Law and the Environment

Will EU Mandate Carbon Capture and Storage?

The European Union (EU) is reported in Reuters to be preparing to debate laws that would require all utilities to capture and store carbon dioxide (CO2) by 2025.  According to the article, Carbon Capture and Storage (CCS) would eliminate a third of global greenhouse emissions.  Such a step would take a substantial bite out of what scientists at the National Academy of Science, the American Association for the Advancement of Science, the Royal Society, and the International Panel on Climate Change assert is causing climate change, global warming, and will cause substantial to the Earth and future generations.  Whatever the science, the EU has established and is moving forward with more restrictive greenhouse gas emission limits and restrictions.  A future requirement for power plants to capture the CO2 they emit would reduce the emissions, but some parties question the technology to capture and store the gases and the impact of any potential leakage back into the atmosphere.

In CCS, the CO2 can be used to enhance oil and gas recovery.  CO2 has long been used for this purpose over many decades.  Much of this CO2 is from natural sources.  Already many small scale and a few larger scale CCS projects are in operation or under construction. 

Alliance Bernstein, a US investment firm, has conducted a study on climate change and investment opportunities and has found that CCS is a necessary step to address climate change.  Moreover, the firm has identified those industries that will likely prosper in this new CCS and carbon-constrained world, and those that will likely suffer in such a new world. Those entities that can invest in, develop, and profit from the construction of collection, pipelines, and injection facilities for CCS, will be highly profitable.

The potential for a European plan would certainly spur investment in research and construction to achieve this goal.  Oil company representatives believe the injection and storage of CO2 is a well-established technology, based on many decades of experience.  Others question whether the much larger scale of CCS will pose new challenges.

One of the challenges is the concern of liability if the CO2 leaks and returns to the surface, say into someones home.  In Texas, the Legislature seeking to gain selection for the FutureGen project that was to be in large part funded by the US government, passed a law providing liability protection for the project.  Some industry experts have called for a sort of "Price-Anderson Act" that protected or at least set a cap for nuclear power plants in the United States.

The initial proposal was to only require new power plants built after a certain date to install CCS.  It appears there is some talk about requiring all plants to retrofit by 2025.  The cost may be steep, depending on the approach used. One estimate was a $1.5 billion investment per plant, which may be hard to finance without government assistance.

Other technologies and approaches may in fact be able to achieve CCS for much less.  The area is still in initial development, and new ideas and innovative approaches may make CCS a reality.  To achieve the goals suggested by the IPCC, CCS would have to be required more globally, in the US, China, India, and perhaps other countries. 

At a recent climate change seminar in Austin, Texas, the Chairman of the Texas Railroad Commission spoke out in favor of taking steps to assist the oil and gas industry in finding ways to implement a system of installing a system to use capture CO2 in enhanced oil and gas recovery programs.  The Lieberman-Warner bill that will be debated in the US Senate in June of this year contains provisions for encouraging CCS.  Thus, whatever political argument exists over climate change, the concept of CCS to attempt to address this issue has some support on more than one side of the political spectrum.

In Australia, the State of Victoria, which has about a 500-year supply of coal, is considering investing $120 million Australian dollars in CCS.

If the EU passes a law with future deadlines for installing CCS, this industry will take off, and investment capital will follow--assuming the right incentives, and perhaps public financing, are used to spur this new approach to reducing greenhouse gas emissions.

Governor Vetoes Bill That Would Have Allowed Two Coal-Fired Power Plants in Kansas

In a rather stunning development, Governor Kathleen Sebelius vetoed a bill passed by the Kansas Legislature to allow two coal fired-power plants to receive their air emissions permits in a move to overturn the Kansas environmental agency to hold them back in response to the greenhouse gases they would emit. The veto in effect is a current ban on coal-fired power plants in Kansas. This development shines a spotlight on the need to develop a coherent and effective climate change and energy policy for the United States. Carbon capture and storage or sequestration will be a necessary part of those policies.

After vetoing the bill that would have allowed 11 million tons of greenhouse gases to be produced from two new coal-fired power plants, the governor signed Executive Order 08-03, which establishes the Kansas Energy and Environmental Policy Advisory Group.

"We know that greenhouse gases contribute to climate change,” Sebelius stated. “As an agricultural state, Kansas is particularly vulnerable. Therefore, reducing pollutants benefits our state not only in the short term – but also for generations of Kansans to come.”

Sebelius has named Jack Pelton, chairman, president and chief executive officer of Cessna Aircraft Company, to lead this group.

"I am so pleased that one of our most prominent business leaders has agreed to serve as chair,” Sebelius said. “Jack understands the balance between continuing to grow our economy and making sure that we protect our environment and maximize our natural assets for future generations. The Advisory Group will explore opportunities in all sectors of our economy to accomplish the goal of reducing our greenhouse gas emissions; and, at the same time, continue to take advantage of the economic prosperity provided by job growth throughout Kansas."

In her State of the State Address this past January, Sebelius discussed the need for Kansas to join 36 other states in developing a state plan to deal with climate change. The Energy and Environmental Advisory Group will develop recommendations to the governor involving opportunities to reduce greenhouse gas emissions, as well as a recommended timetable for implementation.  Other issues to be examined by this group include a study of the impact electrical production has on community economic development and the opportunities to diversify Kansas’ energy portfolio.

The process will be facilitated by the Center for Climate Strategies (CCS). Their work is supported by the Energy Foundation and the Sandler Family Supporting Foundation, which includes the Rockefeller Brothers Fund. CCS has developed climate action plans in: Arizona, New Mexico, Montana, Colorado, Washington, Minnesota, North Carolina, and Vermont. State plans are underway in South Carolina, Florida, Arkansas, Michigan, Maryland, and Alaska.

The veto decision places increasing pressure on state legislatures and the federal government to develop a coherent and national climate change and greenhouse gas management plan that incorporate an energy policy and strategy the US has lacked for decades.  It is clear that climate change policy and energy policy are inextricably intertwined, requiring policy decisions in the near future as Congress and the current President have failed to take on these issues.

One of the other key issues not discussed is the reality that coal-fired power plants must capture and store or sequester the carbon underground.  The capture phase presents some challenges but could be implemented with existing technologies.  Cost is the primary concern and utilities cannot justify the expense unless legislation requires the investment.  The transportation and storage or sequestration below ground is an old technology used to enhance oil and gas recovery.  Thus, to begin requiring new coal-fired power plants to capture the carbon dioxide from these plants and to inject it underground is a step that is critical to using a low cost source of energy in a manner that protects the environment.  By capturing the gases emitted from coal-fired power plants, other pollutants like sulfur dioxide and mercury would also removed from the emissions of the plants that would otherwise be released to the atmosphere.

This veto and effective prohibition of coal-fired power plants demonstrates it is clearly time for the sake of the utility industry and the public that we have a coherent energy and climate change policy for the United States. Hopefully, we will see consistent and dedicated work in Congress this year and leadership by a newly-elected president in 2009, whomever that party may be.

A Green Takover? Investment Firms Offer to Buy TXU and Reduce Number of Coal Plants and Take Steps to Go Green

The Dallas Morning News reports this morning that the investment firms, Texas Pacific Group, Kohlberg Kravis Roberts & Co., and Goldman Sachs, have not only offered to buy TXU, which has been the brunt of controversy and lawsuits over its proposal to build 11 coal-fired power plants in Texas, but to reduce the number of coal-fired plants to three and to otherwise produce more renewable energy.  In doing so, the three firms have entered into agreements with environmental organizations as part of the proposed takover of TXU.  This may be a first in the investment community--a "Green Takeover."

The full text of The Dallas Morning News article follows:

Prospective TXU buyers would build fewer coal plants

Group promises only 3 new coal plants, is likely to cut prices

02:00 AM CST on Sunday, February 25, 2007

By ELIZABETH SOUDER / The Dallas Morning News

esouder@dallasnews.com

The companies that want to buy TXU Corp. would build only three of the 11 coal-fired power plants TXU has proposed, and would cut retail electricity prices, addressing two issues that fueled public outcry against the power company.

The buyers, Texas Pacific Group, Kohlberg Kravis Roberts & Co. and Goldman Sachs, signed an unusual agreement with two environmental groups. They promised to scale back the coal plant building program – as well as to cut pollution and greenhouse gas emissions – if TXU accepts their offer of around $45 billion for the company.

Negotiators say the deal is the first of its kind.

Jim Marston, regional director for Environmental Defense in Texas, described in an interview Saturday the points of the deal his group and the Natural Resources Defense Council signed with the buyout companies.

"It really is, I think, a watershed moment in America's fight against global warming. They have made a number of very important commitments related to both local air pollution problems in Texas as well as commitments to do something against greenhouse gas emissions," Mr. Marston said.

"The fact that it's a Texas company doing this, as opposed to lobbying for delays, is a big deal," he said.

The agreement is designed to clear TXU's name among environmentalists, consumers, regulators and politicians after the plan to build 11 coal-fired power plants prompted substantial environmental debate in Texas. The issue also put TXU at the center of a national discussion about global warming, because coal plants emit more carbon dioxide than plants using other types of fuel. The commitments also address the controversies that drove some state lawmakers to seek to force a breakup of TXU.

Meanwhile, someone with direct knowledge of the buyout offer said TXU's board is meeting this weekend to consider the offer that would take Texas' largest power company private. The deal would be the largest buyout ever.

TXU officials won't comment on the offer, and the buyers have remained officially mum.

Environmental accord

An official with Texas Pacific Group contacted the environmental groups about a week and a half ago to propose talks. The groups met in San Francisco on Wednesday – the day two administrative law judges in Austin decided to postpone the TXU permit hearings by four months. The judges were heeding a decision by a state district judge that Gov. Rick Perry's order to fast-track plant permits is probably unconstitutional.

After a 17-hour meeting, the groups had an agreement. In return for the environmental commitments, the advocacy groups agreed to settle a lawsuit concerning one of the TXU coal plants.

The buyers agreed to the following points:

•Build only three new coal-fired power plants using traditional coal technology. The buyers would pursue permits for the Sandow plant and the two Oak Grove plants, and yank permit applications for all other coal plants.

•Keep TXU's promise to cut total emissions of regulated pollutants 20 percent from current levels after the new plants are built. Those pollutants are nitrogen oxides, sulfur dioxide and mercury, but do not include carbon dioxide.

•Not to propose building any traditional, pulverized coal plants outside of Texas. TXU had planned to expand the building program to the Northeast.

•Support federal legislation to impose a cap on carbon dioxide emissions and agree to cut TXU's own emissions to 1990 levels by 2020. The 11 plants TXU proposed to build would emit 78 million tons of carbon dioxide a year, boosting TXU's total annual carbon dioxide emissions to 94 million tons.

•Join U.S. Climate Action Partnership, a group of 10 industrial and financial companies that are urging the government to create a cap-and-trade program for greenhouse gases. Companies would get credits to emit a certain amount of carbon dioxide each year, and as companies cut their emissions they could sell the credits to others.

•Pursue more wind power, and double the amount TXU spends on energy efficiency programs to $80 million for the next five years. The investors would probably keep TXU at least that long before selling, according to a source with direct knowledge of the buyers' thinking.

•Explore using coal gasification technology for subsequent plants. Coal gasification is a process that burns coal more cleanly and allows the carbon dioxide to be captured and stored. Current TXU managers have said the technology hasn't been proven to work efficiently on Texas coal.

•Create a sustainability energy committee to advise the new company. Officials with the Environmental Defense and the Natural Resources Defense Council would sit on the committee.

Charging less

Cutting retail electricity prices isn't part of the environmental deal. But people with knowledge of the buyers' thinking said they also plan to lower consumer rates.

Such a move would please key Texas lawmakers who have filed legislation designed to cause prices to drop by limiting the size of power companies and forcing TXU to break apart.

Sen. Troy Fraser, R-Horseshoe Bay, last year chastised TXU chief executive John Wilder during a public hearing for hiking retail prices after the 2005 hurricanes drove natural gas prices – and thus power prices – higher but not dropping prices when natural gas rates fell.

TXU executives have argued that Texas needs the plants to meet growing demand for power. Power grid officials predict that by 2010 Texas' power supply will become uncomfortably tight on days when people use the most electricity. But since TXU announced the plan, rivals have announced plans to build their own coal, nuclear and wind generation facilities.

TXU executives have also said building 11 coal plants could reduce wholesale electricity costs by $1.7 billion. That's because coal plants are cheaper to operate than natural gas plants, which are currently the dominant type of generation in the state. By adding the cheaper coal power to the grid, natural gas plants wouldn't have to operate as often. Lower wholesale prices could trickle down to consumers if retail electricity providers cut the price they charge.

The strategy was to design one coal plant, called a reference plant, and replicate it across the state and around the country. By building so many plants at once, TXU was able to push the cost down to about $10 billion, or $1,100 per kilowatt, a cost so low that some rival power executives doubted it could be done.

Some people who oppose the plants speculate that TXU expected the new plants to strengthen the company's market position so much that it would discourage competitors from building their own plants in Texas and would solidify TXU's position as the largest power company in the Texas market.

Why three?

The buyers promised environmentalists they would eliminate the reference plant plan and only build the three plants that TXU had proposed before announcing the reference plant strategy.

Permits for those three plants aren't part of the case that was delayed by four months. TXU had applied for these permits earlier, but they are all also delayed for various reasons.

Hearing judges recommended that regulators deny permits for the two Oak Grove plants. The permits now await a final decision by the Texas Commission on Environmental Quality. And the commission is waiting until the Texas Senate confirms the nomination of a third commissioner so the group can vote on the permits with a full board.

The Sandow plant is unique because TXU wants to build it on behalf of Alcoa to replace some older coal plants at an Alcoa facility. But the process has been delayed by lawsuits brought by environmentalists in federal court.

Environmental Defense is a nonprofit environmental advocacy group with 400,000 members. One of the group's functions is to ask big companies to agree to take specific action to reduce their impact on the environment. If a company refuses to negotiate, Environmental Defense may resort to suing the company over environmental infractions or to block the company's growth plans.

TXU's current executives haven't negotiated with Environmental Defense. Last October, the environmental group sued the Texas Commission on Environmental Quality, which decides on air permits, to block TXU's coal plant permits. And earlier this year, Environmental Defense launched an advertising campaign, including television ads, targeting TXU's proposed plants.

The group will settle its lawsuit if the buyout firms purchase TXU, Mr. Marston said.

Natural Resources Defense Council also uses litigation and lobbying to pursue environmental protection.

David Hawkins, director of the council's climate center, said he didn't get everything he wanted out of the negotiations. He'd prefer TXU didn't build any traditional coal plants.

"But the outcome ... is a very substantial move and one that is a move away from old-fashioned coal technology and toward putting efficiency and renewables at the core of modern business plan for the power sector," he said.

"Multibillion-dollar buyouts occur fairly often, but this kind of decision by the buyout companies to incorporate environmental objectives as part of the overall transaction, I think, has not happened before," he said.

Wall Street Journal Article Suggests Climate Change Regulation Invevitable

This recent Wall Street Journal article appears to conclude, as many of us in the corporate environmental legal, consulting, and management professions have concluded, that, despite any controversy over climate science or potential economic effects of greenhouse gas regulation, legislation is likely to be passed in the United States in the near future.  The questions we are generally struggling with now are emission reduction levels, which industries will be affected, the economic impact of new regulations, how much of the costs of industrial reductions will be passed on to consumers, and the extent to which individual citizens rather than just regulated industry will be asked to shoulder part of the burden of reducing greenhouse gas emissions.

Climate Change's Cold Economics

Industry Efforts to Fight
Global Warming Might Hit
Consumers' Pockets

By JEFFREY BALL
February 15, 2007; Page A12

With mandatory curbs on U.S. global-warming emissions looking increasingly likely in the next several years, industries are starting to argue over who will pay for the cleanup. One thing is clear: Whatever the cost, it will get passed along to consumers.

A new report from the utility industry's think tank, the Electric Power Research Institute, says the U.S. utility sector could ratchet back its global-warming emissions to 1990 levels by 2030. That would be a major feat, given that emissions are projected to rise significantly over the next few decades.

But Congress is unlikely to boost taxpayer-funded energy research by enough to develop the necessary technologies, says Jeffry Sterba, chairman of the institute, who is expected to present the study today at an energy-industry conference. One option he said utilities are considering proposing: that the government allow them to tack an additional modest charge onto consumers' electric bills to raise roughly $2 billion a year to cover the cost.

As the Democrats who now control Congress start pushing for federal global-warming regulations, industry heavyweights are changing their stance on the issue. Exxon Mobil Corp., which has long opposed emission constraints, now is talking about how such rules should be structured. And the Edison Electric Institute, the electric-utility industry's chief trade group, announced last week that it is dropping its longstanding opposition to mandatory emission limits.

The corporate change is a concession to political reality. Even if they would prefer not to have an emissions limit, industries targeted by regulators are angling to shape whatever they get slapped with to minimize their portion of the bill.

The Electric Power Research Institute's study estimates some of the potential costs of an effort to curb U.S. global-warming emissions and puts a lengthy timeline on the task. It reflects a message likely to be heard increasingly from heavily emitting industries: They are confident they will be able to develop technologies to reduce global-warming emissions, if politicians, consumers and certain other industries are willing to foot the bill.

That "if" shows how the global-warming debate is moving beyond political rhetoric to questions of economic reality.

Achieving that emissions cut in the power industry -- the nation's biggest source of global-warming emissions -- would require aggressively rolling out a broad array of technologies, some of which aren't yet economically proven, the study says. Among those technologies: energy-efficiency improvements, for instance in buildings and appliances, to slow the projected growth in electricity demand; increases in the penetration of renewable and nuclear power; higher-efficiency coal-fired power plants; and capturing the carbon dioxide emitted from power plants and storing the global-warming gas underground.

Developing the necessary technologies so they could be widely deployed will require roughly $2 billion more in annual low-carbon-energy research spending in the U.S., the EPRI says. That's money beyond the approximately $3 billion the institute says the federal government currently invests each year in that area.

The power industry could raise the roughly $2 billion a year for new clean-energy research by increasing the average U.S. electric customer's rate by 0.05 cent a kilowatt hour, said Mr. Sterba, who stressed the utility industry hasn't yet proposed such a fee. That would increase the average American's monthly electric bill about 0.5%, to $89.07 from $88.60, according to government data.

EPRI officials believe the $2 billion collected would advance the technologies to a point where they are economically competitive with conventional technologies. The expectation is that private investors then would be willing to finance deployment of the technologies, because then they could earn an attractive profit, the officials said.

Mr. Sterba, the chairman and chief executive of PNM Resources, a New Mexico utility, says the study suggests that the cost of addressing global warming is significant but not insurmountable. "I'm concerned we may be being a little bit naive" about the likely costs, he said. "At the same time, I think there are people who may be being a bit too gloom-and-doom."

The study also marks an attempt by the utility industry to deflect regulators' attention to other sectors of the economy that utilities argue are ripe for emission cuts themselves. Utilities will need decades to develop technologies to significantly cut their emissions, Mr. Sterba said, but other industries capable of reducing their emissions more quickly and cheaply should be asked to do their share.

Among the technologies the study proposes to bring 2030 emissions back down to 1990 levels, for instance, is the widespread sale of so-called "plug-in" hybrid vehicles. Plug-in hybrids would get even better fuel economy than today's gasoline-and-electric hybrid cars because they would get more of their power from their electrical system, requiring the cars to be plugged into electrical outlets to be recharged. But deploying plug-in hybrids widely would require big shifts by auto makers.

In addition, taking steps to preserve more trees and inducing farmers to change the way they till their land would be lower-cost and quicker ways to begin reducing emissions than relying solely on the utility sector for the bulk of the cuts, Mr. Sterba said. Trees and soil absorb carbon dioxide, the main greenhouse gas.

Other studies are coming to similar conclusions. A new report by consultant McKinsey & Co. argues that the least-expensive options to curb global-warming emissions are some of the most basic: improving the energy efficiency of buildings, air conditioners and lights, for instance, and planting more trees. Such moves will be cheaper than some higher-technology methods, such as capturing the CO2 that is emitted from power plants and then burying that CO2 underground, McKinsey says.

The cheaper options do present a political hurdle, the McKinsey report notes. They involve "billions of small emitters -- often consumers -- rather than a limited number of big companies already subject to heavy regulation."

Total Launches the First Integrated CO2 Capture and Geological Sequestration Project in a Depleted Natural Gas Field

From Total's Website:

Total launches the first integrated CO2 capture and geological sequestration project in a depleted natural gas field   

Feb. 08, 07

   

Total announces the launch of a pilot CO2 capture and sequestration project in the Lacq basin in southwestern France. The project, which leverages a technique considered among the most promising in the fight against climate change, calls for up to 150,000 metric tons of CO2 to be injected into a depleted natural gas field in Rousse (Pyrenees) over a period of two years as from end-2008.

“This project will demonstrate the role that CO2 capture and sequestration can play in reducing greenhouse gas emissions from industrial installations,” notes Christophe de Margerie, President Exploration & Production of Total. “It represents the first integrated CO2 capture system using oxy-fuel combustion combined with storage in a depleted hydrocarbon field.”

The first link in the chain is a steam production unit at the Lacq gas processing plant. Oxygen will be used for combustion rather than air to obtain a more concentrated CO2 stream that will be easier to capture. Once purified, the CO2 will be compressed and conveyed via pipeline to the depleted Rousse field, 30 kilometres from Lacq, where it will be injected through an existing well into a rock formation 4,500 metres under ground.

Following preliminary studies in 2006, the Rousse field was selected for its geological structure, which gave the best guarantee of sustainable storage. Total has just launched the engineering study phase. CO2 injection is scheduled to begin in November 2008.

The project, which will cost nearly 60 million euros, will be carried out in partnership with Air Liquide and in cooperation with the French Petroleum Institute (IFP), the French Bureau of Geological and Mining Research (BRGM) and others.

Over the past ten years, Total has participated in several CO2 sequestration projects, notably in saline aquifers at North Sea oil production sites. The capture and sequestration of CO2 provides yet another way of reducing greenhouse gas emissions alongside programs already deployed by the Group to develop renewable energy sources, reduce flaring of associated gas and make production facilities more energy efficient.