Capturing Carbon Drives up Energy Costs

Some odd discussions are taking place on the right side of the political spectrum surrounding climate change policies and energy prices.

Claims by Roger Meiners -- a Professor of Economics at the University of Texas at Arlington -- that "the latest salvo [by the Obama administration] against fossil fuels, announced this week, ensures higher energy prices in the future. This will discourage domestic investment in favor of going to countries such as China, India, and South Africa that are not shy about building new coal-fired power plants" are fundamentally correct. Efforts by the Obama administration to reduce greenhouse gas emissions are increasing, and will increase, energy prices above the non-GHG reduction counter-factual. And, indeed, raising energy prices slows economic growth and discourages domestic investment.

When Professor Meiners states that "domestic reductions in carbon emissions, which will damage the economy long after Mr. Obama is gone, will be swamped by new emissions from emerging nations," he is also accurately describing the state of global GHG emissions.

So far we're on a logical track, but here is where I have concerns with Professor Meiners' reasoning:

"If we are serious about reducing carbon emissions, reducing the size of our economy will not help. We need to find ways to capture the carbon. Unfortunately, the administration only pays lip service to carbon capture, focusing instead on policies that run up energy costs.

What nation is doing serious research on what is supposed to be the biggest long-term environmental threat?

The answer, of course, is China. It is pouring serious money into carbon capture projects. The Obama Administration talks a lot about climate change but does little to help produce the technology that can solve the problem."

Yes, China's communist government is "pouring serious money into carbon capture projects." But this is supposed to be a role model for the American economy? The Obama administration should be following communist China's lead and massively subsidizing the fossil fuel industry by "pouring serious money" from taxpayers into developing carbon capture technology? This doesn't sound like a rational free market approach.

Some harsh economic realities need to be brought into focus. Carbon capture costs money, and a lot of it. Full stop. And by costing money, carbon capture drives up energy prices. A case study of this is currently taking place in the Canadian province of Saskatchewan. The government-owned provincial power agency spent well over a billion dollars -- in a province with a population of only one million -- to install a carbon capture system on a coal-fired power plant, and corresponding electricity prices in the province are now going through the roof.

Carbon taxation is carbon taxation is carbon taxation. If your proposal to capture carbon costs money relative to the non-capturing option, then your proposal involves carbon pricing (aka, taxation) and inevitably leads to higher energy prices than the alternative in which you do not capture carbon. And as we all know, higher energy prices equal lower economic growth -- all other factors being equal. Economies don't just need plentiful energy in order to prosper. They require plentiful cheap energy.

How much does capturing carbon cost? A lot. ICO2N -- "the Integrated CO2 Network, a group of Canadian companies representing multiple industries, including coal and the oil sands" that includes members such as BP Canada, ConocoPhillips, Husky Energy, Shell Canada, Statoil, Suncor Energy, Syncrude, and Total -- estimates the "total cost per tonne of CO2 abated ranges from $70 to $250 depending heavily on the capture process and CO2 source."

If ICO2N is still estimating that it costs $70 to $250 per tonne to capture carbon, and the province of Saskatchewan is apparently only receiving $20 per tonne for its captured carbon that is subsequently used for nearby enhanced oil recovery efforts, this suggests the province's taxpayers are losing anywhere from $50 to $230 per tonne (e.g., $50 to $230 million annually since the Boundary Dam plant captures one million tonnes per year) on the carbon capture project. No wonder electricity prices are skyrocketing. Ratepayers will need to cover any such financial shortfalls.

Some perspective required. In 2012, the U.S. emitted "5,400 million metric tons" of carbon dioxide. If your price on carbon per tonne "ranges from $70 to $250," that equates to a carbon tax cost of $378 billion to $1.35 trillion per year, or up to nearly 10 percent of the USA's annual GDP. Capturing only a small proportion of total U.S. emissions each year is still a massive tax.

Even advocates for climate change mitigation don't hide the fact that "carbon capture raises power plant costs by requiring capital investment in carbon capture equipment and by reducing the quantity of useful electricity. Additional generation capacity is needed at a power plant to power capture equipment, and incorporating CCS [carbon capture and storage] at a power plant could decrease its net power output by as much 30 percent. Overall, in 2010, the U.S. Department of Energy and the National Energy Technology Laboratory estimated that 'CCS technologies would add around 80 percent to the cost of electricity for a new pulverized coal plant, and around 35 percent to the cost of electricity for a new advanced gasification-based plant.'" Energy cost increases of 35 to 80 percent will have a major negative impact on economic growth.

There is a broad literature on the high costs of carbon capture, and it is currently unclear -- and not getting clearer over time -- whether it is more economical to (1) continue using fossil fuels but capture the carbon emissions or (2) move almost entirely over to low carbon (e.g., nuclear) and renewable energy sources. Both these options, of course, assume that your goal is to reduce carbon dioxide emissions, and that you are seeking the least costly means of doing so. But make no mistake about it: both options will be very costly, will dramatically increase the cost of energy, and will harm the economy.

The following third option is the one I prefer: until it becomes unambiguously clear that anthropogenic greenhouse gas emissions are exerting a net negative cost on society, do nothing and continue with business as usual.

Some odd discussions are taking place on the right side of the political spectrum surrounding climate change policies and energy prices.

Claims by Roger Meiners -- a Professor of Economics at the University of Texas at Arlington -- that "the latest salvo [by the Obama administration] against fossil fuels, announced this week, ensures higher energy prices in the future. This will discourage domestic investment in favor of going to countries such as China, India, and South Africa that are not shy about building new coal-fired power plants" are fundamentally correct. Efforts by the Obama administration to reduce greenhouse gas emissions are increasing, and will increase, energy prices above the non-GHG reduction counter-factual. And, indeed, raising energy prices slows economic growth and discourages domestic investment.

When Professor Meiners states that "domestic reductions in carbon emissions, which will damage the economy long after Mr. Obama is gone, will be swamped by new emissions from emerging nations," he is also accurately describing the state of global GHG emissions.

So far we're on a logical track, but here is where I have concerns with Professor Meiners' reasoning:

"If we are serious about reducing carbon emissions, reducing the size of our economy will not help. We need to find ways to capture the carbon. Unfortunately, the administration only pays lip service to carbon capture, focusing instead on policies that run up energy costs.

What nation is doing serious research on what is supposed to be the biggest long-term environmental threat?

The answer, of course, is China. It is pouring serious money into carbon capture projects. The Obama Administration talks a lot about climate change but does little to help produce the technology that can solve the problem."

Yes, China's communist government is "pouring serious money into carbon capture projects." But this is supposed to be a role model for the American economy? The Obama administration should be following communist China's lead and massively subsidizing the fossil fuel industry by "pouring serious money" from taxpayers into developing carbon capture technology? This doesn't sound like a rational free market approach.

Some harsh economic realities need to be brought into focus. Carbon capture costs money, and a lot of it. Full stop. And by costing money, carbon capture drives up energy prices. A case study of this is currently taking place in the Canadian province of Saskatchewan. The government-owned provincial power agency spent well over a billion dollars -- in a province with a population of only one million -- to install a carbon capture system on a coal-fired power plant, and corresponding electricity prices in the province are now going through the roof.

Carbon taxation is carbon taxation is carbon taxation. If your proposal to capture carbon costs money relative to the non-capturing option, then your proposal involves carbon pricing (aka, taxation) and inevitably leads to higher energy prices than the alternative in which you do not capture carbon. And as we all know, higher energy prices equal lower economic growth -- all other factors being equal. Economies don't just need plentiful energy in order to prosper. They require plentiful cheap energy.

How much does capturing carbon cost? A lot. ICO2N -- "the Integrated CO2 Network, a group of Canadian companies representing multiple industries, including coal and the oil sands" that includes members such as BP Canada, ConocoPhillips, Husky Energy, Shell Canada, Statoil, Suncor Energy, Syncrude, and Total -- estimates the "total cost per tonne of CO2 abated ranges from $70 to $250 depending heavily on the capture process and CO2 source."

If ICO2N is still estimating that it costs $70 to $250 per tonne to capture carbon, and the province of Saskatchewan is apparently only receiving $20 per tonne for its captured carbon that is subsequently used for nearby enhanced oil recovery efforts, this suggests the province's taxpayers are losing anywhere from $50 to $230 per tonne (e.g., $50 to $230 million annually since the Boundary Dam plant captures one million tonnes per year) on the carbon capture project. No wonder electricity prices are skyrocketing. Ratepayers will need to cover any such financial shortfalls.

Some perspective required. In 2012, the U.S. emitted "5,400 million metric tons" of carbon dioxide. If your price on carbon per tonne "ranges from $70 to $250," that equates to a carbon tax cost of $378 billion to $1.35 trillion per year, or up to nearly 10 percent of the USA's annual GDP. Capturing only a small proportion of total U.S. emissions each year is still a massive tax.

Even advocates for climate change mitigation don't hide the fact that "carbon capture raises power plant costs by requiring capital investment in carbon capture equipment and by reducing the quantity of useful electricity. Additional generation capacity is needed at a power plant to power capture equipment, and incorporating CCS [carbon capture and storage] at a power plant could decrease its net power output by as much 30 percent. Overall, in 2010, the U.S. Department of Energy and the National Energy Technology Laboratory estimated that 'CCS technologies would add around 80 percent to the cost of electricity for a new pulverized coal plant, and around 35 percent to the cost of electricity for a new advanced gasification-based plant.'" Energy cost increases of 35 to 80 percent will have a major negative impact on economic growth.

There is a broad literature on the high costs of carbon capture, and it is currently unclear -- and not getting clearer over time -- whether it is more economical to (1) continue using fossil fuels but capture the carbon emissions or (2) move almost entirely over to low carbon (e.g., nuclear) and renewable energy sources. Both these options, of course, assume that your goal is to reduce carbon dioxide emissions, and that you are seeking the least costly means of doing so. But make no mistake about it: both options will be very costly, will dramatically increase the cost of energy, and will harm the economy.

The following third option is the one I prefer: until it becomes unambiguously clear that anthropogenic greenhouse gas emissions are exerting a net negative cost on society, do nothing and continue with business as usual.

RECENT VIDEOS