How Congress Threatens to Undermine the Clean Energy Future: Protecting Coal

The new Greenpeace report Business as Usual describes "five maximum points of danger" in the House and Senate climate bills. SolveClimate will be reposting each of those arguments over the course of the week.

There is probably no better indication of the persistence of business as usual than the fact that both the House and Senate climate legislation prioritize support for the primary industrial source of greenhouse gas.

That’s right, the largest federal investment is to subsidize coal.

It was expected that climate legislation would support coal energy to make a transition to a future where its primacy as the source of electric power diminishes. But no one was prepared to see the enormous level of federal support in the bill aimed at an industry that employs fewer Americans than wind energy alone.

It is beyond reason and integrity. It has led many to wonder whether the House bill might be more aptly named the American Coal Energy and Security Act, for embedded within it are generous subsidies and boondoggles that favor coal above all other energy sources.

A good example is Section 114 of the bill, which is a giant gift to the coal-fired electric generation industry. It would create the Carbon Storage Research Corporation and funnel $10 billion to support it over the next 10 years, with 5% or $500 million designated simply for “administrative expenses” to be spent at the discretion of new corporation’s officers.

The most curious part is where all that money is going to come from: From every ratepayer who uses electricity, in the form of an almost invisible tax that would average about 50-cents-a-month. If this program makes it through Congress and gets up and running without alteration, ratepayers will likely see a small new charge on their utility bills among all the others, called something like “Federal Clean Energy Assessment.”

Talk about a light switch tax.

There is no parallel provision in the bill to set up a federally created corporation to support solar or wind or geothermal energy development, even though the House legislation is called the American Clean Energy and Security Act.

Section 114, however, is still only a very minor part of the favoritism being showered upon coal. Many times more generous and decisive is the multi-billion-dollar bonus payment mechanism described in the very next section, Section 115. The mechanism is being created to encourage the commercial development of CCS—carbon capture and sequestration. CCS is the technology that aims to prevent the escape of CO2 pollution into the atmosphere by capturing it and burying it underground instead.

The bonus payments outlined in Section 115 will essentially cover the full capital costs of constructing a CCS-capable coal plant — about $3.5 billion each. The mechanism does so by providing a bonus payment of as much as $90 a ton, and not less than $50 a ton, for sequestering carbon underground. Payments are for CO2 avoided for 10 years of operation. Assuming the midpoint bonus of $70/ton, this means that a 1 gigawatt CCS-capable plant that sequesters five million tons of CO2 a year will earn $350 million a year for 10 years — a total of $3.5 billion.

Phase I of the bonus program guarantees this rate for the first six gigawatts to come on line. Phase II of the program extends the bonus payment through a reverse auction procedure that might lower the bonus rate slightly depending on the bids submitted, but it could apply to as much as 60 gigawatts of new capacity — 10 times that of Phase I. This is an enormous level of support.

There is no parallel provision in the bill to set up a federally created bonus program to encourage solar or wind or geothermal energy development. A similar provision that would pay a $50 to $90 bonus per ton of avoided CO2 pollution to generators of emission-free power would cause an unprecedented clean energy and green jobs boom.

Yet no similar bonus mechanism is available to solar and wind and geothermal energy developers. The plain evidence demonstrates that the proposed legislation presumes coal can one day become emissions-free, and forgets the other environmental and labor dilemmas with burning and mining coal.

We understand that most governments of the world — including America’s — believe that CCS is a crucial tool needed to reduce CO2 pollution. The prevailing belief is that there is no way to resist burning the cheap and abundant BTUs available in massive deposits of coal to meet rising global energy demand. Therefore, CCS technology is deemed essential to continued economic development. It is a belief that has overtaken equally valid and competing imperatives.

The coal lobby has secured a lock on the legislation, assuring the perpetuation of business as usual and massive subsidies for their industry. It is not the bonus payments for CCS alone that accomplish this, but the bonus payments in combination with other maximum points of danger embedded in the proposed bill.

Let’s recall the weakness of the proposed cap on carbon; the proposed amendments to the Clean Air Act which would pre-empt regulation of the oldest and dirtiest coal plants in the U.S. fleet; the grandfathering of a second bubble of new coal plants now in the pipeline, which will similarly escape regulation; and the giant loophole created by offset provisions (more on this below). When combined with the bonus payment mechanism for CCS commercialization, they create a perverse set of financial incentives that will take the U.S. energy economy in a direction precisely the opposite to what is urgently needed.

Consider a coal-burning utility company that in its operations includes a number of aging, high-polluting plants that cannot be regulated by the Clean Air Act. It means the company has assets that are completely amortized and are essentially cash cows. The only real cost is fuel — cheap coal.

Further, with the coming build out of new transmission lines, the company will be able to get this cheap power to new, more lucrative markets. These aging assets will be among the most valuable in the company portfolio, and they are going to be run full throttle.

Consider also that this utility company also has a number of other plants under construction that have been initially permitted before Jan. 1, 2009. The company can complete construction in the coming years, secure in the knowledge that they will escape the performance standards in the proposed law. So in essence it has a second tranche of grandfathered coal plants also in its portfolio that it can build and operate before even thinking about a CCS-capable plant.

With energy efficiency investments rippling through the building sector and a global recession, there really in no rush to build new generating capacity anyway. The company, however, may want to add a CCS capable plant or two to its portfolio for two reasons. It’s good for the company image and each CCS-capable plant will throw off a windfall of bonus carbon credits — worth about $350 million a year.

Those credits can be combined with the free carbon allocations the company will receive under the new law (see below), creating a store of pollution allowances that, when coupled with generously available offsets, the company can slowly spend and avoid feeling the weight of the carbon cap for at least the next two decades.

So in current circumstances, it seems that the incentives align to support the indefinite extension of the status quo—business as usual—an endless fossil future.

There is also another way in which this is so. Although the development of CCS technology will create the lifeline for continued burning of coal, the oil and gas industries will be big winners as well.

It will be up to them to develop the sequestration portion of the technology. Industry journals have forecast that it could lead to a doubling of the size of these incumbents industries as they create and control the business of disposing of billions of tons of CO2 pollution each year on an indefinite basis. The infrastructure required for carbon sequestration on the scale contemplated is equal in size to the one that supplies oil and gas to the world right now.

Government policy has the power to point society in new directions, and the nation and the globe is at an important crossroads. At this moment of opportunity and danger, self-interested fossil fuel industries with enormous resources and power have hijacked clean energy and climate legislation to serve their counter interests. This cannot be allowed to proceed.

The American Clean Energy and Security Act must be used as an opportunity to encourage wind, solar, and other clean energy industries so that a clean energy economy becomes something more than rhetoric that polls well.

For as we shall demonstrate in a subsequent section, the strong support the proposed bill provides to fossil energy interests is mirrored by inexcusably weak federal support for the renewable energy sector as a whole.

Fossil energy lobbyists have negotiated a stunningly lucrative deal with Congress that both guarantees a profitable future and assures that renewable energy technologies are poorly positioned for fair competition.

We fear a deal that will backfire on both the environment and the nation’s economic security.

Mr. President, this is another maximum point of danger that needs your urgent attention.

The report Business as Usual was written on behalf of Greenpeace by SolveClimate founder David Sassoon.

See also:

How Congress Threatens to Undermine the Clean Energy Future: The Clean Air Act

Greenpeace Warns Obama: Congress is Undermining the Clean Energy Future

Clean Energy Climate Bill Gives Coal a Competitive Future

Polluters' War on Climate Legislation Is Taking a Toll

5 AGs Urge Senate to Let States Set Higher Climate Standards

Gaping Hole in Climate Bill Would Give Polluters More License to Pollute

(Graph: Greenpeace)

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