New GHG Rules Seen As Key To First California Natural Gas CCS Projects

May 15, 2012

Companies considering the development of novel natural gas-fired power plant carbon capture and sequestration (CCS) projects in California say new regulations are essential to advance such projects, especially by enabling companies to generate greenhouse gas (GHG)-reduction credits under the state’s cap-and-trade program. The projects would propose to permanently sequester underground carbon dioxide (CO2) for enhanced oil recovery (EOR), and likely would be located in the central and southern parts of the state where oil wells are abundant.

The potential for CCS projects at existing and new natural gas-fired power plants in California could not only establish the proving grounds for commercial-scale CCS technologies, but provide regulatory and policy models for states that may eventually pursue their own GHG programs or join regional efforts such as the Western Climate Initiative, sources say.

One of the companies currently considering a number of different natural gas-CCS projects in California is Summit Power Group, LLC, a clean-energy company based in Seattle, WA. The company is exploring retrofitting existing natural gas-fired power plants with CCS capability, or potentially building new natural gas power plants with CCS, according to a source with the company.

However, a key consideration before projects likely would advance is whether California officials will clarify how they would regulate the facilities, and how they could become eligible to generate significant quantities of GHG-reduction credit under the state’s cap-and-trade program, the source says.

Summit Power Group is working with technology companies that have commercially ready systems to capture CO2 from natural-gas fired power plants in California, where the CO2 is then transported to nearby oil fields for EOR, the company source says. The technologies can reduce CO2 from these power plants by as much as 90 percent, the source says.

How the California Air Resources Board’s (CARB) GHG cap-and-trade program will treat “ultra-low carbon gas” the facilities would be using, as well as the CO2 that is permanently stored underground, is critical to whether and how such projects may advance, the source says. “This is not defined very well yet, so we’re working on getting a better handle on those issues because they’re critical to making any project work. We are optimistic that CARB will put together rules that allow CCS to participate in the cap-and-trade program in a way that’s commercially practicable.”

A CARB spokesman says there is “language in the cap-and-trade regulation that would allow a covered entity to net out any sequestered carbon if there was a board-approved methodology.” However, “we have no board-approved methodology at this time. CCS tends to be site-specific, so it may take awhile and more resources for CARB to develop such a quantification methodology.”

CO2-reduction and CCS technologies have “progressed much faster than people originally thought,” the company source says, making it even more important that CARB take regulatory action.

Conditions in California — including aggressive GHG-reduction targets, abundant EOR potential, high electricity prices and the need for base-load generating capacity — “have the potential to be very conducive to ultra-low carbon base-load power” from natural gas power plants with CCS, the source says.

Because power plant permitting in California is “never a simple proposition,” the company likes the idea of “going in and doing retrofits first” on existing power plants, the source says.

Despite the lack of regulatory and policy clarity for power plant CCS EOR projects, the source believes there is a “growing sense of awareness” in California that the state will have a very difficult time meeting its climate change targets if CO2 emissions are not removed from the existing fleet of power plants, the source adds.

The company, as well as a coalition of other energy companies supporting CCS, is backing a bill pending in the California Legislature that directs CARB to develop a CCS “quantification methodology” by 2016 (see related story). The methodology would apply to CO2 EOR projects “seeking to demonstrate simultaneous sequestration of injected CO2,” according to the bill. “The methodology shall address multiple modes of CO2 transportation, including pipeline, rail, and road transportation.”

However, the bill, SB 1139, was amended recently to provide additional methodology requirements. These include that it must: demonstrate that sites are capable of long-term containment of CO2; identify and characterize potential natural and man-made leakage pathways, and provide implementation of appropriate risk management and corrective actions; provide design, construction and operation parameters to prevent, mitigate and remediate the creation or activation of leakage pathways and the migration of CO2 or fluids into any zone in a manner not authorized by the methodology; minimize fugitive CO2 emissions from CO2 EOR projects seeking to demonstrate simultaneous sequestration of injected CO2; provide for post injection closure and the long-term liability for CO2 injected during operation, transition to class VI wells, and post closure; and verify, monitor, account for and report CO2 quantities sequestered, injected, recycled, leaked, vented and in any other categories as deemed appropriate by CARB.

In addition, the bill prohibits CARB from quantifying any CO2 from an EOR project seeking to demonstrate simultaneous sequestration of injected CO2 that is incapable of transitioning to a class VI well pursuant to the federal Safe Drinking Water Act, according to other recent amendments to SB 1139.

Further, CARB must consider the potential for direct, indirect and cumulative emission impacts that may result from CCS projects seeking to demonstrate geologic sequestration and ensure that emissions of criteria pollutants are not higher than would occur in the absence of the CCS project, according to the bill.

Some environmental groups have been hesitant to support aggressive action by state regulators to advance CCS projects, raising concerns about whether air and water quality will be adequately protected. Sierra Club California, for example, is opposing SB 1139 based in part on the argument that it perpetuates fossil-fuel energy dependence.