MIT Study: EPA “Carbon Pollution” Rule Will Not Incentivize Investment In Carbon Capture Technology

A new MIT study implicitly confirms the obvious: EPA’s “carbon pollution rule” — the agency’s proposed carbon dioxide (CO2) emission standards for new fossil-fuel power plants — is a fuel-switching mandate. Whether through miscalulation or design, the rule does not promote investment in new coal generation with carbon capture and storage (CCS) technology. Rather, the rule effectively bans investment in new coal power plants.

The study, “CO2 emission standards and investment in carbon capture,” puts the point more delicately:

First, the impact of the U.S. EPA’s proposed emission standard of 1100 lbs CO2/MWh is most likely to be an acceleration of the ongoing shift of generation from coal to natural gas. An emission standard of this level is unlikely to incentivize investment in coal with CCS, regardless of any stated intentions.

Why does the “carbon pollution” rule block investment in new coal generation? Coal power plants can meet the standard only by installing CCS technology. CCS adds significantly to the cost of coal generation, natural gas combined cycle (NGCC) power plants already comply with EPA’s rule without additional technology or investment, and “even in the absence of the standard, low natural gas prices would favor natural gas-fired generation over coal fired generation.” Thus, “fuel switching, rather than investment in emissions control (i.e., CCS), is the lowest cost compliance strategy.”

The charts below show the cost penalties incurred by installing CCS technology. Both variable O&M costs and overnight capital costs (the full cost of building the plant if paid upfront) increase as the percentage of CO2 capture increases.

EPA’s proposal is short-sighted, the MIT researchers suggest. Although fuel-switching can achieve near-term CO2 emission cuts, greater reductions in the future “will not be possible without technologies that emit less carbon than natural gas.” EPA policy should aim at improving the cost and performance of CCS technology to the point where it is economical to deploy with NGCC power plants. But without investment in coal with CCS, industry will never gain the “commercial scale” experience required to apply CCS to NGCC power plants.

EPA should raise the standard to 1,500 lbs. CO2/MWh, the MIT team recommends. That would lower the capital and operating costs of the requisite CCS technology, making new coal plants more competitive (or less uncompetitive) with new NGCC plants.

The researchers acknowledge, however, that if gas remains at today’s prices (~$4.00/MMBTU), no CCS-equipped coal plants will be built even under the less stringent standard.