In my previous two posts (Carbon Capture Technologies and Carbon Sequestration Technologies), I took a look at some of the most promising technologies for capturing carbon-dioxide from coal-fired power plants and for sequestering captured carbon-dioxide for long time periods. When integrated, these technologies form a carbon capture and sequestration, or CCS, system. CCS would allow coal to be used to generate electricity while significantly reducing greenhouse gas emissions (on the order or 90% below an equivalent coal plant without CCS). However, as I pointed out in my previous two posts, there remain significant technological barriers and uncertainties in both the capture and sequestration components of a CCS system. While these technological uncertainties must be addressed if CCS is going play an important role in the future energy mix, even if the technological risks of CCS are mitigated, it is still unclear whether or not CCS will be an economically viable method of generating electricity in a carbon-constrained world. In this post, I will take a look at the economics of a CCS plant and then turn to what type of role CCS might play in the energy sector of the U.S. and global economies.

The Economics of a Coal Plant

1. Coal Power Plants without CCS

Economists who analyze coal-fired power plants use a metric called the lifetime-levelized cost of electricity, or LCOE (sometimes also referred to as the cost of electricity or COE). The LCOE of a power plant can be thought of as the cost of generating a single kilowatt of electricity averaged over the lifetime of the power plant, from the moment the plant is planned to the moment it is decommissioned. The LCOE takes into account three main sources of a power plant’s cost: capital, operation & maintenance, and fuel. Capital costs are primarily the plant construction costs, including the cost of the physical material to build the plant. Typically, nearly all the capital costs of the plant are incurred before the plant ever begins to operate. Operation & maintenance, or O&M, costs are primarily the cost of hiring workers to run the plant and the cost of repairing and maintaining the plant’s machinery over the course of the plant’s lifetime. Finally, fuel cost is simply the cost of purchasing coal. By a rough approximation, in a typical American coal plant, the LCOE is 55% capital cost, 15% O&M cost, and 30% fuel cost. A precise calculation is much more difficult because the individual economics of coal plants in the U.S. vary significantly. Further, and perhaps more importantly, the capital costs for American power plants have seen tremendous fluctuations over the past decade due to large changes in the cost of raw materials and in the macroeconomic conditions of the global economy.

2. Coal Power Plants with CCS

A coal plant with CCS will cost more than a similar plant without CCS for two reasons: there is an additional cost to build and operate the capture facility, and the capture process requires additional energy to run and therefore the plant with CCS must generate more energy for every unit of electricity that the plant produces. The additional energy that a CCS plant must produce is referred to as an “energy penalty,” but the energy penalty could also be thought of as a reduction in the power plant’s operating efficiency. Further, because CCS plants are a new technological system, it is very likely that the first CCS plants will be significantly more expensive than plants built after power plant operators gain experience building and operating the first plants. This will put the first CCS plants at an important cost disadvantage.

Economic studies of coal plants with CCS vary substantially by the type of combustion technology and capture technology used, but in general, reasonable estimates suggest that CCS may increase the LCOE of a coal-fired power plant by 35-65%. While these costs may seem high, it is important to keep in mind that the key economic benefit of CCS is still left out of the equation, namely the benefit of reducing carbon-dioxide emissions. Whether or not CCS will be economically viable will depend on whether or not policy establishes a price on carbon dioxide high enough to justify a 35-65% increase in the LCOE of generating electricity from coal. Without policy to incentivize greenhouse gas emissions, it is highly unlikely that CCS will ever be deployed at significant scale.

Energy-Economy Models and CCS

Energy-economy models are powerful models of the world that attempt to represent the characteristics and dynamics of economies and their energy production and consumption sectors. Energy-economy models come in all different flavors and while none are perfect, each have their own strengths and weaknesses. In another post I’ll take a look at some of the most important energy-economy models, but for now, I’ll focus on some of the key results that energy-economy models have provided us as they relate to CCS.

1. CCS Deployment in the U.S.

Energy-economy models are commonly used to estimate the impact of climate policy on the energy sector in the U.S. economy. In 2009, the U.S. House of Representatives passed the American Clean Energy and Security Act of 2009 (also known as the Waxman-Markey bill, or H.R. 2454). The bill would create numerous incentives for CCS technology development and would establish a cap-and-trade system to reduce emissions of greenhouse gases. Several of the most rigorous projections for CCS deployment have focused on modeling the Waxman-Markey bill. One such effort, undertaken by MIT, estimates that the Waxman-Markey bill would result in 361 TWh of CCS electricity generation per year by 2050, equivalent to approximately 7.7% of electricity generation in 2050. This projection estimates that in 2050, roughly the same amount of electricity will be generated by coal without CCS as will be generated by coal with CCS, and that the 2050 deployment of coal with CCS will be roughly equal to 20% of the deployment of coal without CCS today. For more details of these modeling results, take a look at the reports available here: http://globalchange.mit.edu/pubs/abstract.php?publication_id=1965

2. CCS Deployment in the World

Energy-economy models have also been used to model the impact of climate policy in the global economy. The U.S. Department of Energy’s Pacific Northwest National Laboratory runs a global energy-economy model called MiniCAM, which they use to model how energy production will change if global emissions of greenhouse gases are to be kept below a predefined emission profile. In the most strict MiniCAM scenario, global greenhouse gas emissions are stabilized to achieve a global atmospheric carbon-dioxide stabilization of 450ppmv. In this scenario, MiniCAM estimates that global deployment of coal with CCS in 2050 will total over 30,000 TWh (in primary energy units) or 18% of global primary energy production. In a similar MiniCAM scenario that achieves a 550ppmv carbon-dioxide stabilization level, the model estimates that the 2050 deployment of coal with CCS will total over 18,000 TWh (in primary energy units) or 9.5% of global primary energy production. Finally, in MiniCAM’s 650ppmv scenario, global CCS deployment reaches only 4,250 TWh (in primary units) or 2% of global primary energy production. As these results indicate, the global deployment of CCS is highly dependent on the stringency of global climate policy. If the world’s global leaders pursue aggressive action to reduce greenhouse gas emissions, CCS is much more likely to play an important role in the global energy mix, but if political leaders set weak emission targets, other energy technologies may replace the need to ever deploy CCS. In my final post on coal with CCS, I will take a look at some of the most important CCS policies that the U.S. and other countries are engaging in to shed some light on how policymakers are taking action to accelerate the deployment of CCS.

•