to developing Asian countries that have invested heavily in new coal-fired capacity and have younger coal plants which present more market opportunities for retrofits. The federal government and industry may find the best market for American coal-power CCUS technology is overseas.
- Industrial CCUS. CCUS applications are not limited to electric power. Some of the hardest sectors to decarbonize are steel and cement, both of which are highly reliant on coal and other fossil fuels. Cement also releases copious amounts of CO2 consequent to the chemical reactions in the production process. Neither industry can be easily electrified, so CCUS may be the best option for reducing carbon emissions. As with coal-fired power, most of the candidate facilities are foreign, especially in Asia, further emphasizing that the best prospects for American CCUS technology may be overseas.
- Hydrogen, either in elemental form or as ammonia, is increasingly viewed as a substitute for fossil fuels in many applications: power generation, fuel for vehicles and ocean shipping, and even steelmaking. The ideal is “green hydrogen” made through electrolysis that uses electricity generated from renewables to split the hydrogen and oxygen atoms in water. But green hydrogen is still 2-3 times more expensive than “blue” hydrogen, which is produced through traditional steam methane reforming of natural gas but with the emissions sequestered using CCUS technology. The cost of green hydrogen is expected to drop to parity or better compared to blue hydrogen, but the timing is highly uncertain. The vital question for government and industry is whether spending on blue hydrogen made in the near term will be able to recover the investment before green hydrogen predominates.
- Bio-Energy CCUS. There are yet more potential applications for carbon capture technology. Another promising option is bio-energy CCUS that can produce net negative carbon emissions by capturing the CO2 from burning carbon-neutral biomass. But to realize this potential, government and industry need to resolve a host of issues including the potential disruptions caused by converting large amounts of land for growing energy crops.
Carbon Capture: Policies Would be Needed
Most apparent is the need for additional government incentives to compensate for the technology's high capital and operations cost and set the stage for broad adoption. But as the article points out, a “one-size-fits-all” incentive is unlikely to achieve the best results. Because CCUS’s potential lies in diverse applications in many industrial sectors, incentive programs must be carefully designed to achieve results and avoid waste. This is the type of issue OnLocation has analyzed for many years, most recently using our CTUS-NEMS model as illustrated by our Energy Modeling Forum 34 paper on the impact of the 45Q tax credit on CCUS.
Other issues for government and industry include:
- Deciding how to allocate limited RD&D funds among technologies and applications.
- Developing a strategy for the overseas marketing of American CCUS technologies.
- Creating a legal and regulatory framework that will permit and facilitate CO2 transportation and sequestration.
- Getting the timing right. A National Academies study found that development of carbon capture technologies must be accelerated over the next 10 years to provide options for deployment in 2030-2050.
Overall, there should be great interest in the potential for CCUS to help smooth the transition to a decarbonized world. The questions around government incentives, market direction, and regulatory guidance still need urgent development to realize the technologies' potential in time to make a practical impact on global emissions.
OnLocation is an independent analysis firm that uses quantitative methods to better inform business decisions and policy development at a wide variety of energy sector organizations, including government agencies, non-profit organizations, and energy-related businesses that represent a broad spectrum of interests. Contact us for a free consultation.