Preparing For Future Federal Carbon Regulation

APPA 2007 Engineering & Operations Technical Conference

Atlanta, Georgia

April 17, 2007

Robert L. Kappelmann PE.

Energy and Environmental Policy Consultant

RLK Associates

kapprl@juno.com

Overview

Brief Science PrimerThe Political ScienceThe Competing Solutions and LimitationsCost ImpactsCarbon StrategiesSome Parting Thoughts and Questions

Climate Change Vs Global Warming Vs The Greenhouse Effect

The Greenhouse Effect The Earth’s Atmosphere

Traps Energy From the Sun

Greenhouse Gases Include: H20, CO2, CH4 and N2O

Adds About 60 Degrees to the Earth’s Temperature

Without the Greenhouse Effect Earth Would be an Ice Planet

Natural Greenhouse Natural Greenhouse Gases Dominate the Gases Dominate the AtmosphereAtmosphere

Water Vapor95%

Other GHG5%

Water Vapor Other GHG Natural Man Made

Total Greenhouse Gases Non-Water Vapor Greenhouse Gases

Man-made GHG’s constitute 0.3% of overall GHG’s.

Other GHG’s include CO2, methane, nitrous oxide, CFC’s, SF6

Major Factors

Affecting Climate Models

Humidity

Snow & Ice

Clouds

Ocean Circulation

Total GHG

Natural94%

Man Made

6%

Source: www.clearlight.com/~mhieb/WVFossils/greenhouse_data.htmlJanuary 2003

The “Consensus” Science

•Man made GHGs are Increasing the Greenhouse Effect and Upsetting a Delicate Natural Balance

•The Increased Greenhouse Effect is Causing Global Warming

•Global Warming is Changing the Climate.

•A Changing Climate will Lead to Environmental Armageddon

The Proof Positive

•The CO2 Levels Are Increasing

•The Average World Wide Temperatures Are Increasing

•Man’s Activities Are Increasing CO2 Levels and..

• Therefore Man’s Activities Are Increasing the Worldwide Temperature and Changing the Climate.

That Data is Overwhelming

A Little Longer Look Back

The Contrarian View

•The Last Major Ice Age Ended 20,000 Years Ago.

•The Planet Has been Warming Ever Since.

•CO2 Follows Temperature, Temperature Does Not Follow CO2.•The Climate Will Continue to Change With or Without Man’s Help.

Contrarian View Continued: “The Sun Boss, the Sun”

Political Sciences Trumps Hard Science! “A Political Solution Will Always Come Before Scientific Certainty”

What is Driving Legislation?

•Real Concerns of Risk of Climate Change.

•Environmental Activist and Fund Raising.

•And the Potential Winners.

The Potential Winners

•Carbon Trading Industry

•Control Technology Vendors

•Old Big Dirty Coal Generation

•Gas Dominated Generation

•Nuclear Generation Advocates

•Renewable Energy Advocates

•Others seeing a Competitive Advantage

National Political Solutions

Voluntary Programs: Climate Vision, Climate Leaders

Market Signal Approaches: Cap and Trade, Carbon Tax

Technology Approaches: GHG Intensity, RPS (Renewable Portfolio Standard), CEPS (Clean Energy Portfolio Standard)

Cap and Trade Vs. Carbon Tax

Nearly All Economist Agree Carbon Tax is Cheaper Per Ton of Carbon Removed.

Cap and Trade in Reality is an Inefficient Tax. However, It is More Likely to Gain Political

Support.Cap and Trade Creates Winners and Losers and

Therefore Economic Opportunity.Note: A Carbon Cost of $10/Ton = $10/MWh for

Coal and Heavy Oil at a 10,000 Btu/KWh Heat Rate and $6/MWh for Natural Gas.

How Does an Air Pollutant Compare to a GHG For Cap and Trade?

Similarities:• Problem Air Pollutants (SO2, NOx,

Mercury) and GHGs (CO2 and H2O) are combustion products

• Air Pollutants and GHGs are Generally Higher From Coal-Fired EGUs

How Does an Air Pollutant Compare to a GHG For Cap and Trade?Continued

Air PollutantsDirect Human Health

ImpactsMan Made Emission

PredominateControl Technology

Available Years Before Regulation

GHGsNo Direct Human

Health ImpactsMan Made Emissions

Minor SourceControl Technology

Available Only Years After Regulation

How Does an Air Pollutant Compare to a GHG For Cap and Trade?Continued

Actual Control Cost Less Than 5% of Energy Cost.

No Adverse Impact on Energy Mix

Benefits Quantifiable

Projected Control Cost 40% to 60% of Energy Cost.

Adverse Impacts on Energy Mix

Benefits Un-quantifiable.

Cost of Carbon Control is Not Trivial!

Table A. Capital Cost and Operating Impacts for New EGUs with CSC as compared to New EGUs without CSC

EGU Nominal 500MW

Increased Capital

Cost with CSC

MW De-rating

with CSC

Heat Rate Penalty with

CSC

Increased Cost per MWH with

CSC

Est. Cost for CSC per Ton

of CO2

Removed

SCPC[1] 73% 29% 40.3% 66.2% $35.09

USCPC[2] 67% 31% 37.7% 61.6% $32.35

IGCC 47% 14% 16.6% 39.4% $23.63

Table A is based on data from EPA-430/R-06/006 July 2006. Cost for CO2 gas transport and deep injection not included in this table.

[1] Super-critical pulverized coal unit

[2] Ultra-super-critical pulverized coal unit

Technology Driven Solutions

Metric is Reduction of GHG Intensity.Technology That Produces Less GHG per Unit of

Production is Incentivized or Mandated.Less GHG Intensity Equals Less Over All GHGsBonus: Tends to Stimulate Domestic Energy

Sources.Two Possibilities: RPS and CEPS

Table A: Comparison of Key Factors and Impacts of Bingaman and Coleman Climate Proposals 

Factor 2004 Baseline

2020 Reference

2020 CEPS

2020 Bingaman

2030 Reference

2030 CEPS

2030 Bingaman

(10 E9 Kwh)

Coal1977 2505 2302 2370/2362

(phased/non-phased auction)

3381 2803 2530/2500

Natural Gas

702 1103 1090 1184/1166 993 889 1190/1180

Oil 120 107 109 49/48 115 108 49/48

Dedicated Biomass

36 51 53 58/73 77 285 262

Co-fired Biomass

1 36 177 23/19 26 126 0

Retail Electric Cents/Kwh

7.6 7.2 7.3 7.51/7.65 7.5 7.5 8.31/8.48

CO2 (10 E 6 metric tons)

2299 2835 2649 2706/2691 3318 2830 2791/2756

Based on EIA Analysis of Coleman and Bingaman proposals.

Unintended Consequences Need to be Understood!

Even a Well Designed Cap and Trade Will Shift Generation To Natural Gas.

Current Domestic Supplies (80%) and Imports (20%) Are Not Sufficient.

Imported LNG From Our Good Friends Such as Algeria and Russia Must Make Up the Shortfall.

Coal to Liquids (CTL) Industry Stopped Before It Starts.

Carbon Strategies:

Ostrich ApproachQuantify Risk of Future RegulationAnticipate and Mitigate Risk of

Future Regulation

Quantify the Risk of Future Regulation

•Incorporate a carbon cost in IRP and/or “Need for Power” study.

•Already required in some states.

•Range: $5 to $10 per ton.

•Problem: May be perceived as planning to buy your way out of the problem.

Avoid debating the science if possible.Have a reasonable and proactive

responses.Participation in voluntary programs.Lower GHG Intensity by Efficiency

and RenewablesAddress possible future regulatory

programs.

Anticipate and Mitigate Risk of Future Regulation

Voluntary Programs.DOE Climate Vision*EPA Climate Leaders1605 b ReportingTree PowerOther?

A Good Example

Response to Future Regulatory Programs.Carbon Tax = Cost of carbon in IRPGHG Intensity = Renewable energy, DSM,

Supply-side efficiency, carbon offsetsCap and Trade = Cost of Carbon In IRP,

Renewable energy, DSM, Supply-side efficiency, carbon offsets

Note: 3 Clean Coal Technologies but no current commercial capture technology for any including IGCC.

Good Example continued

Parting ThoughtsParting Thought

If you don’t tell your story someone else will.

Questions?