Senators Revive Financing Tactic From ’70s for Carbon Emissions

Source: By DIANE CARDWELL, New York Times • Posted: Wednesday, November 25, 2015

NRG Energy’s Petra Nova carbon capture site near Houston will be the world’s largest postcombustion carbon-capture-enhanced oil recovery project. Credit Eric Kayne/Invision for NRG, via Associated Press 

For years, power companies, manufacturers and entrepreneurs have tried to make capturing and storing carbon emissions from industrial operations like burning coal into a business, to little avail.

Despite decades of promising research, demonstration projects and government investment, large-scale developments have often proved too difficult and costly to get off the ground.

But now two senators think they have hit on a way to move the industry forward. Under a bill set to be introduced on Thursday, carbon capture projects — considered important tools for fossil fuel power plants and industrial facilities to meet anticipated greenhouse gas restrictions — would qualify for tax-exempt private activity bonds, which helped clean up air pollution in the 1970s and 1980s.

Senator Rob Portman, Republican of Ohio, who is a co-sponsor of the bill, said that power plants “used some of these private-activity-type bonds” to install equipment like “scrubbers and so on back in the day.”

His co-sponsor, Senator Michael F. Bennet, Democrat of Colorado, said, “This is the very same idea.”

There are different processes for capturing carbon — some more complex than others — but oil, gas and other industrial producers have been siphoning off carbon dioxide for decades. There is an established market for carbon dioxide in oil fields, where producers inject it underground to help extract petroleum, also storing the carbon dioxide there, in a process known as enhanced oil recovery. But investors have been leery of carbon capture and storage, or C.C.S., projects, seeing them as risky and the technology as unproved, in part because it has not yet been widely applied to power plants, energy executives say.

“It’s less about how to make it work technically these days but more about how to make it work financially,” said Dan Reicher, who helped draft the proposed legislation and is the executive director of the Steyer-Taylor Center for Energy Policy and Finance at Stanford University.

Only 15 large-scale carbon capture and storage projects are in operation around the globe, according to a recent report from the Global CCS Institute, which is based in Australia and seeks to advance adoption of the technology. Those include Shell’s Quest project in the oil sands of Alberta, Canada, and a project at a natural gasprocessing plant in Hawiyah, Saudi Arabia, that opened this year. Taken together, the 15 are capable of capturing as much as 28 million metric tons of carbon dioxide a year, but that is a small fraction of the four billion tons the International Energy Agency predicts will be needed by 2040, and the six billion tons by 2050, in order to achieve global climate goals, the report said.

Proponents of allowing the use of tax-exempt private activity bonds for carbon capture say it could go a long way toward helping meet those goals, as well as the emissions reductions required by the Obama administration’s Clean Power Plan. Power plants fired by coal, natural gas and biomass, along with operations like oil and chemical refineries as well as ethanol, fertilizer and cement manufacturers, are responsible for more than half of the carbon emissions in the United States, congressional officials say.

Even though enhanced oil recovery is the main existing commercial use for captured carbon — on its face an impediment to the low- or no-carbon future experts say is needed to arrest global warming — some environmental advocates say C.C.S. is a necessary component to getting there, especially given the abundance of coal and natural gas plants already operating or in the works around the globe.

“It’s an interim way to get a particular technology built at scale to bring costs down,” said Armond Cohen, executive director of the Clean Air Task Force, an advocacy group based in Boston that supports the approach. “The only projects that are actually moving forward right now are the ones that have a revenue stream from enhanced oil recovery.”

The federal tax code permits the use of private activity bonds for projects that handle solid and hazardous waste and sewage at privately owned facilities. From 1968 to 1986, the code contained an allowance for air pollution control that spurred tens of billions of dollars’ worth of installations aimed at ridding emissions of sulfur dioxide and other harmful substances. According to the Joint Committee on Taxation, during the last half of that period, $37.2 billion in bonds went toward financing projects whose total cost was roughly double that figure.

That allowance no longer exists, although there are exceptions that have let businesses use the tax exempt bonds for projects that include carbon capture and storage. The proposed change is aimed at bringing the tax code in line with policy and technology developments, proponents say.

For instance, the independent power producer NRG Energy was able to use private activity bonds to finance part of a coal plant in Texas that also includes capture and storage because the plant was built in a zone eligible for disaster relief after Hurricane Ike in 2008. But Summit Power, a developer of energy projects, was unable to take advantage of similar financing for a coal power plant with capture and storage in West Texas, despite the promise of a $450 million grant from the Department of Energy and more than $800 million in investment tax credits.

The project is moving ahead, said Jason Crew, Summit’s chief executive, but much more slowly than anticipated. “If we had access to a greater suite of financing tools, we certainly would be done by now.”

Some experts question the use of tax-exempt bonds for private development in general. Others caution that state limits on bond issues each year could keep some projects from going forward.

“By opening up a broader world for private activity bonds, you squeeze out other projects,” said Gregory F. Jenner, a former federal tax policy official who is now a lawyer at Stoel Rives in Washington.

But supporters argue that in many states the cap on bond issues has gone unmet, and that the carbon projects’ financing would not add that much anyway. Congressional officials estimate that expanding the qualification to include carbon capture and storage would cost taxpayers $29 million over five years and $128 million over 10.

“This is a way, in a relatively inexpensive way, to solve a problem that needs to be solved,” Mr. Portman said.