Manchin Could Score Carbon Capture Subsidies to Prop Up Coal

 

 

By Lee Harris

November 9, 2021 - The signature climate plan in Democrats’ Build Back Better legislation would have penalized power companies that fail to hit annual targets for increasing renewable energy. Following the collapse of that carrot-and-stick approach, funding in the party’s mega-bill is being diverted to a subsidy scheme that many energy analysts fear will have the opposite effect: It could keep polluting plants running, even as their costs rise.

To compensate for the loss of the clean energy standard, which was cut due to opposition from West Virginia Sen. Joe Manchin, Democrats are proposing a range of clean energy subsidies including a multibillion-dollar expansion to the current tax incentive for carbon capture, known as 45Q.

Carbon capture, which traps CO2 emitted in manufacturing or electricity production, and direct air capture, which sucks the greenhouse gas from the atmosphere, could be needed to deal with stubborn sources of pollution. So far, however, neither technology has been proven at commercial scale. Climate activists say carbon capture should only be a last resort, given the availability of cheaper renewable alternatives to coal and gas.

But as demand for coal declines, elected officials from coal producer states like Wyoming and West Virginia have urged the uptake of carbon capture.

The effort to keep coal viable is becoming more and more expensive. Electric bills have risen as a shrinking coal fleet attempts to keep up with mandatory environmental regulations, which frequently require large investments in upgrades.

Attaching carbon capture facilities to coal plants is among most expensive of those outlays, potentially costing more than the value produced by generating electricity from coal.

In West Virginia, which relies heavily on coal-fired generation, average residential electricity rates have nearly doubled since 2005. Monthly electric bills from the West Virginia subsidiaries of American Electric Power, which owns the nation’s largest electricity transmission system, more than doubled over the last 13 years from an average of $62.46 to $138.57.

If carbon capture is adopted across the country and passed on to electricity consumers, it could drive up monthly bills by more than a quarter, according to a recent study by the Ohio River Valley Institute, a think tank that supports renewables and economic growth in Appalachia. In states like Wyoming, Kentucky, and Utah, which depend heavily on coal and gas, carbon capture could increase electric bills by more than 50 percent.

No state would see its bills rise more than West Virginia, which last year sourced 88 percent of its electricity from coal and 5 percent from natural gas. The study found that West Virginians could see their electric bills increase by 63 percent.

Americans would have to pay more for electricity each month if current levels of coal-fired and gas-fired power were supplemented with carbon capture.

Joe Manchin has acknowledged the problem. “I’d love to have carbon capture,” he told reporters in September, but “it’s so darn expensive.”

The senator is au courant on the costs. In September, the Charleston Gazette-Mail first reported, Manchin met with Charlotte Lane, the chair of the state Public Service Commission, to discuss federal funding for installing carbon capture technology at Mountaineer Power Plant, a coal-fired station owned by AEP.

It wouldn’t be the first time the facility tried out carbon capture. In 2010, Mountaineer installed and operated a pilot project for carbon capture, treating just 2 percent of the plant’s exhaust at a cost of around $100 million. A bigger demo project, proposing to treat 20 percent of the plant’s emissions for around $700 million, was canceled.

That scrapped effort is detailed in a briefing document, first made public by The American Prospect, which was discussed at Lane’s meeting with Manchin. The Energy and Policy Institute, a watchdog group that supports renewable energy, obtained the document in a public-records request.

“If the entire plant could be converted, the capital cost may be between $3 to $5 billion and operating costs may increase by 25% to 35%,” the document reads. “That level of cost for utility customers in West Virginia is unsustainable. Therefore, federal funding of close to 100% of the capital costs is needed.”

That briefing occurred on September 9. In mid-October, Manchin rejected the clean energy standard, and environmental policymakers set to work cobbling together alternative proposals to reduce emissions. Those include federal subsidies to fund carbon capture facilities, potentially including the proposal at Mountaineer.

Manchin’s spokesperson did not respond to multiple requests for comment on the senator’s support for a tax credit that could increase utility rates for West Virginians, even while drawing heavy federal subsidies.

Sean O’Leary, the analyst at Ohio River Valley Institute, added up the capital and operating costs to capture carbon from the Mountaineer plant detailed in the briefing document. The cost would be around $62 per megawatt hour, he said, which is greater than the value of the electricity the plant produces.

The wholesale price of electricity in the region has not exceeded $60 megawatt hours in years, less than the cost of carbon capture.

“Under this plan, Mountaineer would probably get paid more for capturing the carbon it creates than it would for generating electricity. Economically, it’s like paying someone to dig a hole in your backyard and then fill it in,” O’Leary said.

That assumes capture facilities are actually built.

But coal-friendly public utility commissions could use the expectation of income from tax credits to delay retirement of uneconomical plants, according to the Sierra Club, an environmental group that has attorneys and campaigners involved at nearly every energy proceeding across the country.

The current proposal for tax credit expansion would provide coal and other fossil fuel plants with $85 per metric ton of carbon sequestered. A Sierra Club analysis found that could add up to more than $6 billion in payments for a single 1,000-megawatt coal plant.

“The provision creates an incentive for coal plants to speculatively pursue carbon capture, even if they have no practical way of making it work,” the study concludes.

That is already happening at the current lower 45Q tax credit rate of $50 per ton.

New Mexico’s San Juan Generating Station, for example, is an uneconomic coal plant that was slated for closure and replacement with renewables. Public Service New Mexico had approved an entirely renewable portfolio of solar and battery power, which it determined would save money for electric ratepayers.

But a firm called Enchant Energy is now urging the coal plant to stay open with the promise of carbon capture.

Many coal plants are heavily in debt, which has made them attractive to private equity firms that often receive lucrative payments for keeping the plants on standby. A stream of multibillion-dollar subsidies could make coal plants look even more attractive, potentially luring investors to make up-front capital investments in carbon capture facilities for otherwise uneconomical plants.

Analysts worry that even if carbon capture facilities are actually built, extending the life of coal plants, the eventual mandatory retirement of the fuel will leave nearby towns holding steep liabilities.

“The moment that the subsidy runs out, these carbon capture equipped plants become the most expensive fossil plants on the grid,” said Jeremy Fisher, an energy analyst at Sierra Club. “If we thought we had a stranded asset issue today, we would have a huge stranded asset issue then.”

For now, climate activists are pushing for last-minute changes to the Build Back Better legislation, which is still awaiting approval after passing a procedural vote in the House on Friday.

“We traded in a policy that could have substantially supported renewables, and looted the money for carbon capture,” Lukas Ross, a climate and energy campaigner at Friends of the Earth, told the Prospect. “The irony isn’t lost on anyone.”