NARUC February 19, 2008

1. Accelerating Deployment of CCS Pew Center On Global Climate Change Coal Initiative Judi Greenwald, Director of Innovative Solutions NARUC February 19, 2008

2. The Pew Center’s Coal Initiative Addressing emissions from coal-fueled power plants • U.S. Policy Options • Standards • Trust fund • U.S. Technology Solutions • State-level Opportunities • Options for China and India

3. Overview • The need for CCS • Options to accelerate use of CCS III. A program that covers incremental costs • Program components • Alternative scales and objectives • First order cost estimates • A trust fund to manage the program • U.S. trust funds • Lessons learned • Design Features V. Considerations for PUCs VI. Introduction of States Coal Paper

4. The Need for CCS • 30% of U.S. and 80% of U.S. electricity sector CO2 emissions come from coal • These emissions must be significantly reduced to address climate change • CCS is the only suite of technologies that currently has promise to enable coal to be a major electricity-sector energy source while meeting climate objectives.

5. Current Barriers to CCS Deployment • High expected costs (~30-70% increase in plant-level cost of electricity) • Large losses in net electricity output • Lack of experience with technologies, particularly at-scale, integrated use in the utility sector • Regulatory uncertainty regarding stored CO2, including liability • Current lack of regulatory drivers to reduce CO2 emissions

6. How CCS Might be Accelerated • Stringent enough cap on CO2 • Mandate on generators or retailers (standards) • Tax credits • State & regional policies; PUC actions • Program that pays incremental costs of CCS • Combined options

7. Program Goals: Address Barriers • Establish real-world costs and viability: • Alternative electric generation technologies (PC, IGCC, new & retrofit) • Different coal types • Different geologic settings • Reduce costs & energy penalties in most efficient manner • Provide information for design of regulatory systems, including liability mechanisms

8. Program Description • Covers incremental costs of CCS (installation; O & M for 5 years; reimburse revenue lost due to reduced generation) • Sufficient funds for: ~10 plants (500 MW) + 5 other large-point sources ~30 plants (500 MW) + 10 other sources • Funds come from: • Fees on electricity generated • Proceeds from allowances • Other

9. Selected Pros and Cons of Options • Size: • Smaller is less expensive; • Larger can significantly reduce costs through carefully staged capacity-doubling • Source of funds • Per KWh coal-fueled generation – could increase role of coal community • Other electricity generators – lower fees • Allowance allocations/auction revenues – tied to climate policy; magnitude and timing of funds less certain; no fee

10. How Much Would it Cost? • Project costs will vary by: technology, coal type, location, EOR opportunity, and whether retrofit or new build • Average per 500 MW unit • High: $950 million • Low: $730 million • Total Program • Smaller program: $8-10 billion • Larger program: $24 - $30 billion

11. Scale of Fees if per kWh on Coal Based on current generation from coal: • Smaller program: $0.0004 to $0.0005 per kWh • Larger program: $0.0011 to $0.0014 per kWh Costs (and fees) decline as: • As coal-fueled generation increase • Costs of CCS decline Costs (and fees) could be reduced by: • Requiring cost-sharing • Supporting fewer projects per year

12. Trust Fund Basics A mechanism that ensures that funds are disbursed only for the purposes established for the fund In the case of federally established trust funds, legislation determines: whether funds go into Treasury and through annual appropriations the entity that manages the fund

13. Some Successful U.S. Trust Funds • Highway Trust fund – installed new infrastructure across U.S. • Propane Education and Research Council – fees enabled by federal legislation; up and running in 2 years • Ultra-Deepwater and Unconventional Natural Gas and Other Petroleum Resources – managed by private stakeholder group under DOE oversight.

14. U.S. Experience: Key Lessons • Can raise, and provide assurance on uses of, very large sums of money • Establish clear objectives; terminate program when objectives reached • Ensure reliability of fund disbursement (avoid appropriations & tax-credits) • Use independent or quasi-independent entity to manage funds • Self-financed programs survive

15. Well-designed Trust Fund Advantages • Very rapid start-up possible • Operates outside of federal appropriations • Uses private-sector project selection and management standards • Transparency: stakeholder + experts control with federal oversight • Efficient selection of projects to achieve goals • Could be applied to allowance option

16. Considerations for PUCs • Urgency of deploying CCS • Need to gain experience • Need to reduce costs in time to avoid a move away from coal • Climate legislation is on the way

17. State-level options for CCS acceleration Cap and trade Generator performance standards Retailer standards Feebates Combined approaches PUC treatment of climate change risk and CCS cost

18. The Potential Role for States Need a national program, but… States have interests in mitigating climate change, and in the future of coal States will face decisions about specific CCS projects States have relevant authorities they can exercise Favorable state policies combined with federal policies would advance CCS more effectively than either alone A proactive approach by states to drive CCS can reduce costs, speed technological and regulatory developments and public acceptance, and inform and pave the way for future national policy.

19. For Further Information See papers at www.pewclimate.org/white_papers/coal_initiative 1. A Program to Accelerate the Deployment of CO2 Capture and Storage: Rationale, Objectives, and Costs. 2007. Vello Kuuskraa • A Trust Fund Approach to Financing a CCS Deployment Program. 2008. Naomi Pena and Edward Rubin. • State Options for Low-Carbon Coal Policy Rich Cowart and Shanna Vale, Regulatory Assistance Project; Joshua Bushinsky and Pat Hogan, Pew Center on Global Climate Change