Federal Efforts to Reduce the Cost of Capturing and Storing Carbon Dioxide

June 28, 2012

Coal-powered facilities account for roughly a third of all U.S. emissions of carbon dioxide, and most climate scientists believe that the buildup of carbon dioxide and other greenhouse gases in the atmosphere could have costly consequences. One much-discussed option for reducing the nation’s carbon dioxide (CO2) emissions while preserving its ability to produce electricity at coal-fired power plants is to capture the CO2 that is emitted when the coal is burned, compress it into a fluid, and then store it deep underground.

That process—commonly called carbon capture and storage (CCS)—has not been widely adopted because any electricity generated by such plants would be much more expensive than electricity produced by conventional coal-burning plant. Since 2005, lawmakers have provided the Department of Energy (DOE) with about $6.9 billion to further develop CCS technology, demonstrate its commercial feasibility, and reduce the cost of electricity generated by CCS-equipped plants. This study examines those federal efforts.

The Initial Costs of Generating Electricity with CCS Technology Are Likely to be High and Reducing Them Significantly Would Probably Require Construction of a Substantial Amount of New CCS Capacity

Utilities, rather than federal agencies, make most of the decisions about investments in the electricity industry, and today they have little incentive to equip their facilities with CCS technology to lessen their CO2 emissions. Engineers have estimated that, on average, electricity generated by the first CCS-equipped commercial-scale plants would initially be about 75 percent more costly than electricity generated by conventional coal-fired plants. That initial cost differential would probably shrink, however, as the technology became more widely applied and equipment manufacturers and construction companies became more familiar with it—a pattern of cost reduction called learning-by-doing.

DOE aims to bring down the additional costs for generating electricity with CCS technology to no more than 35 percent, or less than half the current cost premium. Such a reduction in costs might be accomplished over time through learning-by-doing, which would require that a certain amount of new generating capacity be built—in the form of new coal-fired CCS-equipped generating plants. Using the historical pace of reductions in costs for earlier emissions-control technologies, CBO estimates that more than 200 gigawatts (GW) of coal-fired generating capacity with CCS capabilities will have to be built to meet DOE’s cost reduction goal. That estimate of new capacity, which is equivalent to about two-thirds of the total current capacity of U.S. coal-powered electricity-generation plants, is subject to considerable uncertainty. Nevertheless, in the absence of a significant technological breakthrough, it seems clear that a large amount of new CCS capacity—installed either at new plants or, through retrofitting, at existing plants—would be needed to reduce costs by enough to achieve DOE’s goal.

Substantial Private Investment in CCS Technology is Unlikely Under Current Law and Might Not Occur Even if the Technology Became More Competitive Economically

The demand for electricity in the United States is growing slowly, and even if DOE’s cost reduction target was attained, coal-fired power plants equipped with CCS technology would not be competitive with coal-fired plants that lacked it unless policies restricting CO2 emissions or imposing a price on them were adopted. Consequently, under current laws and policies, utilities are unlikely to build that much new generating capacity—that is, more than 200 GW—or invest in adding CCS technology to much of their existing capacity for many decades.

If, however, new policies restricted or imposed a price on CO2 emissions, the domestic stock of electricity generation plants would turn over more rapidly, and CCS technology would become more competitive economically, increasing the potential for construction of CCS-equipped plants in the United States. Nevertheless, investors already have several options for generating electricity—nuclear power, wind, biomass, other renewables, and natural gas—that produce few, if any, CO2 emissions. The amount of investment in CCS would depend on how the costs for the different alternatives would compare with costs for electricity generation without CCS.

DOE’s Current Program Is Unlikely To Promote Widespread Use of CCS, but Other Policy Approaches Could Be Considered

CBO’s analysis suggests that unless the federal government adopts policies that encourage or require utilities to generate electricity with fewer greenhouse gas emissions, the projected high cost of using CCS technology means that DOE’s current program is unlikely to do much to support widespread use of the technology. A number of other policy approaches could be considered.

Lawmakers could redirect resources now funding technology demonstration projects toward research and development. Eliminating such demonstration projects would reduce DOE’s involvement in efforts in which the agency has a mixed track record and in which U.S. industry is generally not poised to follow up with subsequent investment.

Alternatively, policymakers could impose costs—for example, through a tax on carbon—on users of electricity whose generation releases greenhouse gases (thereby making CCS more competitive) or experiment with different types of electricity production subsidies that would provide more incentive for private-sector investments in CCS.

As another option, lawmakers could reduce or eliminate future spending for CCS, leaving most of the potential for further development of CCS technology to countries—for example, China and India—with high rates of growth in the demand for electricity and in the need for new electricity-generating capacity. At present, however, foreign investment in CCS centers not on building full-scale CCS-equipped commercial plants but on conducting research and development, carrying out small-scale demonstrations of the technology’s feasibility, and building pilot plants.