The Key to California's Coal Future

Deck: 
Fortnightly Magazine - April 2006

Don’t overlook high-quality, project-based emissions reductions.

By Mike Burnett and Bjorn Fischer

Mike Burnett is executive director of the Climate Trust. Bjorn Fischer is business development manager at the Climate Trust. Contact Fischer at bfischer@climatetrust.org. The Climate Trust is a non-profit committed to providing high quality, project-based reductions and advancing the policies that support them. Its offices are located in Portland, Ore.

Project-based emissions reductions can help deliver a lower carbon power supply during the transition to the next generation of coal, and do so with environmental integrity. Since 2000, scientific evidence about the human impact on the climate has become more convincing and more concerning. Scientists now tell us that time is running out if we are to stabilize greenhouse-gas levels at a point where they will not overwhelm both nature and our economy. We must not delay any longer.

While federal greenhouse-gas regulations are lacking, states increasingly are establishing climate policy. The carbon predicament in California, where project-based reductions are a key tool for addressing the significant growth in coal-based emissions from power plants, can be considered a microcosm for the United States as a whole.

California’s aggressive energy efficiency programs and renewables will not supply enough electricity at a reasonable price to power a growing economy. This is unfortunate. Given the high price of natural gas and the state of development of low-carbon coal technology, California can expect a large pulse of imported coal-based greenhouse-gas emissions over at least the next decade. To address these new emissions and meet the state’s greenhouse-gas targets, policymakers should establish mechanisms to encourage high-quality, project-based reductions, which constitute an important fourth strategy after efficiency, renewables, and low carbon generation. Project-based reductions can help deliver a lower carbon power supply during the transition to the next generation of coal, and do so with environmental integrity. California’s leadership can help ensure that project-based reductions deliver on this promise.

Disproportionate Share

Recent fuel-price dynamics have strengthened coal’s position as the least-cost source of new power generation. A byproduct of this increased competitiveness of new coal power plants will be a large increase in greenhouse-gas emissions. Measured by per megawatt-hour generated, conventional coal plants emit two to three times as much greenhouse gas as do combined-cycle gas plants.

California relies on coal-generated imports to meet 21 percent of its electricity needs, or more than 67 million tons of carbon dioxide annually.1 These emissions account for a disproportionate share of about one-half of total greenhouse-gas emissions associated with California’s electricity consumption.

Historically a driver of national energy policy and a leader in climate action, California has established targets that go far beyond those of the Kyoto Protocol, the international treaty governing greenhouse-gas emissions. The long-term target adopted by Republican Gov. Arnold Schwarzenegger is to reduce 2050 greenhouse-gas emissions to 80 percent below 1990 levels. California’s climate action plan proposes to return to 2000 levels by 2010 and to 1990 levels by 2020, despite growth of population and energy demand in the years to come.

According to the California EPA Climate Action Team Report to the Governor and the Legislature, emission reductions levels by 2020 would be 25 percent higher under a business-as-usual case—in stark contrast to a reduction implicit in the 2020 target. This gap, accounting for about 145 million tons of emission reductions,2 constitutes a formidable challenge to California energy policymakers.

Four-fold Challenge

To meet this challenge, California is in the midst of developing a policy package based on four components: Aggressive energy efficiency programs, increased support for renewables, limited greenhouse-gas emissions from fossil electricity generation, and project-based emission reductions.

The most important and cost-effective emission reduction strategy is energy efficiency. Energy efficiency, a cornerstone of state energy policy, is not new to Californians. Electricity consumption per capita has remained relatively steady since the mid-1970s and currently is about 60 percent below national averages.3 Additional policies are in place or under development that will bring multiple benefits: increasing security by decreasing reliance on foreign imported fossil fuels, saving billions of dollars in energy costs, and reducing millions of tons of carbon dioxide emissions.

The second strategy is establishing a very aggressive Renewable Portfolio Standard (RPS) that requires 20 percent of the power from regulated utilities to come from renewable sources by 2010, increasing to 33 percent by 2020.

Not Enough

Unfortunately, efficiency and renewables alone will not allow California to meet either its growing electricity demand or its greenhouse-gas targets. According to a recent study by Environmental Defense, more than 14,000 MW of new coal-fired generating capacity is under development in some form in the major coal-producing states, in large part to meet growing demand in California and the Southwest.4 The same study notes that even if California successfully implemented a 33 percent renewable portfolio standard—a very ambitious target—the state’s demand for coal-generated electricity will be much higher in 2025 than today.5

The situation is similar for the United States as a whole. Based on the Energy Outlook 2005 conducted by the Energy Information Administration, coal remains the primary fuel for electricity generation for the next 20 years. It is estimated to cover about half of electricity needs in the United States, with natural gas accounting for another 24 percent. Of the projected increase in greenhouse-gas emissions from the electricity sector, 80 percent is expected to come from new coal-fired generation.6

California has initiated policies designed to help stem this growth of new coal-based emissions. The California Energy Commission (CEC) recently proposed that a GHG emission performance standard for utility procurement be set equal to a new combined-cycle natural gas turbine. In addition, the CEC proposed in November that investor-owned electric utilities in the state be prohibited from entering long-term contracts for power from plants that create more carbon dioxide than natural gas-fired plants.7

Switching to natural-gas firing can lead to significant emissions reduction. However, the underlying question is how much natural gas will be available at an acceptable cost. Volatile price changes in natural-gas prices compared with anticipated stable price developments for coal make coal an even more attractive energy source. Also, the United States has about 25 percent of world coal resources, so using it makes us less dependent on fossil imports.

Promising, Yet Challenging

Lower-carbon coal technology is on the horizon. However, it will take 15 or 20 years for integrated gas combined-cycle (IGCC) units with carbon capture and geological sequestration to become commonplace. This technology has the potential to capture and sequester up to 90 percent of the carbon-dioxide emissions associated with coal combustion.

As promising as this technology is, existing demonstration sites in Europe and the United States reveal fundamental challenges. Among these are the complexity of IGCC’s structure and substantially higher investment costs. Electricity from the first commercial scale IGCC plants will be about 15-20 percent more expensive than electricity from pulverized coal plants, according to estimates.

While smaller IGCC plants have been demonstrated in the United States, combining the technology with geological storage of carbon dioxide has not. A number of important technical and financial issues remain, and it is possible that geo-sequestration will prove too costly or technically infeasible. Since IGCC plants emit less than pulverized coal plants, IGCC plants that are sequestration-ready could be built, with the intention of retrofitting them as sequestration becomes available. It is prudent to plan on it taking another 15 to 20 years for this sequestration technology to become commercially available.

Thus, California finds itself in a difficult situation. Aggressive efficiency and renewables will be insufficient to meet either the growth in electricity demand or state emissions targets. Committing to a fleet of new gas plants would be much more expensive and volatile than new conventional coal plants. IGCC with geological sequestration likely won’t be ready for 15 to 20 years. IGCC alone, while reducing emissions, is more expensive than conventional coal, and is still an emerging technology. At best, over the next decade, IGCC will become commercially prevalent, but geosequestration will be perhaps another decade away, and emissions still will be significantly higher than from gas turbines. At worst, some amount of conventional coal will be built to serve California’s electricity demand. As a result, California faces a host of challenges to meet its GHG emissions reduction targets.

One Answer

This dilemma can be addressed at least in part by high-quality, project-based reductions. Project-based reductions can be used to mitigate this potential forthcoming pulse of GHG from IGCC or conventional coal. They can serve as a transitional bridge that allows the state to meet its GHG targets while IGCC with geosequestration becomes commercially available. Project funds can be invested in a wide variety of technologies in uncapped sectors, such as transportation, industry, forestry, and agriculture. It is essential that project-based reductions meet high quality standards. They must be real reductions that are additional to business as usual, and they must be quantified and verified using third-party verification.

Project-based reductions are an important component of the Kyoto Protocol, and have been successfully demonstrated in the United States. Among the first organizations to assemble a portfolio of project-based reductions, The Climate Trust got its start in 1997 when the Oregon legislature unanimously passed a law that requires new power plants built in the state offset part of their carbon-dioxide emissions. The new power plants provide funding to The Climate Trust, which uses the money to acquire project-based emissions reductions. Technologies include wind energy, multifamily weatherization and new green buildings; cogeneration; traffic signal optimization; truck stop electrification; industrial efficiency; low-carbon blended cement; and permanent forest sequestration.

So far, more than 1.7 million metric tons of carbon-dioxide emissions have been mitigated at a cost of around $5 million, and an additional $6 million will be invested in high profile projects in 2006. Most of this funding has come from Portland General Electric, Calpine, Avista, PPM Energy, and NW Natural under the Oregon siting law. However, funding increasingly is coming from power companies (American National Power in Massachusetts, Basin Creek Power in Montana) and other companies, such as Nike.

Project-based reductions are a high-quality, effective means of mitigating greenhouse-gas emissions, and they allow society to address climate change at the lowest overall cost, leaving more money to spend on other things, such as food, health, education, and security. These reductions can drive funding toward innovative technology and into economic sectors that may be bypassed by other strategies. They can create jobs; help people and businesses save money on energy; enhance energy security by reducing fossil imports; stimulate economic development by creating demand for clean energy products; and provide environmental co-benefits. These environmental co-benefits include reducing local air pollution; preserving habitat, biodiversity, and endangered species; improving watersheds and water quality; and reducing soil erosion. These reductions also can be useful in addressing environmental justice concerns.

California and other states can draw from the above experiences in project-based reductions. It is important to develop detailed and transparent protocols for determining project eligibility and quantifying reductions. The development of specific protocols for a range of project types will allow the delivery of high-quality, project-based reductions in a volume sufficient for a significant impact on the pulse of coal-based emissions that is challenging California’s energy policymakers.

Endnotes:

1. Milford, Jana, et. al.: “Clearing California’s Coal Shadow from the American West”; Environmental Defense; 2005, p. vii.

2. CAL EPA Climate Action Team Report to the Governor and the Legislature, Dec. 8 2005. p. v.

4. Source: California Energy Commission.

4. Milford, Jana, et. al., p. vii.

5. Ibid., p.10.

6. EIA 2005 Energy Outlook.

7. California Energy Commission, 2005 Integrated Energy Policy Report, Committee Draft Report, Publication 100-2005-007-CTD, September 2005, p. 71; Memorandum from Chairman Desmond, IEPR Greenhouse Gas Performance Standard, Sept. 22, 2005, p. 6.