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US government squandered hundreds of millions on clean coal’ pipe dream

Federal investments in industrial carbon capture paid off, but investments in coal-plant CCS did not, watchdog finds.
By Jeff St. John

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The smokestacks at AEP's Mountaineer coal power plant in New Haven, West Virginia, the site of a proposed $668M CCS project that was ultimately scrapped (Saul Loeb/AFP via Getty Images)

As the Biden administration prepares to shell out billions of dollars on carbon capture and storage projects, a government watchdog report offers a warning about how not to do it.

In a report released last month, the U.S. Government Accountability Office summarized its findings on the federal government’s efforts to get carbon capture and storage off the ground at coal-fired power plants across the country. The GAO found that these efforts were tainted by major flaws that led to hundreds of millions of dollars of wasted taxpayer money.

Under the Obama administration, the Department of Energy poured more than a billion dollars into carbon capture and storage (CCS), money allocated by Congress under the 2009 stimulus bill. While the DOE’s investments in capturing carbon from industrial sites achieved some success, its investments in capturing carbon from coal plants most decidedly did not.

The GAO reports that the industrial CCS projects were held to higher standards and subjected to more oversight and scrutiny than the coal-plant projects. “[S]enior management directed DOE to bypass some cost controls to help struggling coal projects,” the GAO report states.

The result: Not a single coal-plant CCS project that DOE invested in is still operating today. Only one of the eight projects it funded was ever completed, and that one was shut down last year.

The autopsy from the GAO

The GAO report offers an autopsy of sorts for the well-publicized failures of coal-plant CCS projects over the past decade. It also provides a warning of the potential for wasted funding on future projects and a list of stricter oversight measures that it suggests could prevent such an outcome.

The report details how DOE spent nearly $1.1 billion on a series of CCS projects from 2010 to 2017, funded through the 2009 American Recovery and Reinvestment Act. Of that funding, about $438 million went to three CCS projects at industrial sites, two of which were completed and continue operating today.

Over the same time period, nearly $684 million was spent on eight CCS projects at coal plants. Of those projects, three were scrapped in the planning phase before DOE invested significant amounts of money into them.

But the DOE continued to support the remaining five projects, even though they were not meeting key milestones,” according to the GAO report. DOE ended up spending nearly $472 million on four of the five projects that ultimately never got built, including two highly publicized FutureGen 2.0 projects — nearly $300 million more than it had budgeted to spend at the phase of development the projects had reached at the time they were discontinued.

(Government Accountability Office)

The one coal-plant project that was completed, the Petra Nova plant in Texas, closed last year after amassing a track record of mechanical problems and financial overruns.

The GAO report highlights DOE’s failure to conduct sufficient due diligence on initial proposals and the lack of cost controls on the funds it poured into the four canceled projects.

The report also warns that without a congressional mechanism to provide greater oversight and accountability — such as requiring regular DOE reporting on project status and funding — DOE may risk expending significant taxpayer funds on CCS demonstrations that have little likelihood of success.”

How coal CCS projects failed 

It’s important to underscore the difference between the poor performance of the coal CCS projects compared to the relatively successful track record of the CCS projects at industrial facilities. Of the three projects chosen in the industrial category, two of them — one at an Air Products and Chemicals plant in Texas that produces hydrogen from methane and one at an Illinois ethanol plant then owned by Archer Daniels Midland and purchased by BioUrja last year — were completed and have remained operational. The third project was withdrawn after $12.8 million had been spent on design.

(Government Accountability Office)

But the CCS projects at coal plants faced far more significant challenges in achieving economic viability compared to the ones at industrial sites. The big underlying problem is that coal plants themselves are increasingly unviable, and adding CCS to them only increases their costs. Falling natural-gas prices have made gas-fired power plants far more cost-competitive against coal over the past decade. This has driven more and more coal plants to shutter and cease operations, and the pace of the closures increases every year. U.S. coal generation capacity fell from 317,600 megawatts in 2011 to about 216,800 MW by the end of 2020, according to federal data.

[T]he industrial CCS projects were not as exposed to market volatility because they were not competing in electric power markets,” the GAO report states. 

The industrial projects were also much less expensive, with an average estimated budget of approximately $360 million each, compared to the coal projects’ average estimated budget of over $1.4 billion each. The GAO reports that these more expensive projects had difficulty obtaining financing for their cost-share requirements,” referring to the portion of costs that their owners were required to obtain from private-sector investors before they could begin construction.

Despite the risks of taking on such high-cost and economically uncertain projects, DOE held the coal projects to different standards and processes than it applied to the industrial projects, GAO’s report states. Industrial projects were subjected to more stringent review. As a result of this heightened scrutiny, the initial list of 13 selected industrial projects was winnowed down to only three projects that ultimately received full funding.

By contrast, DOE fully committed to coal projects at their initial selection as opposed to allowing time for further review,” the report states. Most of the coal projects were selected before in-depth design and engineering work had been conducted, meaning that DOE assumed a great deal of risk in selecting them for full funding,” the report notes. DOE also negotiated funding agreements on an accelerated schedule” of less than three months, compared to a more typical yearlong process, increasing the risk of funding projects that were unlikely to succeed.”

In addition, DOE opted to bypass cost controls at the direction of its senior leadership” on the four struggling coal projects to give them more time to meet key milestones, according to the report. Those budget extensions were made despite mounting evidence that the projects would be unlikely to obtain enough private financing to ever be built, the report found.

Fodder for the CCS debate

The report is likely to add fuel to the long-running and contentious debate over the role of CCS in combating climate change at a time when funding for carbon capture and storage is set to grow dramatically.

The bipartisan infrastructure bill passed in November contains billions of dollars in funding for CCS projects, including $2.5 billion for CCS demonstration projects, $1 billion for large-scale CCS pilots, and $3.5 billion to develop four​“direct air capture hubs” that can capture carbon from the atmosphere, as well as nearly $5 billion to develop and finance pipelines and storage sites for captured carbon.

The Build Back Better budget reconciliation bill, which faces an uncertain future in the U.S. Senate, could further improve the economics of CCS. A provision in the current bill would raise the existing 45Q” tax credit for industrial facilities and power plants that capture carbon to $85 per ton of carbon dioxide captured and stored, up from $50 per ton today, along with even higher incentives for direct air capture technologies.

Studies from the United Nations Intergovernmental Panel on Climate Change and the International Energy Agency have found that technologies that can capture carbon dioxide, whether at the source of its emissions or after it’s entered the atmosphere, will be critically important in the fight to limit global warming to 1.5 degrees Celsius, the target the world needs to hit to avoid climate change’s most catastrophic harms.

That’s a good reason for federal policies that can successfully jump-start CCS investments across both power generation and industrial sectors, said John Thompson, technology and markets director for the Clean Air Task Force, an environmental nonprofit group.

The GAO said Congress needs to do more oversight and accountability, and that’s an excellent suggestion,” he said. But according to Thompson, Congress should pair that with more flexibility.”

That’s not what happened with the coal CCS programs over the past decade, he said. Congress directed DOE to back coal projects under the federal Clean Coal Power Initiative.

If Congress hadn’t tied DOE’s hands with giving these projects just to coal, we could have been doing more with natural gas, we could have been doing more with steel, we could have been doing more with cement,” Thompson said.

What’s more, the 45Q tax credit for captured carbon during the period these projects were underway was $20 per ton of carbon captured, he said. That level of incentive worked for the ethanol and hydrogen production sites that were built, because those industrial processes yield exhausts that have a high concentration of carbon dioxide, which in turn lowers the costs of the CCS systems needed to capture it.

But the concentrations of carbon dioxide are much lower, and CCS costs therefore significantly higher, for coal and gas plants, Thompson said. The same is true for cement factories and steel mills, which together represent roughly 10 to 15 percent of global carbon emissions, he added.

While grants may help build a few demonstration projects, a higher 45Q tax credit is critical to give private industry and investors the confidence that CCS projects can be cost-effective over the long term, he said.

Why fund CCS for fossil fuel power?

Critics have long decried government funding for fossil fuel CCS projects, saying the money would be better directed at shifting electricity generation to renewables and then powering vehicles, heating and industrial processes with increasingly low-carbon electricity.

DOE has spent more than half a billion dollars on carbon-capture projects at coal plants, and they all failed to come to fruition,” Jeremy Fisher, senior advisor for strategic research and development at the environmental group Sierra Club, said in a Monday email. That taxpayer money has simply been a handout to the fossil fuel industry, and it should stop.”

Critics also point out that the sole economically viable use for captured carbon dioxide to date has been in enhanced oil recovery,” the process of injecting CO2 into oil wells to increase their production — which, of course, leads to more burning of oil and increased carbon emissions.

The IEA’s landmark climate change report last year found that all new fossil fuel investments must halt immediately if the world is to reach net-zero carbon emissions by 2050, a key target for limiting global warming.

The GAO report’s findings suggest that there may be an uphill battle ahead for any coal plants seeking federal support for CCS projects. Project Tundra and Enchant Energy, two financially struggling CCS projects at coal-fired power plants, have both applied for loans from the DOE’s Loan Programs Office.

The economics of CCS for coal-fired power plants are particularly grim because the energy that must be used to capture carbon can consume as much as a quarter of a plant’s total generation capacity, Mark Jacobson, senior fellow and professor of civil and environmental engineering at Stanford University’s Woods Institute for the Environment, told Canary Media last fall.

When you run the numbers, there’s virtually zero capture rate,” he said. I think the whole thing is a scam, just a big scheme to get funding subsidies.”

Jeff St. John is director of news and special projects at Canary Media. He covers innovative grid technologies, rooftop solar and batteries, clean hydrogen, EV charging and more.