What Would it Really Cost to Reduce Carbon Emissions?

What Would it Really Cost to Reduce Carbon Emissions? A new policy model suggests that United States can meaningfully reduce carbon dioxide emissions without crippling the economy by setting a stringent limit for new natural gas power plants on CO2 emissions – just 80kg/MWh – then gives electricity producers 10 years to develop and deploy carbon capture technology to meet the standard, with tax credit incentives for early adoption.

To develop their cost metric, Reichelstein and Comello used empirical engineering cost data on natural gas power plants from the U.S. Department of Energy’s National Energy Technology Laboratory (NETL) and extrapolated it over the 10-year horizon.

Problem:

Basic carbon capture, in which “scrubbers” installed in a chimney selectively capture carbon dioxide emissions, has been used in industrial applications for decades, though never on commercial-scale power plants. “The technology is expensive because it hasn’t been fully developed for power plants, so there are few people who want to do it,” says Comello. “Large-scale carbon capture has been caught in a cycle of high cost, low acceptance, and there has been no mechanism to help break it out of that.”

Solution:

In the hypothetical policy, the Environmental Protection Agency would issue the new 80kg/MWh CO2 emissions standard for power plants built in 2017 or thereafter, mandating compliance by 2027. Investors in power plants would then need to decide whether to employ new carbon capture technology immediately or build according to the old standard and retrofit before the 2027 deadline. While the first plants to build to the more stringent standard initially would bear significantly higher capital and production costs, the policy model offers tax credits to offset increased costs and incentivize early adoption of carbon capture technology.

The tax incentives proposed are of the types used today to support the adoption of solar and wind technology: an investment tax credit to offset increased capital costs and a production tax credit refunded per kilowatt-hour generated. In the policy model, credits are substantial for the first two years, but decrease to zero over time as carbon capture technology cost declines with widespread deployment. Total incentive cost is projected to be $6.6 billion over 10 years. (In 2013 alone, wind and solar received approximately $5.4 billion in energy-related tax preferences.)

“The incentives are temporary to motivate power producers to get ahead of the curve,” says Reichelstein. At the same time, early adoption will spur industry to master the process at a large-scale commercial level, “so that in the future it is available to everybody on a cheaper basis,” he says. According to their analysis, if every plant built starting in 2017 used carbon capture (rather than retrofitting), and thus technology cost fell rapidly, tax incentives could diminish to zero by 2026.

At the same time, CO2 emissions would be reduced by 80% over today’s natural gas power plants, and the cost of generating a kilowatt-hour of electricity would be 7.8 cents in 2027 (in today’s dollars), just 1.2 cents more than today’s average cost. “To put that into perspective, if the utility were to pass the entire increase on to consumers, you could expect a 10 to 12% increase in the cost of electricity,” says Comello.

The Comparison

In 2009, the Obama administration announced a goal of reducing greenhouse gas emissions 83% by 2050, relative to 2005 level. Reichelstein and Comello’s Early Adoption of Carbon Capture plan would cut emissions from electricity production by 84% once old plants are retired. Here’s how it stacks up against today’s figures.

Graphic showing emissions data
Source: http://www.gsb.stanford.edu/insights/what-would-it-really-cost-reduce-carbon-emissions
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