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A 932 page bill … with manager’s amendments on top of it … with active committee debate … any single individual with an ability to actually understand the intricacies of the American Clean Energy and Security (ACES) Act has achieved near-super-human capacities. Reading through the bill, time after time, I pause to scratch my head, re-read, and try to figure out the implications of a section.

Lets take a brief example. Section 115, Commercial Deployment of Carbon Capture and Sequestration Technologies:

Amends Title VII of the Clean Air Act to direct the EPA Administrator to establish an incentive program to distribute allowances to support the commercial deployment of carbon capture and sequestration technologies in both electric power generation and industrial applications. Establishes eligibility requirements for facilities to receive allowances based on the number of tons of carbon dioxide sequestered. The allowance disbursement program is structured to provide greater incentives for facilities to deploy CCS technologies early in the program and for facilities to capture and sequester larger amounts of carbon dioxide.

That is just a summary, the actual text in the 932 Friday bill submission is much longer. Phase 1 includes a subsection to encourage, I believe, early adopters.

This subsection shall apply only to projects at the first 6 gigawatts of electric generating units, measured in cumulative generating 23 capacity of such units.

While I have sought to find it, I see no time limit associated with this special subsection. What does the subsection provide for? Bonus payments based on the percentage of CO2 emissions sequestered, starting with $50 per ton for sequestering at least 50 percent up to $90 for 85 percent or more. Again, only for that first 6 gigawatts and there are controls there, such as reducing payments for the monetary value of CO2 used in enhanced oil recovery.

Now, while I have (TREMENDOUS) problems with how much money is going into the uncertainty of Carbon Capture & Sequestration (CCS), with determination that this uncertain technology and high-cost approach is “the answer” (which I do not believe, with reason), the fiscal implications of this section are rather astounding.

Let us work through some numbers of a coal-fired plant.

• Every Kilowatt Hour (kWh) generated by coal represents roughly 2 pounds of CO2. (Actually more, especially when considering systems-of-systems implications, but this is an easy enough number to work with.)
• Thus, every Megawatt Hour (mWh) is 1 ton (1000 times 2 = …).
• Every Gigawatt Hour (gWh) is thus 1000 tons.
• And, thus, “six gigawatts of electric generation units” represents 6,000 tons of carbon every hour, or 144,000 tons per day, or 52.56 million tons per year assuming 24/7 operations.
• With reasonable capacity calculation of the plants operating 80 percent of the time, this means 42 million tons of CO2 per year with these six gigawatts of generating capacity.

Let us assume that all of these eight gigawatts achieve the desired 85+% sequestration.  Based on my understanding of the legislative language, this would mean $90 of payment to each plant for each ton sequestered.  This would mean about $3.8 billion of payments every year. (To be fair, the direct calculation is $3.78432 billion / year.)

NOTE/UPDATE:  There is an interesting (and unusual?) calculation here.

‘(2) DISTRIBUTION.—The Administrator shall distribute emission allowances allocated under section 782(f) to the owner or operator of each eligible project at an electric generating unit in a quantity equal to the quotient obtained by dividing— ‘‘(A) the product obtained by multiplying— ‘(i) the number of metric tons of carbon dioxide emissions avoided through capture and sequestration of emissions by the project, as determined pursuant to such methodology as the Administrator shall prescribe by regulation; and ‘‘(ii) a bonus allowance value, pursuant to paragraph (3); by ‘‘(B) the average fair market value of an emission allowance during the preceding year.

This is confusing and an odd formula.

It provides a real roller coaster of a ride as to payments and total value:  If CO2 sequestration value is $1, then there would be $90 per ton payments for a total value of $91. If sequestration value is $45, then there would be a $2 payment for a total value of $47.  If $90/ton, then there would be $1 in payments, for a total value of $91. Thus, for these six plants, it seems that the operators would either want extremely low total CO2 sequestration values or extremely high ones, because those two paths return the highest income.

And, again, while it might be there, there doesn’t seem to be a time limit to this subsection. If that is truly the case, these six gigawatts of capacity could cost $3.8 billion per year indefinitely.  Over 25 years, we are talking just under $95 billion.

NOTE/UPDATE:  As per the comments, there is a 10-year time limit to these payments.  Thus, let’s assume that the average price of a sequestered ton is $10 through a 10 year period. That would be $9/ton in benefits which would total the value of these incentive premiums at $4 billion.  If …

And, yes, the legislation specifically states that these payments are to be adjusted for inflation. These are the “real” costs.

This is only one subsection for a demonstration effort of a currently unproven technology that seems quite possible to not be able to work at an affordable cost and for which there already seem to be quite serious alternatives.

Again, this is a complicated bill and this might be a misunderstanding — please correct.  But, if reading the bill correctly, this is a $3.8 billion potential bill … every year … year-in, year-out … indefinitely.  Is this the best use of our resources? Could we be spending that $100 billion, for example, on the deployment of 50 gigawatts of wind power or perhaps 20 gigawatts of nuclear power or …

NOTE / UPDATE:  This looks like a reasonable estimate would be that this might be a $4 billion or so bill over a ten year period, starting sometime in the next decade.  Still a concerning amount of incentive funding, but a far cry from $4 billion/year indefinitely.

NOTE / UPDATE TWO: The EPA has now modeled the changed bill, included in that.

Incentives for Carbon Capture and Storage

Changes to the incentive structure for carbon capture and storage (CCS) increase the deployment of that technology. Both the draft bill and the introduced H.R. 2454 provide incentives for carbon capture and storage. Based on guidance from Committee staff,
EPA analyzed the draft assuming that the first 3 GW of CCS will receive a subsidy of $90/ton captured for 10 years, that the next 3 GW of CCS will receive a subsidy of $70/ton captured for 10 years, and that a significant additional amount of CCS will receive a subsidy of $50/ton for 10 years. H.R. 2454 provides opportunities for greater subsidies. Up to 6 GW of CCS may receive a subsidy of $90/ton captured for 10 years.

Additional allowances are available through a reverse auction, allowing much of the additional, eligible CCS to receive subsides greater than $50/ton. The reverse auction ensures that CCS projects are neither over- nor under-subsidized, and that the bonus allowances will be distributed in a way that maximizes the amount of CCS deployed in response to the bonus allowances.

Those changes are likely to result in greater penetration of CCS in 2020 and 2025 than EPA saw in its analysis of the draft bill. That will likely result in somewhat higher use of coal in 2020 and 2025 than EPA saw in its analysis of the draft. Beyond 2025, the use of the reverse auction has the potential to extend the use of CCS bonus allowances to a greater number of projects than shown in EPA’s preliminary modeling of the draft.

PS: Thank you for comments below and email notes.