Washington Coal Group

1
Accelerating Deployment of CCS A Trust Fund
Approach
Based on papers written by Vello Kuuskraa
Naomi Pena and Edward Rubin
Pew Center On Global Climate Change Coal
Initiative

• Washington Coal Group
• January 9, 2008

2
The Pew Centers Coal Initiative

• Addressing emissions from coal-fueled power
  plants
• U.S. Policy Options
• Standards
• Trust fund (Pena and Rubin)
• U.S. Technology Solutions (Kuuskraa)
• State-level Opportunities
• Options for China and India

3
Presentation Overview

• The need for carbon capture and sequestration
  (CCS)
• Options to accelerate use of CCS
• III. A program that covers incremental costs
• Program components
• Alternative scales and objectives
• First order cost estimates
• A trust fund to manage the program
• U.S. trust funds
• Lessons learned
• Design Features
• Considerations for the Coal Community

4
The Need for CCS

• 30 of U.S. and 80 of U.S. electricity sector
  CO2 emissions come from coal
• These emissions must be significantly reduced to
  address climate change
• CCS is the only suite of technologies that
  currently has promise to enable coal to be a
  major electricity-sector energy source while
  meeting climate objectives.

5
Current Barriers to CCS Deployment

• High expected costs (30-70 increase in cost of
  electricity)
• Large losses in net electricity output
• Lack of experience with technologies,
  particularly at-scale, integrated use in the
  utility sector
• Regulatory uncertainty, including liability
• Current lack of regulatory drivers

6
How CCS Might be Accelerated

• Stringent enough cap on CO2
• Mandate on generators or retailers (standards)
• Tax credits (must be revenue neutral)
• State regional policies PUC actions
• Program that pays incremental costs of CCS

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Program Description

• Cover incremental costs of CCS (installation O
  M for 5 years reimburse revenue lost due to
  reduced generation)
• Test CCS technologies for
• Alternative electric generation technologies (PC,
  IGCC, new retrofit)
• Different coal types
• Different geologic settings

8
Program Size and Cost

• Sufficient funds for
• 10 plants (500 MW) 5 other large-point sources
• 30 plants (500 MW) 10 other sources
• Average per 500 MW unit
• High 950 million
• Low 730 million
• Total Program Costs (10 -15 years)
• Smaller program 8-10 billion
• Larger program 24 - 30 billion

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How to Pay for the Program?

• Fees on electricity generated
• Coal-fueled generation only
• All fossil fuel generation
• All electricity generation
• Fees on coal
• Allowances
• Other

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Scale of Fees if per kWh on Coal

• Based on current generation from coal
• Smaller program 0.0004 to 0.0005 per kWh
• Larger program 0.0011 to 0.0014 per kWh
• Costs (and fees) decline as
• As coal-fueled generation increase
• Costs of CCS decline
• Costs (and fees) could be reduced by
• Requiring cost-sharing
• Supporting fewer projects per year

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Trust Fund Basics

• Trust funds can
• Raise and administer large sums
• Ensure that funds are dispersed only for
  specified purposes
• Federally established trust funds use legislation
  to determine
• Whether funds go into Treasury and through annual
  appropriations or not
• The entity that manages the fund

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Some Successful U.S. Trust Funds

• Highway Trust fund 38 billion over 15 years
  built new infrastructure across U.S.
• Propane Education and Research Council fees
  enabled by federal legislation up and running in
  2 years
• Ultra-Deepwater and Unconventional Natural Gas
  and Other Petroleum Resources managed by
  private stakeholder group under DOE oversight.

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U.S. Experience Key Lessons

• Establish clear objectives
• Establish clear guidelines for program
  termination
• Ensure reliability of fund dispersal
• insulate funds from annual appropriations
• do not use tax-credits
• Use independent or quasi-independent entity to
  manage funds
• Self-financed programs survive

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Well-designed Trust Fund

• Very rapid start-up possible
• Reliable fund dispersal
• Cost-effective private-sector standards for
  project selection and management
• Transparent stakeholder experts control under
  federal oversight

15
Considerations for Coal Community

• Climate legislation is on the way
• Possibility of move away from coal if CCS costs
  remain high
• Urgency of gaining CCS experience
• Means to quickly and cost-effectively achieve
  deployment of CCS at coal-fueled power plants

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For Further Information

• See papers at
• www.pewclimate.org/white_papers/coal_initiative
• 1. A Program to Accelerate the Deployment of CO2
  Capture and Storage Rationale, Objectives, and
  Costs. 2007. Vello Kuuskraa
• 2. A Trust Fund Approach to Financing a CCS
  Deployment Program. 2008. Naomi Pena and Edward
  Rubin.