Proposed cap-and-trade legislation to support CCS: the American Clean Energy and Security Act (Waxman-Markey Bill) 2009
History: Introduced on 15 May 2009. Passed by House of Representatives on 26 June 2009; companion Bills currently at various stages in the Senate. Current Status:NOT YET PASSED
What are the aims and requirement of this Bill with respect to CCS?
The American Clean Energy and Security Act (ACESA) is comprehensive climate change legislation passed by the full House in June 2009. Although no other climate change bill has ever reached such an advanced stage in the legislative process, this Bill is still awaiting approval from the Senate.
If enacted, the ACESA would establish a cap-and-trade system aimed at reducing GHG emissions from 3 percent below 2005 emission levels by 2012 to 83 percent below that level by 2050 (s.702). It would also: mandate that 25 percent of energy be generated from renewable sources by 2025; establish energy efficiency programmes; limit the carbon content of motor fuels and set carbon standards for heavy duty vehicles and engines. The Bill contains many provisions addressing CCS technologies with the aim of accelerating its commercial deployment. The following is a general overview of the provisions dedicated to CCS.
Comprehensive National Strategy for CCS (s.111)
One year on from its enactment, the ACESA would require the Environmental Protection Agency (EPA) to submit a report establishing a comprehensive national strategy to address regulatory, legal, technological and other gaps and barriers associated with CCS. It would also identify regulatory implementation challenges and recommend rules to deal with them.
EPA regulations for geological storage (s.112)
The EPA would be required to finalise regulations under the Clear Air Act addressing the risk of CO2 leakage to the atmosphere and regulations under the Safe Drinking Water Act to govern geological sequestration wells, including financial responsibility provisions. The Clean Air Act and the Safe Drinking Water Act would be amended accordingly. It also requires the EPA to report data on storage sites and evaluate the adequacy of its regulations for CO2 storage every three years before the Congress.
Task Force to address legal issues surrounding CCS (s.113)
The ACESA would establish a Task Force to analyse existing laws that could apply to CCS, taking into account: environmental risks; damage to the environment or public health; implementation issues; and financial implications for federal and private actors. This study would also consider private mechanisms (such as insurance and bonding), surface mineral rights, water rights or property rights associated with CCS, including on federal lands.
What mechanisms are established to finance CCS under this Bill?
Important provisions address the issue of financing CCS technologies and are intended to accelerate full-scale commercial deployment. The following mechanisms aim to provide financial support for CCS investment and incentives to encourage the private sector to financially commit to the technology.
CCS research and related financial assistance (s.111)
The ACESA would create a 'Carbon Storage Research Corporation' responsible for administering a programme to accelerate commercial availability of CCS technologies. In order to implement this programme, the Bill states that competitively awarded grants, contracts and financial assistance will be provided. These financing mechanisms will be funded by an assessment on distribution utilities with respect to the electricity delivered to customers, taking into account the type of fuel used (coal, natural gas or oil) (Different criteria are provided for the Electric Reliability Council of Texas-ERCOT). Fifty percent of funds will be granted to 'early movers', which are those utilities that, prior to the award of the grant, had committed financial resources to deploy a large scale power plant with integrated CCS. The financial assistance provided by the 'Carbon Storage Research Corporation' aims at supporting at least 5 commercial-scale demonstration projects. The corporation will provide a maximum of US$1.1 billion in assessment annually for ten years, but is authorised to 'supplement assessments through additional financial commitments'.
Cap-and-trade and CCS
The Bill establishes a broad cap-and-trade scheme. Emission allowances would be issued either for free or through auctions. The Bill contains a wide array of allowance distribution categories depending on the beneficiary. It also provides subsides to the coal industry and low-income taxpayers. A cap on the aggregated emissions from the installations covered by the scheme will be set in order to reduce emissions by:
3 percent below 2005 CO2 emissions levels by 2012;
20 percent below 2005 CO2 emissions levels by 2020;
42 percent below 2005 CO2 emission levels by 2030; and
83 percent below 2005 CO2 emission levels by 2050.
Operators will be required to surrender one emission allowance for each tonne of CO2 equivalent emitted. According to the Bill, an 'emission' is 'the release of a greenhouse gas into the ambient air' and clarifies that 'such term does not include gases that are captured and geologically sequestered, except to the extent that they are later released into the atmosphere'. Due to this definition, CO2 captured and stored would not be classified as emissions and therefore would not entail any obligation to surrender emissions allowances. This scheme would constitute an incentive for operators of power plants and industrial installations to use CCS technologies. Where there is a leakage of CO2 to the atmosphere, the Bill states that it would qualify as an 'emission' and, therefore, the obligation to surrender allowances will apply.
Bonus allowances for CCS projects (s.115)
Bonus allowances are distributed to CCS projects developers. The owner or the operator of a project will receive allowances only if they implement CCS at a power plant which has a capacity of at least 200 MW and derives at least 50 percent of its annual fuel from coal, petroleum, coke or any combination of these fuels. Industrial sources are also eligible provided that they emit more than 50,000 tonnes of CO2 per year and will be able to reduce this by at least 50 percent by using CCS.
The quantity of bonus allowances available under this scheme will increase over time (from 1.75 percent of the total allowances available under the cap-and-trade mechanism in the period 2014-2017 to 5 percent in the period 2020-2050).The bill establishes two phases for distribution of allowances to CCS developers.
Phase I applies to the first 6 GW of electric capacity. If the generating unit captures and sequesters at least 85 percent of CO2, the bonus allowance will be US$90 per tonne of CO2 captured and sequestered. For lower percentages of CO2 captured and sequestered, the EPA will determine by regulation the bonus allowance value, starting from a minimum of US$50 per tonne for 50 percent capture and storage rate. For early-developers, who are able to capture and store at least 50 percent of their emission by January 2017, an extra bonus allowance of US$10 per tonne is available. A lower bonus can be established by the EPA for projects that combine CCS and EOR activities.
Phase II concerns the subsequent 6-72 GW of generating capacity. In this case, allowances are distributed to projects selected through an annual reverse auction, in which the bids are based on the desired level of incentive for 10-year CCS projects. Higher number of bonus allowances will be given to projects achieving a higher capture and sequestration rate. The EPA will establish the precise bonus allowance and value, which will be reviewed every 8 years.
Capacity over 72 GW will not be eligible to receive bonus allowances. Bonus allowances can only be received for a maximum period of 10 years and industrial sources cannot be given more than 15 percent of the available allowances for each year.
Similarly, coal-fired power plants permitted between 2009 and 2014 which not retrofit with CCS within 5 years of commencing operations lose eligibility. They will be required to retrofit with CCS in any case by 2025. In the same way, power plants permitted between 2015 and 2019, which do not reduce emissions by 50 percent when they commence operations lose eligibility for bonus allowances.
Emission performance standards for CO2 (s.116)
The ACESA would amend the Clean Air Act to establish an emission performance standard for CO2 for new coal-fired power plants.
Power plants initially permitted between 2009 and 2020 are required to achieve 50 percent reduction of their annual CO2 emissions, either within 4 years of the commercial deployment of CCS (defined as the deployment of 4 GW of CCS enabled generating capacity), or by January 2025, which ever is earlier.
Power plants initially permitted from January 2020 are required to reduce their CO2 emissions by 65 percent annually. By 2025, the EPA will review and revise these standards.
Clean Energy Deployment Administration (s.184)
This Bill intends to establish a Clean Energy Deployment Administration (CEDA) within the Department of Energy (DOE). This body will be tasked to issue: loans, letters of credit and loan guarantees for clean energy technology. The financial contribution to each technology cannot exceed 30 percent of the project cost. CEDA can provide additional funding for CCS projects. No authorisation is given to appropriate funds for this initiative, but necessary funds would be disbursed by a new Clean Energy Investment Fund established by this Bill.
Key issues concerning CCS
The Waxman-Markey Bill gives particular importance to CCS technologies as a way to reduce CO2 emissions and provides a large variety of financial mechanisms to accelerate its commercial deployment. However, it has not been approved by the Senate and Senate action does not currently appear likely during the Congress of 2010-11 (in which case the legislative process returns to square one).
By setting a price on carbon, the cap-and-trade scheme established by this Bill would constitute an important incentive to reduce emissions to a greater extent and therefore for using CCS. However the price of allowances would need to be high enough make reducing emissions the more cost effective option.
The issue of bonus allowances to CCS operators seems to be an appealing incentive to install and use CCS technologies. However, meeting the eligibility requirements to receive the bonus allowances is challenging given the current technical development of CCS.
The Bill emphasises the role of the EPA and requires it to take all steps necessary to solve legal and regulatory uncertainty.
If the ACESA was enacted, state cap-and-trade systems would be suspended from 2012 through 2017. However, other state initiatives to reduce GHG emission would continue, including emission performance standards. It seems that the priority given to the federal scheme would not prevent States from further regulating CCS.