World-Saving Technology or Waste of Money?
Investment into Carbon Capture, Utilization, and Storage will play an important role in abating carbon emissions in the future. While American government investment into renewable energies increased significantly with the American Reinvestment and Recovery Act (ARRA), there is evidence to suggest that this investment crowded out private investment into renewables. Meanwhile, nearly half of the sum from this act allocated for partnerships to further carbon sequestration technologies went unspent.
Historical Energy Policy in the United States
Energy policy in the United States has historically been based on the goal of increasing self-reliance for national security. This has been done through tax benefits to companies that contribute to this end. Many of these tax preferences, such as full depreciation for intangible drilling costs allowed to be expensed in the year the assets are bought, introduced in 1916, still exist in limited form today.
In the 1970s, alternative fuels and energy sources began to be more heavily subsidized, and a greater importance was placed on energy efficiency; environmental concerns became more pronounced and national security concerns increased with the oil embargo and energy crisis of 1973. In the 1980s with the Reagan Administration, many of the tax credits previously enacted expired, as a free market approach to energy policy was adopted. Although many of the tax preferences for alternative fuels expired, the tax provisions for oil and gas remained. In the 1990s tax preferences and subsidies were revitalized under George H. W. Bush for alternative fuels, renewables, and oil and gas, along with excise taxes on gas (Energy Tax Policy: Historical Perspectives on and Current Status of Energy Tax Expenditures).
In the 2000s, energy efficiency and innovation was further incentivized with the Working Families Tax Relief Act of 2004 and The Energy Policy Act of 2005. From 2008 to 2014, energy subsidies increased with the Emergency Economic Stabilization Act of 2008 and the American Recovery and Reinvestment Act of 2009. Up until this point, most of the tax preferences were to subsidize fossil fuels, but with this legislation renewables were more heavily subsidized than fossil fuels. In 2016, 59% of energy related tax preferences went to renewables, and 25% went to fossil fuels, out of the $18.4 billion total (Federal Support for Developing, Producing, and Using Fuels and Energy Technologies).
Rationale for Government Investment
Money is invested by the government, whether it be through tax preferences or direct cash payments, with the aim of promoting something under-provided by the private sector. This often applies when a sector or technology is so nascent that the risk outweighs the potential profit. Additionally, it is the case when the positive externalities, or socially beneficial spillover effects from the investment, cannot be captured by the price of the output. This has increasingly been the case with research and development into renewable energies because of the research into the positive externalities from replacing carbon emitting fossil fuels. Accordingly, without government invented incentive to the private sector to adopt or innovate carbon sequestration technology, there is no incentive to develop it. In fact, of the $3.4 billion appropriated for fossil fuel research and development programs by the ARRA, $1.5 billion went unspent in 2015 when the deadline passed (Federal Support for Developing, Producing, and Using Fuels and Energy Technologies).
Questions remain about why this part of the stimulus package went unused. It could be because it was provided to fund relationships with utility companies to sequester CO₂ from coal plants: increasing investment into renewables, coupled with many coal plants nearing their end of life, to be replaced by natural gas, spooked decision-makers. Because it is so expensive to fund a demonstration project for carbon sequestration technology, and the subsidies were limited in duration, there was not enough incentive to outweigh the risk of private investment into the technology. Limitations on the efficiency of plants fitted with carbon sequestration technologies may not make them viable with the existence of renewable energies. By some estimates, the only reason that coal plants continue to produce electricity cheaper than renewables is that the sunk costs of building the plant have been incurred. Therefore, if a new coal plant is to be built, the electricity will be more expensive than other options that are better for the environment.
Future United States Energy Investment Portfolio
So, then, if carbon sequestration technologies are too expensive to develop for coal, even with billion-dollar subsidies from the government, is there enough of an incentive to develop them for natural gas? If there is, it is because of the cheaper cost of natural gas compared to other forms of energy, especially as the supply has increased since the shale oil boom. The CO₂ emissions from natural gas are significantly less (50-60%) than coal, but methane emissions from the transport, drilling, and extraction of natural gas, which have a more drastic warming effect on the earth in the short term than CO₂, make it an imperfect alternative. It is clear, however, that fossil fuels have a place in our energy portfolio as a state, as they offer some benefits that have eluded other renewable forms of energy, such as mitigating the risk of energy intermittency. Unless there is major investment into infrastructure to store energy created by renewables, and enough trust to overcome the potential outcry of the public for relying on such new and unproven technologies, fossil fuel power plants are necessary.
Has the United States investment into renewables since the Great Recession resulted in crowding out? Researchers found evidence of crowding out at high levels of investment in this sector in China (Feifei, et al., 2016). Moreover, a global race to more reliance on solar energy could result in spillover effects from other countries’ investments. If renewable energies are at a point that the private sector investment is enough to support the industry, because there is enough opportunity for profit with little enough risk, government investment is a waste. Especially because the technologies will transfer to the private sector for profit without the taxpayer realizing any profit from the investment besides the positive externality from decreasing carbon emissions. Crowding out in other countries with similar investment in the technology points to the fact that the potential profit from a global energy shift is enough so that the optimum level of investment is made available by the private sector.
Even worse is the antiquated tax preferences made available by the government for domestic oil and gas. These subsidies, as mentioned before, were in response to national security energy concerns, but as the United States is now one of the largest exporters of oil in the world, they are unnecessary and costly. A study by the National Academy of Sciences found that eliminating the tax preferences for domestic oil producers would have no effect on the supply of oil. The cost of these policies “was between $90 and $200 per additional barrel of domestic oil produced”, in addition to the market price of the barrel of oil. Domestic oil producers reported that they would reduce their production by 20%, however a testimony from the CBO doubted this in respect to historical data and trends (Federal Support for Developing, Producing, and Using Fuels and Energy Technologies).
Carbon Sequestration Overview
It is impossible to give an overview of carbon sequestration without doing so in respect to coal. States such as Colorado, Indiana, Iowa, Kentucky, and New Mexico, among others, get more than 75% of their energy from coal, with 13 other states getting between 50-75% of their energy from it. The cost of operating these plants has increased with increasing environmental regulation, however, and it is estimated that 20% of these plants could close by 2020 and be replaced by natural gas as a result (“Capturing CO2”, 2011). In fact, U.S. coal consumption in 2018 was set to be the lowest it has been in 39 years. The fear from this change is an opportunity for votes, resulting in political moves to change policy, and renewing interest in carbon sequestration technologies across the political aisle. Bi-partisan support is crucial because of the costly and risky nature of researching the basic science, and the large amounts of capital necessary to create plants that use these new technologies. For instance, Basin Electric Power Cooperative, after investing $6 million into a coal CCS project, cancelled the project as a result of mounting concerns of the economic viability and changing environmental regulations (“Coal-Fired Power,” 2018).
Another factor motivating the interest in carbon sequestration is the ability to use the recovered particulate to inject into oil fields and boost oil recovery. This application provides an incentive for existing energy producers to benefit from a continued dependence on coal and subsidized carbon capture. Many nascent applications of CCS are hopeful to use the byproducts of the process economically in other ways, however, instead of needing to store them underground, which represents an additional cost. CCS initiatives often tout that it is the only technology boasting the possibility of negative emissions, though current implementations in power plants have not been close to achieving this. Instead, there is evidence that with the more potent methane leaks upstream inherent to natural gas production and use, current technology could result in only a 16% reduction in greenhouse gas emissions if all coal plants were replaced with natural gas. Further technological advancement is necessary to make an impact as we transition from the dirtier alternative of coal, to the cheaper and cleaner natural gas. There is evidence that post-combustion capture of natural gas, a type of carbon capture that does so after the creation of the electricity, faces less technical hurdles than post-combustion capture of coal, because there are less contaminants to filter from the exhaust. Less particulates also mean a healthier environment for inhabitants in surrounding areas, a reason why natural gas plants face less opposition from community members.
Carbon Capture & Storage Viability
Although coal energy maintains a higher global proportion than natural gas, as natural gas production increases across the world, and as more coal plants are retired, natural gas plants could replace them. Whether or not advances in carbon capture and storage for coal will transfer to other fossil fuels, such as natural gas, is a driving question for whether coal carbon capture and storage should be pursued. Additionally, the effect of the existing coal plants before they retire on the environment should be weighed with the cost of developing new CCS technology and retrofitting existing plants with it. One of the drivers behind policy is whether subsidizing a part of a sector is politically viable. There is evidence of bi-partisan support for innovating carbon capture for natural gas, whereas there is evidence that subsidizing coal is a political move to gain votes from key republican states. For instance, a recent bill, the Launching Energy Advancement and Development through Innovations for Natural Gas, is a bi-partisan effort to partner the private sector with national laboratories to advance the technology and provide reliable, cleaner energy (“Cassidy, Colleagues”, 2019).
One of the reasons that carbon capture seems viable is that the companies that extract natural gas from the ground have needed to clean the CO₂ from the natural gas in order to sell it. Therefore, there is some proof of concept for the technology. How to incentivize implementation and development of the technology is another issue. For instance, in the past there have been tax preferences made available for new technologies, and in the case of the ARRA, there were also grants that amounted to cash transfers to firms. There are drawbacks and benefits to market-based policy that taxes carbon and makes carbon sequestration more attractive for firms, or a cap and trade program that would allow the sale and purchase of permits that would allow firms to pollute, incentivizing the new CCS technologies. Additionally, the government could be more heavily involved in the technology with prescriptive policies that mandate technology or amount of pollution, and there are drawbacks and benefits to these types of policies, too.
The government should be instrumental in the creation of these new technologies because without government intervention, there is no incentive to create the technology. Instead of relying solely on a market-based or prescriptive mechanism, the Department of Energy should focus on the development of these riskier endeavors. Renewables have been the focus, whereas CCS subsidies have been introduced as an excuse to subsidize a dying industry for political votes. Most coal plants in the United States were built before 1990, and they are being retired more quickly than expected, not because of increasing environmental concerns, but because of competition from renewables and natural gas. Basic science research and proper government incentives are necessary to bring CCS to the point that the private sector will invest more heavily. Enduring investment into the technology will be a signal to the market that the technology is a worthy investment because of the profits transferred to the private sector from government research and development in the past.
New Energy Culture
Although nuclear energy is the most obvious solution as a technology that solves intermittency issues and provides a gateway to cheap energy security, the salience of danger from this technology, however misleading, makes it a tough sell to policy makers. Natural gas, however, is a symbol of America’s shale boom and independence from traditional energy exporters. “Freedom gas” is a cleaner and more effective policy directive that is not built on an agenda to get re-elected by those who feel helpless and discouraged from the loss of their jobs in an industry where their jobs costed them their lives. Environmentally safe energy independence is increasingly relevant, and to achieve this, subsidizing research and development, coupled with prescriptive policy that encourages private sector innovation, is necessary for CCS technologies.
United States, Congress, Subcommittee on Energy Committee on Energy and Commerce, and Terry Dinan. “Federal Support for Developing, Producing, and Using Fuels and Energy Technologies.” Federal Support for Developing, Producing, and Using Fuels and Energy Technologies.
Yu, Feifei, et al. “The Impact of Government Subsidies and Enterprises’ R&D Investment: A Panel Data Study from Renewable Energy in China.” Energy Policy, vol. 89, 2016, pp. 106–113., doi:10.1016/j.enpol.2015.11.009.
United States, Congress, Sherlock, Molly F. “Energy Tax Policy: Historical Perspectives on and Current Status of Energy Tax Expenditures.” Energy Tax Policy: Historical Perspectives on and Current Status of Energy Tax Expenditures.
Anderson, Glen. “Capturing CO2.” NCSL.org, Mar. 2011, www.ncsl.org/research/energy/capturing-co2.aspx#c.
Shah, Nafi. “Coal-Fired Power Plant with Carbon Capture – Cutting Emissions or Increasing Them? – TexasVox: The Voice of Public Citizen in Texas.” TexasVox, 13 Dec. 2018, www.texasvox.org/coal-fired-power-plant-carbon-capture-cutting-emissions-increasing/.
“Cassidy, Colleagues Introduce Bill to Ensure Reliable, Affordable and Environmentally-Sound Energy Supply | U.S. Senator Bill Cassidy of Louisiana.” Press Release | Press Releases | Newsroom | U.S. Senator Bill Cassidy of Louisiana, 23 May 2019, www.cassidy.senate.gov/newsroom/press-releases/cassidy-colleagues-introduce-bill-to-ensure-reliable-affordable-and-environmentally-sound-energy-supply-.