The New Carbon Cycle

Should Trees Be Industry's Best Friends in a New Climate Change Regime?

The suggestion that trees should be industry's best friends under a new climate change or cap and trade program being considered by Congress, seems absurd at first.  Forests do not initially appear to most people to be a source of the problem when it comes to anthropogenic greenhouse gas emissions.  We generally think of planting trees as a local, individualized step to attempt to remove emissions from the atmosphere.  Often we think of tree planting as a symbolic rather than a substantive or significant action to reduce climate change.  Forests, however, are in fact a significant storing house for carbon and when burned, release a large amount of carbon dioxide and other greenhouse gases into the atmosphere. 

Forests provide the low-cost approach for the first tranche in anthropogenic greenhouse gas reductions as we seek the "low hanging fruit" of these reductions.  Forest preservation and regrowth provide the potential for the larger-volume and lower-cost source of greenhouse gas reductions and offsets for greenhouse gas emissions.  As carbon capture and storage by which CO2 from coal-fired power plants and other sources is injected underground for long-term storage takes several years to bring on line, Reduced Emission from Deforestation and Degradation (REDD) can serve to make a significant step toward emissions to be achieved by 2020 being discussed in Congress for a US climate change and cap and trade program, and in terms of international negotiations for a tray to follow the Kyoto Protocol.

The size of the emissions from forest destruction usually is startling.  It is in gross and relative terms rather astounding.  The destruction of forests actually accounts for somewhere between 17 and 22 percent of human greenhouse gas emissions.    Thus, controlling the greenhouse gas emissions from deforestation is critical to any global plan to reduce climate change, particularly in the first few years as costlier reductions can be developed over the next decade, and perhaps ways to reduce those costs.

A second aspect of deforestation relates to the areas that have already been lost or significantly degraded.  For example, farmland that was previously what we call “primary forest” or forest that existed in its natural state prior to being deforested or degraded.   In these areas, opportunities exist for reforesting the land through tree planting.  Two types of reforestation are possible.  First, the forest can be replanted with native species that would have been present prior to the destruction of the forests.  The second involves the planting of non-native species or otherwise planting for the purpose of harvesting some or all of the trees.  The second approach has the goal of using trees to absorb or sequester CO2 , and then using the harvested wood in ways that maintain the carbon in building or other products for a long time.

In understanding the challenges of private development of forest carbon projects, it is important to comprehend the issues of these projects.  First let us consider avoided deforestation projects.  One of the first issues is simply measuring the amount of carbon in the forests that would be released if destroyed.  There are certain protocols that can be used now developed by the Voluntary Carbon Standard (VCS), which has become the main standard setting organization for forest-related offset projects. 

Another issue is the question of permanence.  For growing forests a significant risk is permanence, that is, to what extent will the forest will be preserved over a very long period, as opposed to short term preservation with destruction to follow.  If the forest is logged or it burns or dies from disease, then the carbon sequestered in the trees, plant life, and soil, will be largely emitted to the atmosphere and future sequestration of carbon dioxide will not occur.  The carbon credits that are generated would be without substance if after five years the forest is destroyed.  Forestry projects are largely long-term projects, lasting 20 to 100 years in most cases.  Parties must show the registration entity and the verifiers that review the Project Design Document that the forest will not be cut down, burned, or harvested within the relevant project period.  One approach used by the VCS to address permanence concerns is to hold back a percentage of the verified credits and to release them back over time, say the 30-year life of the project, to the project developer.

One of the other major concern for forest projects is leakage.  For forest projects, leakage involves the question of whether the reduction in deforestation or degradation in one are simply moves that activity to a nearby property or a significant distance away.  As an illustration, burning forests for soy bean farming, which is such a significant problem in Brazil, moves from one part of a state in a country where actions have been taken to stop such burning to another area in that state or to an altogether different state.  Measuring and addressing these issues is required by the VCS.

Though the real game right now for REDD and reforestation projects lies with the VCS and voluntary carbon credits, it appears fairly clear that forest carbon projects will play a role and be large part of future US federal legislation and already has been accepted as an offset mechanisms in the California climate change regulatory system and will likely be part of the three multi-state climate change regulatory programs that are evolving and will go into effect even if Congress does not act to pass climate change legislation.  The discussions at the international level appear to be moving toward accepting forest-based offset credits.

The greenhouse gas emissions from forest destruction are so massive, that we cannot avoid taking on the need to reduce this destruction dramatically.  More and more major greenhouse gas emitters in the United States are beginning to review this opportunity and to look at investing in project-based REDD opportunities.  The thinking is that investment in a project or entering into emission reduction purchase agreements that allow a company to have a right to purchase REDD credits once approved and verified, provides a good hedging mechanism for future offset prices.  More and more of our clients are looking at both domestic and international forest carbon projects either as project developers or as investors to ensure that they take advantage of the opportunities that forest carbon projects provide.  Ironically, utilities and oil and gas companies may find that trees are truly their best friends when it comes to addressing the first few years of a cap and trade system in the United States.

Significant Climate Change Developments Part 1: European Parliament Adopts 20/20/20 Plan on Climate Change

The European Parliament after eleven months of long and tumultuous debate among the various countries and constituencies reached an agreement called 20/20/20.  By 2020 the EU plans to address climate change by achieving: a 20% reduction in greenhouse gas emissions, a 20% improvement in energy efficiency, and a 20% share for renewables in the EU energy mix.  The EU plans to extend and amend its cap-and-trade program referred to as the EU Emissions Trading System or ETS to control greenhouse gas emissions as well. 

A compromise was reached to address concerns by industry in the former communist countries that depend almost entirely on old coal-fired power plants for their electricity.  The EU agreed to provide free carbon allowances to industries that face stiff international competition as a result of greenhouse gas reductions if they face a 5 percent increase in costs.  The former communist countries will receive 70 percent of their carbon allowances without charge in 2013.  The exemption will be fazed out over time and end in 2020, when all allowances in these countries must be purchased at auction.

The revised EU ETS will apply from 2013 to 2020 and is designed to reduce greenhouse gas emissions by 21 % of 2005 levels. The EU ETS is a "cap and trade" system: it caps the overall level of emissions allowed but, within that limit, allows participants buy and sell allowances as they require, so as to cut emissions cost effectively. The Community-wide quantity of allowances issued each year will decrease in a linear fashion, so as gradually to reduce the overall level of emissions each year.
 
The ETS currently covers over 10,000 installations in the energy and industrial sectors, which are collectively responsible for close to half of the EU's emissions of CO2 and 40% of its total greenhouse gas (GHG) emissions (the remaining 60 % will be covered by the 'non-ETS' Effort Sharing decision).
 
In the first and second ETS trading periods (2005 -2012) the great majority of allowances were allocated free of charge to installations. The revised directive establishes auctioning from 2013 in principle (as proposed by the Commission and backed by the Environment Committee), but includes several exceptions, as advocated by the European Council on 12 December 2008.

The "effort sharing" decision sets binding national targets for each EU Member State to reduce greenhouse gas emissions from non-ETS sources (e.g. road and sea transport, buildings, services, agriculture and smaller industrial installations), between 2013 and 2020. These sources currently account for about 60% of all EU greenhouse gas emissions. The decision aims to reduce these emissions by 10% overall between 2013 and 2020, so as to contribute towards the EU's overall aim of a 20% reduction in total greenhouse gas emissions by 2020. The effort sharing decision is the first of its kind worldwide.

The EU Parliament also approved a proposed directive providing for the legal framework for the new carbon dioxide capture and storage technology (CCS). To cut their CO2 emissions, industrial installations and power plants could in the future use this new technology to capture CO2 and store it "permanently and safely underground" in geological formations.  Great Britain's Prime Minister Gordon Brown succeeded in winning a fund of 6 billion Euros to invest in technology to capture and store carbon dioxide from coal-fired power plants in underground formations.  The fund will apparently be established by earmarking 300 million allowances for CCS.

A new regulation will set emission performance standards for new passenger cars registered in the EU. The compromise backs the Commission's proposed target of an average of 120g of CO2/km for the whole car industry by 2012, compared to the current levels of 160g/km. The regulation sets an average target of 130g CO2/km for new passenger cars to be reached by improvements in vehicle motor technology.  It will be supplemented by additional measures to achieve a further 10g/km reduction, so as to reach the 120g/km target, through other technical improvements. The compromise introduces a long term target for 2020 for the new car fleet of average emissions of 95 g CO2/km.
 
Manufacturers will be given interim targets of ensuring that average CO2 emissions of 65% of their fleets in January 2012, 75% in January 2013, 80% in January 2014 and 100% from 2015, have to comply with each manufacturer's specific CO2 emissions target. In case the average emissions of CO2 exceed the targets, manufacturers will have to pay fines.

The revised fuel quality directive requires fuel suppliers to reduce greenhouse gas emissions caused by extraction or cultivation, including land-use changes, transport and distribution, processing and combustion of transport fuels (i.e. fossil fuels like petrol, diesel and gas-oil and also biofuels, blends, electricity and hydrogen) of up to 10% by 2020.

The adoption of post-2012 greenhouse gas reductions is a critical first step in the process of moving toward a global carbon cap and trade system.  The EU has laid down the first step internationally to create the atmosphere for negotiations of a post-Kyoto climate change treaty. The negotiations in Poznan, Poland were to some extent inconclusive, but the Bush Administration was not going to make any commitments late in its administration and has not been willing to take steps to impose a greenhouse gas reduction program in the United States.  2009 could shape up to be the Year of Climate Change.

I will further discuss the other three developments in late 2008 that may lead to a global carbon-constrained economy.

Bi-Partisan Western Governors Call for Energy and Climate Legislation

The Western Governors Association (WGA) sent a letter to President-elect Barack Obama, urging swift action in adopting and implementing a national energy plan that would transform the country's energy infrastructure and economy while reducing greenhouse gas emissions. The group of 19 Western governors from both political parties call for near-zero greenhouse gas emissions from new coal-fired electricity generation in 10 years and from existing generation no later than 2030. The bi-partisan group of governors called on President-Elect Obama to act within the first 100 days of his administration.

The organization is led by Utah Governor Jon M. Huntsman, Jr., Chairman, a Republican, and Montana Governor Brian Schweitzer, Vice Chairman, a Democrat. On Nov. 21, Huntsman and Schweitzer met with John Podesta, co-chairman of Obama's transition team, to promote the WGA proposal.

"The transformation we are talking about is broad based and will require new policies, incentives, market mechanisms and private-public partnerships to be in place by the end of next year," Huntsman said. "We plan to work with the new administration and Congress in addressing the multitude of energy challenges ahead."

"Western states are the country's energy breadbasket, but energy efficiency has also got to play a much bigger role," said Schweitzer. "That includes everything from manufacturing more fuel-efficient vehicles to changing regulatory structures so they reward utilities for achieving reduced energy usage among their customers."

The governors stated that a national energy policy must promote energy efficiency and reduce greenhouse gas emissions on a scale necessary to contribute to climate stabilization. They state the position that the Obama administration's energy/climate policy must maximize the economic development opportunities offered by clean energy; ensure energy costs are affordable and support a sustainable, growing economy. They urge the incoming administration to increase the proportion of energy supplies that come from domestic resources and friendly trading partners; and minimize adverse environmental impacts.

Within the first 100 days, the governors are calling on the Obama administration to:

--Establish an aggressive and achievable national greenhouse gas emissions reduction goal that will put the United States on a path to contribute to global climate stabilization.

--Propose a mandatory national system for reducing greenhouse gas emissions that makes maximum use of market-based mechanisms. Revenue raised should not be used as a means of sustaining or expanding general governmental operations.

--Pursue a national energy efficiency program to reduce existing and future energy demand and thereby reduce greenhouse gas emissions.

--Establish an oil import reduction goal that strengthens energy security and independence. Since nearly 90 percent of oil is used for transportation, an energy plan must bring more fuel-efficient and near-zero emission vehicles into the market; increase the supply of domestically produced, low-carbon fuels; minimize the economic and technological uncertainties inherent in deploying high efficiency vehicles and developing and using non-petroleum transportation fuels; and reduce vehicle miles traveled and increase mass movement of people and goods.

--Create a substantial, long-term national public investment on the scale of tens of billions of dollars annually, along with a similar investment from the private sector, to support the kind of basic and applied research and deployment of clean energy technology and infrastructure that will result in:

--Near-zero greenhouse gas emissions from new coal-fired electricity generation in 10 years and from existing generation no later than 2030.

--Dramatically increased energy from wind, solar, geothermal, hydro and biomass resources.

--Expansion and upgrade of the electricity transmission grid and storage capabilities.

--Advanced vehicle and battery technologies and alternative transportation fuels.

--Next generation energy efficiency technologies and practices.

The governors also urge affordability for lower income energy consumers through energy efficiency and cost assistance programs. They support workforce development and clean energy jobs, adaptation to climate change impacts, reduced consumer impacts - particularly for low-income consumers - and transition assistance to industries.

"While the first 100 days are critical, these actions only represent the first steps," the governors say in their letter. "Within the next year, a comprehensive energy plan must be enacted that will set the direction of this nation for the next 50 years. This plan, though adjustable over time, must establish measurable goals, strategies, milestones and funding to ensure that we are moving towards affordable and environmentally responsible energy security and independence."

"We must not repeat the mistakes of the past," the governors declared in their letter. "We must have the collective political will and resolve to create and implement a long-term comprehensive energy policy despite short-term political and market fluctuations. The future of our nation depends upon it."

The environment really isn't a red or a blue issue. It's an American issue. I'm trying my very best as just one Republican, and I know there are others, to remind people of that fact — and that it will take a bipartisan effort," the Utah governor said.

The governors are calling in a bi-partisan way for action on energy policy. The biggest question is whether US senators can find a bi-partisan solution that reflects the governors’ proposal. Huntsman has been criticized by some Republicans for supporting climate change legislation and cap and trade.

"The Republican values I'm speaking to are right out of ... Teddy Roosevelt's playbook. He taught us all to revere our land, to leave a legacy ... to the next generation," Huntsman responded to criticism from some Republicans. "I'm also doing a very Republican thing to incentivize and develop technologies that are going to fuel our economy."

As 2009 approaches and the new administration prepares to work on climate legislation in the new Congress, this call by governors of both parties for climate and energy legislation suggests growing pressure on Congress to pass a climate bill. It appears only a possible filibuster in the Senate stands in the way of climate legislation. How the votes will come out on a climate filibuster remains to be seen.

NRG Negotiates Deal with Environmental Groups on Carbon Offsets to Move Forward with Coal-Fired Power Plant in Texas

NRG Texas LLC, a subsidiary of NRG Energy has negotiated an agreement with environmental groups regarding expansion of the NRG coal-fired power plant near Houston Texas.  The two environmental groups were Texas Clean Air Cities Coalition and the Environmental Defense Fund.  While there no specific climate change statutes have been adopted in Washington or in Texas, the environmental groups had threatened to oppose the expansion.

Last year environmental groups were successful in convincing TXU to take 8 of 11 coal-fired power plants off the planning stages in Texas.  This year Kansas denied a permit application for a coal-fired plant because of the lack of any management plan for carbon dioxide (CO2) emissions.  Coal has been under attack by environmental groups and certain state governments.  However, coal is a very inexpensive source of fuel for producing electricity, if the greenhouse gas emisisons can be reduced or offset, or both.

Under the agreement with the two environmental groups, the plant will offset or sequester underground half of its CO2 emissions until a federal climate change program is adopted and implemented.  In addition, the company will build or support the development of a utility scale solar power project in Texas, or contribute to a trust that would fund Texas energy efficiency projects.

Programs at Upcoming World Petroleum Conference Show Importance of Climate Change, Carbon Trading, and Sustainable Development for Global Oil and Gas Industry

The World Petroleum Congress will get underway next week in Madrid, and will include many panels on climate change, carbon trading, and sustainable development. The official theme for the upcoming WPC is “A World in Transition: Delivering Energy for Sustainable Growth,” reflecting the ongoing concerns of the global industry.

I am fortunate to be speaking at the WPC with a distinguished panel on carbon trading issues. I will be speaking on Monetizing Reductions in Greenhouse Gas Emissions:  Opportunities in Carbon Credit Markets.  The other panelists and their topics are as follows:  Ignacio Bachiller, CDM Projects Portfolios: the Economics; Pat Concessi, The Benefits and Challenges of Linking GHG Emissions Trading Schemes; Paula Coussy, Implications on the European Union Emission Trading Scheme (EU-ETS) of Capture Transport and Geological Storage Projects: Dr. Jagdish P. N. Giri, Economic Modeling to identify Emissions? Reduction Opportunities at Carbon Energy Business During Fossil Energy Lead Time? Aligning the Value Chain of CDM & JI on Long Term Emissions' Trading and Carbon Energy Management in the Asian Context.

The potential for the generation and trading of carbon credits to become a significant part of certain oil and gas development projects is developing and will only increase as the opportunities for reducing greenhouse gas emissions from oil and gas exploration and production as well as transportation are identified and pursued. 

Carbon capture and sequestration or storage present significant opportunities.  A specific panel on carbon capture and storage will explore these issues at the WPC. 

A variety of other projects will address sustainable development and the role of this concept in international oil and gas development.

The trends of ever-growing expectations on oil and gas companies to address climate change, sustainable development , ecosystem and habitat preservations, and other environmental issues presents challenges to these companies.  Greenhouse gas reductions and monetizing those reductions in the form of carbon credits may actually prove to be a significant opportunity in the changing global market that is tending to evolve toward a carbon-constrained economy.

Basin Electric Power Cooperative and Powerspan Corp. Announced a Carbon Capture and Storage Demonstration Project

The press release for this project is found below.

Basin Electric Power Cooperative - March 13, 2008

Bismarck, ND and Portsmouth, NH - Basin Electric Power Cooperative and Powerspan Corp. today announced the selection of Powerspan’s carbon dioxide (CO2) capture technology for a commercial demonstration at Basin Electric’s coal-based electrical generation facility, the Antelope Valley Station located near Beulah, North Dakota.

Approximately one million tons of CO2 will be captured annually from the 120 megawatt slipstream project, making this demonstration among the largest in the world. The captured CO2 will be fed into an existing CO2 compression and pipeline system owned by Basin Electric’s wholly owned subsidiary, Dakota Gasification Company.

Today’s announcement is the result of the first competitive solicitation process for a CO2 capture demonstration at a coal-based power plant in the U.S. Six companies responded to the request for proposal issued by Basin Electric in June 2007. Powerspan’s CO2 capture process was selected as the most promising low cost option for commercial deployment and for its ability to best integrate with Basin Electric’s operations.

The project is scheduled to move forward in 2009, subject to successful completion of engineering studies and obtaining of necessary permits and government incentives for early demonstrations of CO2 capture and sequestration.

The facility is expected to be operational in 2012. Powerspan’s CO2 capture process, called "ECO2™" is a post-combustion, regenerative process, which uses an ammonia-based solution to capture CO2 from the flue gas of a power plant and release it in a form that is ready for further compression, safe transportation, and geological storage.

"Basin Electric has a diverse energy portfolio and runs extremely clean coal-based plants. However, we’re ready to move to the next level. That’s why we are exploring a project that could lead to commercialization of carbon capture technology for existing coal-based generation facilities," says Ron Harper, Basin Electric CEO and general manager. "The greatest reductions in CO2 emissions from the power sector can be achieved by developing and proving a technology that can be retrofitted to the hundreds of existing coal-based power plants in the U.S. This is an important first step to achieving that goal."

"Successful commercial demonstration of our post-combustion ECO2 process represents the fastest, and lowest cost route to meaningful CO2 emission reductions from our existing power plant infrastructure," said Powerspan CEO Frank Alix. "The commercial-scale demonstration at the Antelope Valley Station will provide sufficient information to design, build, and guarantee performance for full-scale ECO2 systems. We are honored to be selected by Basin Electric given their environmental leadership and extensive experience in capturing and sequestering CO2."

Basin Electric’s wholly owned subsidiary, Dakota Gasification Company, is the only company in the U.S. that captures CO2 from coal and delivers it for enhanced oil recovery operations.

In 2000 Dakota Gasification began delivering carbon dioxide from its coal gasification facility, the Great Plains Synfuels Plant, to oil producers in Saskatchewan, Canada. With over seven years experience in capturing and sequestering CO2, Basin Electric is well prepared to move this demonstration project forward.

The Antelope Valley Station consists of two coal-based electric generating units, each rated at 450 megawatts. The ECO2 commercial demonstration will draw the equivalent of a 120 megawatt slipstream from one of the two units and will be designed to capture 90 percent of the incoming CO2. The captured CO2 would then be delivered by pipe to the existing compressor station at Dakota Gasification’s adjacent Synfuels Plant and injected into Dakota Gasification’s 205-mile pipeline system.

Approximately one million tons of CO2 will be captured and sequestered annually. The ECO2 process is a post-combustion CO2 capture process for conventional power plants that is differentiated from other approaches by its simpler capital equipment design and significantly lower energy consumption.

The technology is suitable for retrofit to the existing coal-based, electric generating fleet as well as for new coal-based plants. The CO2 capture takes place after the nitrogen oxides (NOx), sulfur dioxide (SO2), mercury and fine particulate matter are captured. Once the CO2 is captured, the ammonia-based solution is regenerated to release CO2 and ammonia. The ammonia is recovered and sent back to the scrubbing process, and the CO2 is in a form that is ready for geological storage.

Ammonia is not consumed in the scrubbing process, and no separate by-product is created.

Norway Gets Saudi Arabia and Seeks Other Countries Support of Carbon Capture and Storage as a Carbon Credit Project

Saudi Arabia and Norway have agreed to work together to obtain the approval of the Clean Development Mechanism(CDM) Executive Board for carbon capture and storage (CCS).   CCS is a process by which carbon dioxide (CO2) I captured from industrial processes, such as coal-fired powered plants or natural gas processing plants, and then injecting it far below the ground in oil and gas formations or in deep saline aquifers.  The technology for injecting CO2 in the ground has been used for 30 or more years for enhance oil and gas recovery.  The capture of CO2 from industrial processes requires technology still being developed.

Norway's goal is to have a baseline and monitoring methodology approved for CCS so that projects can be approved under the CDM of the Kyoto Protocol.  By allowing for these projects reduce greenhouse gas emissions in developing countries and to have carbon credits or Certified Emission Reductions to be issued by the Executive Board, capital could be mobilized to reduce greenhouse gas emissions.

A U.N. climate conference in Bali, Indonesia, in December postponed a decision on inclusion in the CDM scheme pending further talks this year to clarify safety, legal and commercial viability issues. 

Norway is trying to convince as many countries as possible to lobby for this effort.   Norway's oil and gas company StatoilHydro has been injecting CO2  from the natural gas stream below the seabed at its Sleipner field in the North Sea since 1996.  The Norwegian government is promoting CCS projects at gas-fired power plants at the Mongstad refinery and the Kaarstoe gas-processing and export plant on Norway's west coast.

If CCS were approved under the CDM, it would provide a means of contributing to the capital needed to implement this technology, but it would the sale of carbon credits probably would not be sufficient to meet the costs per ton of CO2 sequestered to pay for construction and operating CCS projects. 

Norwegian company Aker ASA and engineering group Aker Kvaerner believe that CCS projects could be a $1.5 trillion to $2.0 trillion per year business as important globally as the construction of oil platforms. 

The Aker prediction may be overly bullish, but the capture and storage of  CO2 will be a necessary part of any climate change solution.  Approving CCS as a technology or process that may generate carbon credits under the CDM would be a significant step to creating incentives to finance CCS.  The Lieberman-Warner Climate Security Act, that was voted out of the Senate Environment and Public Works Committee, contains provisions that would allow CCS projects to generate carbon credits under that bill’s proposed greenhouse gas cap-and-trade system.  In a prior blog, I had suggested the sale of  government “Carbon Bonds” to provide low interest loans to finance CCS projects to allow the use of coal to produce low polluting energy in the United States.  As we look to the future, finding ways to create sufficient incentives to generate sufficient capital to finance CCS will be critical as this process will be a necessary part of any future US climate change legislation and international program to significantly reduce greenhouse gas emissions.

Carbon Bonds: How Government Can Help Finance Clean Coal and Carbon Capture and Storage

The following is an article similar to one I published in Energy Law 360.

As climate change legislation is debated in Washington and numerous states pass their own programs designed to reduce greenhouse gas emissions in the United States, and as international debate continues over what should follow the Kyoto Protocol, the issue of how to achieve global reductions in emission of green gases seems ever more difficult and complex. As in every policy debate, in many ways it comes down to how to finance solutions. Funding clean coal technology and infrastructure

suggests a new conceptual approach to address the challenge of foreign sources of hydrocarbons and emissions of carbon dioxide.

The new concept that should be considered is government funding in whole or in part of an infrastructure to capture carbon emissions from coal-fired power plants. I propose the use of “carbon bonds,” government bonds sold to the public and backed by the federal government to raise capital to at least jump start the construction of the carbon capture and storage infrastructure necessary to have a significant impact on greenhouse gas emissions and to allow the use of an energy source that is abundant and available in the United States.

                  

The main culprit for predicted climate change has been identified as carbon dioxide. One of the major sources of carbon dioxide is coal-burning power plants. While coal-fired plants may be a major source of carbon dioxide emissions, coal is an abundant source of energy in the United States, and incidentally China as well.  As a result, numerous coal-fired power plants have been proposed across the United States and China. Coal use may help reduce the importation of oil and natural gas. As our country looks for ways to reduce our dependence on foreign oil, coal seems, from an importation and abundance perspective, to be a desirable alternate energy source.

Finding a solution to the coal-climate conundrum would appear to be a major issue for government and private industry. Climate change and dependence on foreign oil are converging as a unified concern.  To solve this technology challenge, President Bush in 2003 announced FutureGen, which is a project for developing a zero-emissions coal-fired power plant. The project will employ coal gasification technology integrated with combined cycle electricity generation and the capture and sequestration

of carbon dioxide emissions.

Carbon capture and sequestration is a process that would capture the emissions from coal-fired power plants, or other large emission sources such as natural-gas-powered plants or refineries, and inject the emissions far below the ground surface, perhaps miles down. The oil industry has injected carbon dioxide into oil fields to increase production for decades. Thus, much of the technology for injection is

well-developed. The capture side is what may prove more challenging. While promising, this project will not be completed for another seven to ten years. With the political instability in the oil and natural gas states combined with the need to address global warming, it would seem prudent for the federal and state governments to make significant financial contributions to the development of technology to CCS reduce carbon emissions from power plants. The infrastructure to collect and transport carbon to appropriate points of injection and storage will require significant capital.

The federal commitment to developing the technologies to capture emissions from power plants and to inject them should be greatly increased.  Government funding or low interest loans could be used to develop regional CCS facilities and the construction of pipelines to bring the emissions to the CCS facilities from power plants, refineries, and other major CO2 emitters. This could be done by contributing to the funding private efforts and entities, or creation of a government entity that would construct and operate these facilities.

Congress should consider the funding of such a program, perhaps by the selling of what I referred to above as “carbon bonds.”  The sale of these bonds could be one funding source to complete the construction of the facilities. Other funding sources, such as a carbon tax on electricity generated from burning of fossil fuels, could make a major contribution to such projects. Government low-interest, long-term financing for private projects may be another approach to development carbon capture

and sequestration facilities across the country.

The use of government-issued bonds would enable the government to raise funds and loan them to entities investing in the CCS infrastructure. The interest rates could be set at a lower rate than market rates and thereby both create a capital pool for CCS projects and a market incentive to initiate and promote private industry to begin construction of the CCS infrastructure.

The establishment of such a program could be a model for other countries and could serve as a significant part of any negotiations over post-Kyoto climate change agreements.  Since China is building numerous coal-fired power plants the technology and funding approach could potentially be exported to China. Hopefully, Congress and the White House will include carbon capture and sequestration in the debate over how to reduce greenhouse gas emissions and dependence on foreign sources of oil and natural gas.

BP and Rio Tinto Apply for Permit to Build Clean Coal Plant and Carbon Capture and Storage Facility in Australia

Webwire.com reports that BP and Rio Tinto today announced that they are beginning feasibility studies and work on plans for the potential development of a A$2 billion (US$1.5 billion) coal-fired power generation project at Kwinana in Western Australia that would be fully integrated with carbon capture and storage to reduce its emission of greenhouse gases.

This will be the first new project for Hydrogen Energy, the new company launched by BP and Rio Tinto last week, subject to regulatory approval.

The planned project would be an industrial-scale coal-fired power and carbon capture and storage project. It would generate enough electricity to meet 15 per cent of the demand of south west Western Australia, while each year capturing and permanently storing about four million tonnes of carbon dioxide which otherwise would have been emitted to the atmosphere.

The project would gasify locally-produced coal from the Collie region to produce hydrogen and carbon dioxide. The hydrogen would be used to fuel the power station and around 90 per cent of the carbon dioxide would be captured and stored permanently in a deep underground geological formation.

The costs of this low-carbon hydrogen-fuelled power generation are higher than those of traditional power generation. For the project to be economic and able to compete effectively in the electricity market, it would require appropriate policy support and a regulatory environment which recognises and encourages the low-carbon benefits it can deliver.

Subject to the successful outcome of detailed engineering and commercial studies, and providing government policy is in place to make the project commercially viable, a final investment decision to develop the project could be made in 2011, with the project coming into operation after a three year construction period.

Speaking at today’s announcement in Perth, Lewis Gillies, named last week as chief executive of Hydrogen Energy, said:

“This has enormous potential to affect the way that coal will be used for power generation across the world. Clean coal technology such as this will be essential to reducing greenhouse gas emissions, both in Australia and globally.” “This project could play an important role in influencing our future power mix, strengthening Australia’s energy security while also minimising our impact on the environment. Hydrogen Energy is now working to deploy this technology as widely and rapidly as it practically can.”

The project’s gasification facility and power station would be located in Kwinana, 45km south of Perth, alongside BP’s refinery and Rio Tinto’s Hismelt facility. The power station would be capable of producing 500 megawatts of low-carbon electricity or enough power for half a million homes. At the same time, about four million tonnes of CO2 each year would be captured, transported and permanently and securely stored in a geological formation deep beneath the seabed of the Perth basin. This would be the first hydrogen-fuelled power project to store CO2 in a saline formation, a type of geological structure which is more common globally than suitable oil and gas reservoirs.

Kwinana is an ideal location for a project of this type. The availability of a suitable site immediately adjacent to BP’s refinery, Rio Tinto’s Hismelt plant and other industrial operations which may benefit from its output provides synergies and potential additional revenue streams that greatly assist the commercial viability of the project. Increasing power demand combined with growth in the Perth area also provides an attractive market for new power generation.

Rio Tinto is a leading international mining group headquartered in the UK, combining Rio Tinto plc, a London listed public company, and Rio Tinto Limited, which is listed on the Australian Stock Exchange. The Group finds, mines and processes the earth’s mineral resources - metals and minerals essential for making thousands of everyday products that meet society’s needs and contribute to improved living standards. The Group’s major products include aluminium, copper, diamonds, energy products (coal and uranium), gold, industrial minerals (borates, titanium dioxide, salt and talc), and iron ore. Its activities span the world but are strongly represented in Australia and North America. There are also significant businesses in South America, Asia, Europe and southern Africa. For further information, see: www.riotinto.com

BP is one of the world’s largest oil and gas companies with operations in more than 100 countries across six continents. The company’s main businesses are exploration and production of oil and gas; refining, manufacturing and marketing of oil products and petrochemicals; transportation and marketing of natural gas; and a growing business in renewable and low-carbon power, BP Alternative Energy. BP’s low carbon interests combined in BP Alternative Energy include: BP Solar; the company’s fast growing interests in wind power; gas-fired power generation; and BP’s interest in Hydrogen Energy.