* Only one new CCS demonstration project started up in 2011
* Drop in greenhouse gas emissions curbs interest in coal
* U.S., China focus on CCS to recover oil
By Valerie Volcovici
WASHINGTON, Oct 18 Undercut by competition from
cheap and cleaner-burning natural gas, analysts believe the
expensive technology needed to make "clean coal" plants is
unlikely to become commercialized in the United States without
heavy government subsidies.
To remain part of the long-term energy mix, coal plants need
to invest in systems that capture carbon dioxide emissions from
coal-fired power plants and bury the emissions underground to
keep them out of the atmosphere -- technology known as carbon
capture and storage (CCS).
Coal used to account for more than half of U.S. power
production, but that has shrunk to only a bit more than a third.
CCS was touted as a way to keep coal jobs in the United States,
but the technology's heavy reliance on financial, political and
regulatory support has deterred progress.
Meanwhile, breakthroughs in horizontal drilling techniques
and hydraulic fracturing, or fracking, have unlocked massive gas
reserves trapped in shale formations, prompting a major shift
away from using coal at power and industrial plants.
"Unquestionably, without a carbon price and with low natural
gas prices these technologies are having problems drawing
investment and attention," said Tim Profeta, director of the
Nicholas Institute of Environmental Policy at Duke University.
President Barack Obama and Republican presidential candidate
Mitt Romney have both pledged their support for "clean coal" on
the campaign trail, but both campaigns have been short on
details about how to pay for CCS.
Between the availability of cheap natural gas and the
worsening fiscal crisis in Washington, the government has little
incentive to prioritize these investments, Profeta said.
In addition, greenhouse gas emissions fell to the lowest
levels in 20 years in the United States in the first quarter of
this year because of increased use of cheap gas, making the need
for clean coal seem less urgent.
The United States has been a global leader in CCS
technology, but most growth is now happening in China, according
to a report released last week by the Global CCS Institute.
Congress has authorized around $7 billion in spending since
2005 to support CCS projects, but utilities have been reluctant
to invest their own money in CCS coal plants, which are 75
percent more expensive, according to a July report by the
Congressional Budget Office.
Lawmakers considered but ultimately rejected legislation
that would have set a cap and price on carbon emissions, which
would have created financial and regulatory incentives to spur
Analysts warned that natural gas prices may not stay low
forever. Historically, prices for the fuel have been volatile.
"If you allow your power fleet to be fired predominantly by
a very large portion of gas turbines, your exposure to future
fuel price changes is more vulnerable," said Revis James,
director of energy technology at the Electric Power Research
While the United States has ample gas available now,
supplies may shrink if the country begins to export more gas and
if countries like Japan and parts of the European Union start
using more of the fuel.
The U.S. Energy Information Administration (EIA) has said it
expects natural gas spot prices to average $2.71 per MMBtu in
2012 and $3.35 per MMBtu in 2013.
"The carbon sequestration process is very expensive and
makes very little sense when you have $2 gas. It makes more
sense when you have $7-8 gas," said A.J. Sabatelle, corporate
finance analyst at Moody's Investors Service, in an interview.
Sabatelle argued, however, that investors and policy makers
should take a longer-term view.
Natural gas "might be the most cost effective fuel source
today and maybe for several years, but prices do change and the
bad thing about natural gas is that when prices do escalate,
they escalate quickly," he said.
Power equipment maker Alstom, which is working with partners
on a CCS facility in Norway, saw one of its projects in West
Virginia put on hold after a utility partner backed out, citing
uncertain climate policy and poor economics.
"Until we have a (policy) framework, it will be hard to
advance a large-scale project," said Robert Hilton,
Washington-based head of government affairs for Alstom.
The "bedrock" of a sound energy policy is maintaining a
balance between coal and gas in the energy supply, Hilton said.
"It's important to avoid short term-ism. The point is, we
are going to need CCS and need to keep it as a part of the
generating mix," he said.
Hilton added that although greenhouse gas emissions declined
to low levels this year, they will rebound as the economy
ENHANCED OIL RECOVERY
Some U.S. CCS research is being kept alive by projects that
capture carbon dioxide from fossil fuels and pump the emissions
underground in order to push up and recover oil and gas, a
process known as enhanced oil recovery (EOR).
For some investors, EOR provides a way to justify the
expense of capturing carbon emissions by producing valuable oil
The technology has attracted interest in China, which has
made CCS for use in oil recovery a feature of its five-year plan
and also is investing in U.S. projects.
Last month, the Export-Import Bank of China agreed to lend
$1 billion to the Texas Clean Energy Project, a $2.5 billion,
400MW EOR project.
Last month, Democratic Senator Jay Rockefeller from the
coal-producing state of West Virginia introduced a bill that
would allow EOR projects to claim a tax credit of $20 per ton of
carbon dioxide captured when recovering oil or gas.
Rockefeller has said that the bill was part of a longer-term
effort to develop more comprehensive legislation that would
"help secure the future of CCS" in the United States.