The high cost of carbon capture

CALGARY, ALBERTA - For Alberta's multibillion-dollar foray into capturing and storing carbon to prove successful, consumers must pay more for the energy they use to heat their homes and fuel their cars, says the head of an expert council advising the province.

The cost of developing the technology touted as the province's key solution to its growing greenhouse gas emissions is still being worked out, but a new report from the government's carbon capture council pegs the price tag as high as $200 per tonne of carbon.

Jim Carter, council chairman and former president of oilsands giant Syncrude, said he doesn't expect that projects chosen next year to receive the province's $2-billion seed money will cost this much, perhaps around half instead. However, he concedes the gap between the price of emitting carbon — $15 a tonne in Alberta — and the price of ensuring it doesn't get into the atmosphere is a major hurdle.

"A lot of it will depend on the consumers' willingness to pay at the end of the day," Carter contended. "I'm not sure that the consumers in general all appreciate that, but I think as people understand the technical challenges and the cost of doing it, they'll become more aware that that's really what it's going to take to do it."

The basic concept behind carbon capture and storage (CCS) involves collecting greenhouse gas emissions from a large stationary source, such as a power plant, and transporting them in a pipeline for injection into an underground geological formation, burying the emissions permanently.

Injected carbon can also be used to recover hard-to-get-at oil, a technique used at EnCana's enhanced oil recovery Weyburn project in Saskatchewan.

While sounding seemingly simple, the technology is still in limited use and therefore very expensive, which is why many suggest the value of carbon will have to rise to make a go of CCS.

Alberta environmental think-tank Pembina Institute has suggested prices charged by the government to large emitters, including power plants and oilsands operators, should increase to $30 per tonne immediately, $50 by 2015 and $75 by 2020.

The carbon council's interim report doesn't recommend a carbon price, nor will the group's final findings and recommendations, expected in mid-January, Carter said.

The council and its advisory groups, made up mostly of industry representatives and provincial and federal government officials to a lesser degree, will help the province design a blueprint for regulating and monitoring Alberta's first large-scale carbon capture projects.

A list of 54 contenders has this month been whittled to 20 companies, including coal-fuelled electricity producers Epcor and TransAlta, as well as oilsands players Canadian Natural Resources, ConocoPhillips, Shell and Petro-Canada.

A panel of government deputy ministers will evaluate the proposals, due by March 31. It will recommend to the energy minister which three to five projects should share the government's $2-billion kitty.

Each successful bid is expected to receive hundreds of millions of Alberta taxpayer dollars.

Alberta Energy Minister Mel Knight said the winning projects must be able to handle all facets surrounding capturing, transporting and storing carbon dioxide emissions. In all, the Alberta government expects the projects will deliver five million tonnes of carbon storage annually by 2015.

Projected costs and a company's ability to raise its share of the bill will also be factors in choosing which developments go ahead, particularly in light of the global economic downturn, Knight added.

"The opportunity for investment dollars is becoming more and more limited and we're very conscious of that," the energy minister said.

In the legislature recently, Premier Ed Stelmach noted the government expects companies to bear a majority of the financial burden, doubling or tripling the province's investment.

"Capture and storage has its critics, but it's proven technology," Stelmach told a chamber of commerce lunch crowd in the Netherlands last week. "CCS has incredible potential in Alberta."

But it also has the potential to strain government coffers further.

Auditor General Fred Dunn warned last month the government's climate change strategy is so short on crucial details, "Alberta could spend a lot of money, but not achieve emissions targets."

While Wildrose Alliance Leader Paul Hinman wants the initiative scrapped altogether, calling it a waste of taxpayer dollars, Liberal Leader Kevin Taft thinks carbon capture is a worthy venture.

Yet, Taft maintains the government should've had a blueprint in place before pledging $2 billion in July.

"I don't know what they are going to get for $2 billion. Do they have any guarantees from industry — that industry, for example, is going to stay in Alberta?" he said.

Edmonton-based Epcor has no plans to leave. The electricity producer has two projects in the running. The larger one, planned for Genesee, west of Edmonton, could deliver Canada's first commercial-scale coal power plant that emits almost no carbon emissions.

While oilsands development is the faster-growing source of greenhouse gases in Alberta, electricity production remains a larger emitter. With an estimated 900 years worth of coal in the province's ground, and emerging powers such as China relying heavily on coal for energy, Epcor executive vice-president Brian Vaasjo sees huge potential for Alberta's carbon capture technology.

"We're a strong believer that Alberta and actually Western Canada sits on a tremendous (coal) resource that actually dwarfs the tarsands in terms of future energy," Vaasjo said. "In time, it certainly all will come unlocked."

But in a world where energy developers face increasing environmental scrutiny, unlocking all of that potential could prove difficult without a viable means to curb greenhouse gas emissions from human activity, which science has linked to a more-rapid-than-normal warming of the planet.

Carter's council urges immediate action. Its interim report outlines the challenges ahead, including figuring out who should be responsible for potential liability issues, such as possible carbon dioxide leakage or damage to hydrocarbon or water wells.

Rigorous geological research to determine which empty gas reservoirs and saline water formations are best suited for storing carbon is being recommended.

There are also ownership issues to consider, the report notes. Should the public or private interests own stored carbon?

Despite many outstanding policy issues, the cost gap remains of uppermost importance, the council argues.

"There are technical, economic and schedule risks — large-scale CCS will take time to properly implement," the report states, estimating it will take 15 years and a significant number of projects worldwide to commercialize carbon capture technology.

Carter expects more government money will be needed along the way to spur this emerging industry, perhaps in the form of tax and royalty breaks. And the global price of carbon will have to rise.

Environment Minister Rob Renner said Alberta's carbon levy of $15 per tonne, introduced last year, will eventually increase, but he's not certain when.

"We've given a pretty strong indication to industry that we do plan to increase that over time," Renner said.

"That is contingent upon ensuring that we don't get so far ahead of everyone else that we simply drive the investment and drive the emissions elsewhere."

University of Calgary's Nigel Bankes, a natural resources law expert, and Jenette Poschwatta, a research associate at the university's Canadian Institute of Resources Law, have had a chance to critique the council's interim report.

They note that many important questions remain unanswered.

Bankes argues it's in the Alberta government's interest to vest, through legislation, carbon disposal rights with the Crown in the same way water is owned by the province.

Poschwatta wants the council's final report to clearly outline all of the CCS liability issues and detail how two funds proposed by the council — a managing incidences fund and a monitoring, measurement and verification fund — would address potential problems.

Although Alberta has experience injecting substances into the ground, such as acid gas and saline water from oil and gas production, carbon will require a lot more room — townships' worth of underground space.

Poschwatta said the province should take into account its oil and gas experience and learn from past mistakes as it develops carbon capture policies and regulations.

"We're essentially taking it from zero to hopefully something useful in a short period of time," Poschwatta said.

"We're going to have to learn as we go. My hope is that process of learning will be open and transparent."



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