The Absence of an Economic Case for CCS

New York Times
July 13, 2011

Utility Shelves Ambitious Plan to Limit Carbon 
Matthew L. Wald and John M. Broder

American Electric Power announced in July that it was abandoning its plan to build a full-scale carbon capture and sequestration (CCS) facility at its Mountaineer plant in West Virginia. Without a “price” on carbon, either through a cap-and-trade program for greenhouse gases or a carbon tax, the numbers simply don’t pencil out. There is no economic incentive to make the investment of $668 million, even with the Department of Energy picking up half of the cost. There is no likelihood of any federal action in the near future to put a price on carbon. “Cap and trade” is a concept that is dead on arrival in Washington circles, for a variety of reasons. And while a carbon tax would make a lot of sense both in terms of raising necessary revenue to help balance the budget and to send a price signal on the environmental impacts of greenhouse gas emissions, no prudent politician is going to utter the “tax” word in this polarized political climate. At some point, EPA will be issuing regulations on greenhouse gas emissions applicable to existing coal-fired generating units, which may stimulate investment in CCS technology. Until those regulations are in place, however, the economic case for CCS cannot be made. AEP, for its part, has the ability to recover the costs of CCSinvestments through utility rates it charges its retail customers, assuming state utility regulators determine that such investments are prudent and make sense for utility customers to bear. As noted in the NY Times article, however, the public service commissions in both West Virginia and Virginia denied AEP’s request to recover these costs in rates, presumably for the same economic reasons: in the absence of a price on carbon that provides the economic case, or EPA regulations that require the installation of CCS technology, there is no basis for requiring captive utility customers to bear these costs. So, at the end of the day, one of the “critical technologies” necessary to address climate change remains undeveloped in the United States. Other countries – those with the political will to provide some certainty with respect to a commitment to achieve carbon reductions—are likely to seize upon this opportunity and develop the technology. Unfortunately, the U.S. will not be part of the action.