Full Spectrum: Energy Analysis and Commentary with Jesse Jenkins

Summary: CO2 emissions standards for power plants in the United States, United Kingdom and elsewhere may not spur the use of carbon capture technology; tighter or looser standards would work better to drive technology adoption.

The U.S. Environmental Protection Agency is finalizing rules that would limit the rate of CO2 emissions from power plants to 1,100 lbs per MWh (~454 g/KWh). That rule mirrors similar emissions standards in place in California and other western states and included in the UK’s Electricity Market Reforms.

Unfortunately, a new paper from MIT researchers published in the journal Energy Economics concludes that these standards are unlikely to spur the adoption of carbon capture technology—at least in the United States. Instead, the rules are likely to accelerate a shift from coal to natural gas-fired power plants. Surprisingly, a less stringent emissions standard might be the best way to drive carbon capture technology into the market.

An 1,100 lbs per MWh standard would require a coal plant to capture about half its CO2 emissions. In contrast, an efficient natural gas plant could comply without installing any capture equipment. As a result, unless gas prices are high—above $13 per million British thermal units (MMBtu) according to the MIT simulations—it is cheaper to shift to gas instead of install expensive carbon capture technology at coal plants. Those prices aren’t unheard of in the UK, where power plants purchased gas for $10-18 per MMBtu in 2013, but they are double prevailing prices in the US (roughly $6-7 per MMBtu). If coal plants can earn $10-30 per ton by selling captured CO2 to pump oil out of depleting wells, gas prices would need to be $9-11 per MMBtu to spur carbon capture.

Under a less stringent standard of about 1,500 lbs/MWh, coal plants would be required to capture a smaller share of their emissions, reducing the cost of capture equipment. A gas price of $10 per MMBtu—or as low as $8 if coal plants can earn $30 per ton selling CO2 to oil fields—would then be sufficient to make carbon capture economical.

Alternatively, a tighter standard of 300-500 lbs/MWh could also spur capture at both coal and gas plants. The price of natural gas would again determine which fuel prevails under this standard.

Publication: “CO2 emission standards and investment in carbon capture,” Energy Economics 45 (September 2014): 53-65.

Authors: Jan Eide earned his M.S. in Technology & Policy at the Massachusetts Institute of Technology and is a former research assistant at the MIT Energy Initiative. Dr. Fernando de Sisternes earned his PhD in Engineering Systems at the Massachusetts Institute of Technology. Howard Hertzog is a Senior Research Engineer in the MIT Energy Initiative. Prof. Mort Webster is Associate Professor of Energy and Mineral Engineering at Pennsylvania State University.

Note: This is the first in an ongoing series of concise summaries of interesting and important conclusions from new research and peer-reviewed journal articles. This series at Full Spectrum is written in partnership with Observatorio de las Ideas, a Spanish-language publication which finds and summarizes important, cutting-edge ideas for policy makers, business leaders, and others on key topics like energy, health care, economics, and more.