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Project: Rethinking CCS – Strategies for Technology Development in Times of Uncertainty

Research Team: Jan Eide and Howard Herzog

Sponsor: Carbon Sequestration Initiative

Year: 2013

Concerns over climate change and a reliance on CO2-emitting fossil fuels for a majority of the world’s energy supply have motivated the development of carbon dioxide capture and storage (CCS). However, CCS is not yet commercially available, and key technical roadblocks remain. However, the external circumstances for developing the technology, such as weak climate policy and tight public finances, have changed dramatically over the past four years and current RD&D roadmaps are poorly adapted to the new realities. In order to rethink U.S. CCS policy, and to provide a realistic roadmap for technology development, this thesis provides an overview of the key technical roadblocks, an analysis of the impact of the new realities on CCS investments, and a novel method for finding the optimal way of allocating scarce public resources to CCS RD&D.

The U.S. has responded to the changing political context in two notable ways. First, Enhanced Oil Recovery (EOR) has received increased attention due to the positive value that EOR storage puts on CO2.  Second, the EPA has proposed a 1000 lbs CO2/MWh emission standard that would require new coal plants to install CCS. Using a stochastic generation expansion model, this thesis concludes that low natural gas prices make fuel switching rather than CCS investment the most likely compliance method. Moreover, should these standards be gradually tightened, CCS will likely be deployed on natural gas plants before coal plants. More generally, the model highlights the importance of considering uncertainty when analyzing CCS investments, and results differ notably depending on whether probability distributions over parameters are considered or not.

With limited funds available for technology development there is a striking need to ensure that limited resources are allocated strategically. Whereas designing optimal technology RD&D portfolios has traditionally been dealt with qualitatively, this thesis develops a quantitative model for choosing optimal portfolios of demonstration projects. The strength of new model is how it incorporates the different uncertainties associated with CCS, allowing decision makers to observe how different underlying assumptions affect project choices.

Based on my analyses, I make six recommendations for CCS technology development in times of uncertainty, many of which are major departures from current U.S. CCS policy. First, the U.S. should focus more on pilot-scale development of novel capture concepts promising to significantly reduce cost. Second, if gradually tightening emission standards is to be the primary mechanism to reduce power sector CO2 emissions, then the U.S. should also demonstrate CCS on natural gas plants. Third, granting a limited number of coal plants a higher CO2 emission standard could help bring CCS plants online in challenging times. Fourth, relying almost exclusively on projects with EOR storage is unlikely to be a sound long-term policy. Because of the significant variability across geologic storage reservoirs, at least some demonstration projects must focus on CO2 storage in saline formations. Finally, with tightening public finances it becomes increasingly important to coordinate demonstration efforts globally to avoid unproductive overlap.

Eide, J., F. de Sisternes, H. Herzog and M. Webster, “CO2 Emission Standards and Investment in Carbon Capture,” Energy Economics, Vol 45, pp 7647-7667, DOI: 10.1016/j.eneco.2014.06.005, Sept (2014). Note: Subscription required to view article <Link to online journal article>

Eide, J., H. Herzog and M. Webster, “Rethinking CCS – Developing Quantitative Tools for Designing Robust Policy in Face of Uncertainty,” Energy Procedia, Vol 37, pp 7647-7667, Aug (2013). <PDF>

Eide, J. "Rethinking CCS - Strategies for Technology Development in Times of Uncertainty," M.I.T. Masters Thesis, May (2013). <PDF> <Executive Summary>

Herzog, H. and J. Eide, "Rethinking CCS - Moving Forward in Times of Uncertainty," in Cornerstone, the official journal of the World Coal Association, by Wiley Periodicals Inc., Vol 1:1, pp 44-50, Spring (2013). <PDF>