CO2 emission standards and investment in carbon capture

Abstract

Policy makers in a number of countries have proposed or are considering proposing CO2 emission standards for new fossil fuel-fired power plants. The proposed standards require coal-fired power plants to have approximately the same carbon emissions as an uncontrolled natural gas-fired power plant, effectively mandating the adoption of carbon capture and sequestration (CCS) technologies for new coal plants. However, given the uncertainty in the capital and operating costs of a commercial scale coal plant with CCS, the impact of such a standard is not apparent a priori. We apply a stochastic generation expansion model to determine the impact of CO2 emission standards on generation investment decisions, and in particular for coal plants with CCS. Moreover, we demonstrate how the incentive to invest in coal-CCS from emission standards depends on the natural gas price, the CO2 price, and the enhanced oil recovery price, as well as on the level of the emission standard. This analysis is the first to consider the entire power system and at the same time allow the capture percentage for CCS plants to be chosen from a continuous range to meet the given standard at minimum cost. Previous system level studies have assumed that CCS plants capture 90% of the carbon, while studies of individual units have demonstrated the costs of carbon capture over a continuous range. We show that 1) currently proposed levels of emission standards are more likely to shift fossil fuel generation from coal to natural gas rather than to incentivize investment in CCS; 2) tighter standards that require some carbon reductions from natural gas-fired power plants are more likely than proposed standards to incentivize investments in CCS, especially on natural gas plants, but also on coal plants at high gas prices; and 3) imposing a less strict emission standard (emission rates higher than natural gas but lower than coal; e.g., 1500lbs/MWh) is more likely than current proposals to incentivize investment in coal CCS technology, but only at high gas prices and to a lesser extent than a stringent standard (e.g., 300lbs/MWh).