Future Zero Emission Carbon Technology—Valuation and Policy Issues

Abstract

Today, coal-fired power plants produce about 51 percent of the total 3,883 billion kWh of the annual electrical energy output in the U.S. Demand for electricity is expected to grow in the future. Coal can and will continue to play a substantial role in the future global energy supply, despite its high emission of CO 2 and low thermal energy conversion efficiency of about 37 percent. This is due to the fact that it is inexpensive and global reserves are abundant. Furthermore, cost-competitive and environmentally acceptable energy alternatives are lacking. New technologies could also make coal-fired power plants more efficient and environmentally benign. One such technology is the zero emission coal (ZEC) power plant. How much will such a technology cost? How competitive will it be in the electric energy market when used as a technology for mitigating CO 2 emissions? If there were regulatory mechanisms such as a carbon tax to regulate CO 2 emission, what would the minimum carbon tax be that should be imposed? This article introduces an economic model that can be used to analyze and assess the economic viability of the ZEC technology vis-a-vis other competing energy generating technologies, e.g. conventional coal-fired, combined-cycle gas turbine, and nuclear power plants, using valuation techniques employed in the electric energy industry such as revenue requirement (e.g. cost-of-service).