January PoV

Written by: Doug Scott, Vice President, Strategic Initiatives, Great Plains Institute and former Chair and Commissioner, Illinois Commerce Commission

Doug Scott

Doug Scott

While energy policy in the United States is focused on greenhouse gas (GHG) emission reduction strategies, it makes sense to look at other pieces of energy policy that can also provide other benefits for the country. One of those policies is carbon capture and storage with enhanced oil recovery (CCS-EOR).

CCS technologies are not new. Generally, CCS encompasses a range of technologies for capturing CO2 from power plants and industrial facilities with underground storage of that CO2 in suitable geologic formations. The U.S. has over 4,500 miles of CO2 pipelines in operation, which transport CO2 from where it is captured to existing oil fields where it is injected to help produce additional oil, while permanently and safely storing the CO2 in the process.  Over 13 million of the roughly 65 million tons of CO2 used by the oil industry each year for EOR comes from man-made sources.  The U.S. independent oil industry leads the world in EOR, with over 40 years of commercial experience using CO2 for oil recovery.

Over those 40 years, more than 1.1 billion barrels of additional domestic oil have been recovered in the U.S. through CO2-EOR that would not have otherwise been produced. Currently, nearly four percent of our domestic oil production (280,000 barrels per day, 102.2 million barrels per year) comes from the utilization of CO2 for EOR. Currently, there are 23 states with active or potential CO2-EOR operations.

While most people only think of power plants in the context of CO2 capture, a variety of other industrial processes also supply CO2 for EOR and permanent storage, including natural gas processing, the production of ethanol, fertilizer, hydrogen and certain chemicals, and refining.  And the commercial demonstration of CO2 capture in other important industrial sectors such as cement and iron and steel production is expected in the future.  However, despite the prevalence of CO2 emissions from a wide variety of manmade sources, there is currently not enough CO2 available for purchase by the oil industry to support EOR to the degree required. Capturing CO2 from power plants and other large industrial sources could change that.

There are a number of reasons why greater recovery of CO2 from power plants and industrial facilities would make sense for the U.S. First, accessing more domestic oil reserves that are not economically recoverable except through CO2-EOR would enhance U.S. energy security. Today, according to estimates from the Department of Energy, the U.S. has an estimated 21 to 60 billion barrels of oil that could be recovered using today’s EOR technology (and much more could be obtained with next generation technology). This represents a potential doubling of current U.S. proved oil reserves, and it is oil that without the availability and use of additional CO2, will not be produced.

Second, substantial economic and employment benefits will come from an expansion of EOR. Additional oil production yields increased federal and state revenue in the form of taxes and royalties paid on production and by oil companies and royalty owners.  Every barrel of oil produced domestically through EOR displaces the next most expensive barrel of imported oil, potentially reducing the U.S. trade deficit by hundreds of billions of dollars by 2030. And significant job creation occurs in the process, from manufacturing and installing CO2 capture equipment to pipeline construction to rehabilitation of mature oil fields, as well as long-term employment associated with operation and maintenance of all aspects of the CO2-EOR value chain from the CO2 capture facility to the oil field.

Finally, CCS-EOR brings important environmental benefits. Reclaiming and utilizing older oil fields that already bear the impact of wells, pipelines, roads and power lines reduces the environmental footprint of oil production.  CCS-EOR yields significant reductions in GHG emissions over conventional oil production in two important ways:  1) by curbing CO2 emissions from electric power generation and other industries through the beneficial use of that CO2 in EOR and permanent geologic storage; and 2) by replacing more carbon-intensive imported heavy crudes with lighter and less carbon intensive American oil produced through CO2-EOR.

To put this opportunity into context, the deployment of carbon capture at power plants and industrial facilities for could provide GHG emission reductions of 10-20 billion tons, just with today’s oil field technologies and practices, or up to four years’ worth of U.S. CO2 emissions. Viewed from another perspective, states with significant EOR potential in mature oil fields also face new federal requirements under the Clean Power Plan (CPP) to reduce carbon emissions from existing power plants.  Preliminary modeling suggests that a number of these states could meet a large percentage of their requirements through the deployment of carbon capture in the electric power sector, and the U.S. EPA has identified CCS a potential compliance technology available to states under the CPP.

If so, then why is CCS-EOR not being thought of more as a CPP compliance strategy? In a word, cost. While CO2 capture technology in some industries has been commercially available for decades (e.g. natural gas processing, coal gasification, and ethanol and fertilizer production), it remains very expensive to retrofit existing power plants for carbon capture, even though from an engineering standpoint, the technology has been technically demonstrated and now operates at commercial scale on a coal-fired power plant in Saskatchewan.  Targeted financial incentives are urgently needed to close the gap between the cost of capturing CO2 from power plants and the revenue received from selling that CO2 to the oil industry, and such incentives could work together with Clean Power Plan compliance to spur development of CCS-EOR projects.

Clearly, the Clean Power Plan provides an additional impetus to states and Congress to look at CCS-EOR, but the many benefits of the technology make it worthwhile to encourage CCS-EOR, regardless of whether one supports the CPP or not.   Toward that end, the National Enhanced Oil Recovery Initiative (NEORI) is a prominent national coalition that brings together an extraordinarily diverse set of interests—coal, electric power, oil and gas, ethanol, chemical and technology companies, labor unions, environmental organizations and state officials—that have advocated since 2011 for federal tax credits and other financial incentives to accelerate commercial CCS-EOR deployment.  NEORI-inspired tax credit legislation introduced in the U.S. Senate in 2014, for example, would have resulted over 40 years in an estimated eight billion barrels of additional American oil produced, while safely storing four billion tons of CO2 that would otherwise be released to the atmosphere.

Fortunately, the tax credits proposed by NEORI would pay for themselves as well, by generating tax and royalty revenue for the federal government from oil production made possible by an increased supply of CO2 available to the oil industry. Within a little over a decade, new federal revenues received would exceed the total cost of the tax credit, continuing to provide a net positive federal revenue stream to the Treasury for decades to come.  This does not even count the additional economic and revenue benefits from the jobs created, nor the benefits of reducing the U.S. trade deficit.

In addition to tax credits, there are other helpful federal incentive policies being discussed. The President’s proposed 2016 federal budget provides for an investment tax credit and a production tax credit for carbon capture projects. Members of Congress have also introduced legislation to help advance commercial-scale CCS projects by providing eligibility for tax-exempt private activity bonds and for master limited partnership tax status. These proposals all seek to narrow the financial gap between power plants and other industrial facilities equipped with CCS and their conventional counterparts.

While Congress has so far failed to pass CCS-EOR legislation introduced over the past several years, the growing interest and activity in Washington hopefully signals that expanding the capture and beneficial use of CO2 from power plants and industry in EOR and geologic storage will become the national priority it deserves to be.