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An Overview of the Policy Landscape for CCUS

An Overview of the Policy Landscape for CCUS DINA KRUGER KRUGER ENVIRONMENTAL STRATEGIES LLC JUNE 13,

DINA KRUGER

KRUGER ENVIRONMENTAL STRATEGIES LLC JUNE 13, 2016

The Regulatory Framework for CCUS

The Regulatory Framework for CCUS 2
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The Regulatory Framework for CCUS 2

Overview

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— EPA Office of Water, Underground Injection Control (UIC) Program, under the Safe Drinking Water Act:

¡ Role of Class II Wells ¡ Role of Class VI Wells ¡ Potential for transition of Class II Enhanced Recovery (ER) wells to Class VI

— EPA Resource Conservation and Recovery Act (RCRA):

¡ Approach on Class VI wells

— EPA Office of Air & Radiation: GHG Reporting Program (GHGRP)

¡ Accounting Requirements for quantifying CO2 sequestration in Class II and Class VI wells

— California Air Resources Board “Quantification Methodology”

EPA’s Underground Injection Control Program

EPA’s Underground Injection Control Program 4
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EPA’s Underground Injection Control Program 4

Description of Class II and Class VI

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— Class II UIC wells are used by the oil and gas industry.

¡ Where CO2 enhanced oil recovery (EOR) is practiced, CO2 can be “incidentally stored” in the formation. ¡ EPA recognizes that CO2 is often stored in the Class II setting.

— Class VI is a relatively new class of UIC well, designed for CO2 storage in deep saline formations

¡ The Class VI rule was promulgated in December 2010. ¡ To date, only a few Class VI wells have been permitted. ¡ The requirements for Class VI well are more stringent than the Class II program.

Class II to Class VI Transition

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— December 2013: EPA issued guidance on on transitioning Class II EOR wells to Class VI.

¡ This guidance created significant concern and confusion in the regulated community (EOR operators and state UIC directors).

— April 2015: EPA issued a memo outlining the key principles in the Class VI rule related to the transition of Class II ER wells to Class VI.

¡ This memo has clarified the approach and reduced concern. ¡ Link to the memo:

http://water.epa.gov/type/groundwater/uic/class6/upload/

class2eorclass6memo.pdf

EPA’s Transition Principles (#1 – 3)

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— Geologic storage of CO2 can continue to be permitted under the UIC Class II program.

— Use of anthropogenic CO2 in EOR operations does not necessitate a Class VI permit.

— Class VI site closure requirements are not required for Class II CO2 injection operations.

Transition Principles (#4) 8 —   … The key factor in determining the potential need
Transition Principles (#4)
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—   … The key factor in determining the potential need
to transition a CO2 EOR operation from Class II to
Class VI is the increased risk to [Underground
Sources of Drinking Water] related to the significant
storage of CO2 in the reservoir, where the regulatory
tools of the Class II program cannot successfully
manage the risk.
—   Transition to Class VI should only be considered if
the Class II tools are insufficient to manage the
increased risk.

Transition Principles (#5 – 6)

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— The Class II and Class VI directors should work together to address the potential need for transition of any individual operation from a Class II to a Class VI permit.

¡ The Class II program director (in most cases a state official) will have the relevant data on pressure and volume of CO2 injected into Class II EOR operations, which will influence any transition decision.

— The best implementation approach is for states to administer both the Class II and the Class VI UIC programs. EPA encourages states to apply for Class VI primacy.

¡ No states have been granted primacy to date. North Dakota is awaiting EPA’s decision.

The RCRA “Conditional Exemption” Rule

The RCRA “Conditional Exemption” Rule 10
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The RCRA “Conditional Exemption” Rule 10

RCRA’s “Conditional Exemption”

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— The rule allows for a “conditional exemption” for CO2 streams that are hazardous, provided these hazardous CO2 streams are:

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Captured from emissions sources (e.g., not natural domes); Injected into UIC Class VI wells; and, Meet certain other conditions.

— Issued in January 2014.

Specific Requirements

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Transportation of the CO2 stream must be in compliance with applicable Dept. of Transportation requirements. Injection of the CO2 stream must be in compliance with the applicable requirements for Class VI wells. No other hazardous wastes may be mixed or co- injected with the CO2 stream. Generators of CO2 and UIC Class VI well owners must sign a certification statement that the conditions of the exclusion are met.

Why did EPA promulgate this rule?

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— After evaluating the existing regulatory framework for CO2 generators, CO2 transportation and CO2 injection in Class VI wells, EPA concluded that:

“… regulations under RCRA would not provide additional protections for CO2 streams injected for purposes of geologic sequestration.”

— Put another way, EPA concluded that the UIC Class VI framework was sufficiently protective and that additional regulation under RCRA would be redundant and unnecessary.

What about UIC Class II Wells?

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— Most CO2 injection today occurs in Class II wells, with the primary purpose of conducting EOR. — EPA states in the preamble to the the RCRA rule:

“[T]his conditional exemption is not intended to affect the regulatory status of CO2 streams that are injected into wells other than UIC Class VI wells. … [I]n the light of the several public comments on this issue, EPA does note that (based on the limited information provided in public comments) should CO2 be used for its intended purpose as it is injected into UIC Class II wells for the purpose of EOR/EGR, it is EPA’s expectation that such an injection process would not generally be a waste management activity.”

— Put simply, where EOR is taking place in Class II wells, CO2 is treated as a commodity. — In this scenario, the CO2 stream is not considered a waste, and it is not covered under RCRA.

EPA’s Greenhouse Gas Reporting Program (GHGRP)

EPA’s Greenhouse Gas Reporting Program (GHGRP) 15
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EPA’s Greenhouse Gas Reporting Program (GHGRP) 15

GHGRP Requirements for Carbon Capture

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— CO2 Suppliers applicability under Subpart PP:

(1)

(2)

(3)

Facilities with production processes that capture CO2 in order to sequester it or otherwise inject it underground. Facilities with CO2 production wells.

Importers or exporters of CO2, if the amount exceeds 25,000 tons.

— Information reported under Subpart PP:

¡ The mass of CO2 captured and supplied for CO2 storage, either on-site (at the capture facility) or off-site.

Requirements for Geologic Sequestration of CO2

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— Applicability for CO2 sequestration accounting requirements under Subpart RR :

¡ All UIC Class VI wells must report under Subpart RR.

÷ R&D facilities that apply to EPA for an exemption do not have to report.

¡ Any EOR operator using UIC Class II wells can opt into Subpart RR.

— Subpart RR Requirements:

¡ Development and implementation of an EPA-approved Monitoring, Reporting, and Verification (MRV) plan. ¡ Annual reporting of the amount of CO2 sequestered, along with supporting information.

Requirements for Injectors of Carbon Dioxide

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— CO2 Injector Applicability under Subpart UU:

¡ A well or group of wells injecting CO2 for EOR, including Class II wells and wells with a R&D exemption under Subpart RR.

— Information Reported:

¡ Covered facilities must report basic information on the amount of CO2 injected (including volume and source).

— Note: Subpart UU is not designed to serve as an accounting framework for CO2 storage, because the amount of CO2 injected does not provide sufficient information to quantify CO2 sequestration amounts.

California’s Regulatory Approach

California’s Regulatory Approach 19
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California’s Regulatory Approach 19

California’s Regulatory Framework

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— CCS is covered under the “Regulation for the California Cap on Greenhouse Gas Emissions and Market-Based Compliance Mechanisms.” — The CCS rule applies to CO2 suppliers, which have a compliance obligation based on the amount of CO2 in their emissions data report. — The regulation requires use of an “[Air Resources Board]- approved carbon capture and geologic sequestration quantification methodology that ensures that the emissions reductions are real, permanent, quantifiable, verifiable, and enforceable.” See 98.852(g)

The CA Regulatory Process

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— In April 2016, the Air Resources Board (ARB) initiated a Regulatory Adoption Process to develop a Quantification Methodology (QM) for CCS, using an informal development process of:

¡ Public workshops, technical and policy discussions ¡ Stakeholder outreach ¡ Draft proposals ¡ Per ARB: “This process can take several years.”

— Rule-making proceedings include:

¡ 45-day public notice and comment on proposed regulations ¡ Public hearings ¡ Responses to relevant comments ¡ Submission of the rulemaking action to the CA Office of Administrative Law

Key Topics being considered by ARB

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— Accounting and reporting protocols.

¡ Evaluating existing frameworks and data verification requirements.

— Site selection and characterization.

¡ Identifying and assessing long- and short-term risks. ¡ Defining the “Area of Review.” ¡ Requirements for remedial action, monitoring and contingency plans.

— Site injection operations.

¡ Injection well design for Class II vs. Class VI wells. ¡ Injection quantity and pressure limits. ¡ Monitoring, reporting and active site management.

— Site Closure/Post-Closure.

¡ Decommissioning and timeframe for ongoing monitoring.

— Long-Term Stewardship, including responsibility and financial liability.

ARB Concerns with CO2-EOR

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— Potential for overall increased oil production, in conflict with CA’s oil reduction goals. — Uncertainty with site closure, unclear responsibilities for permanent CO2 sequestration. — Maximizing CO2 storage vs. oil production.

— ARB plans to include requirements that are more strict than Class II or similar.

EPA’s First Approved MRV Plan:

An Overview of the Approach and Process

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DINA KRUGER KRUGER ENVIRONMENTAL STRATEGIES LLC

JUNE 14, 2016

Overview of Presentation

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— Requirements of MRV Plans under GHGRP Subpart RR MRV of the Clean Air Act

— Approach taken in Oxy’s MRV Plan

— Process that led to MRV Plan approval

Basic Information

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— EPA approved the first MRV plan under Subpart RR of the Greenhouse Gas Reporting Program (GHGRP) on December 22, 2015.

— The MRV plan was submitted by Occidental Petroleum Co.

— Oxy “opted in” to the requirements of Subpart RR.

— The MRV plan covers Oxy’s Denver Unit.

 

Required MRV Plan Elements

 
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Facility Information Project Description Monitoring Area and Timeframes Potential Leakage Pathways to Surface Considerations for Site-Specific Variables Baseline Determinations Sequestration Volume Calculation MRV Plan Implementation Schedule QA Program Records Retention

   

The most critical (and challenging) elements in the MRV plan are:

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Monitoring Area and Timeframes; Potential Leakage Pathways to Surface; Considerations for Site-Specific Variables; and Baseline Determinations.

 

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Significant time was spent:

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¡ Developing strong approaches; ¡ Responding to EPA questions and ideas; ¡ Revising, as necessary; and ¡ Ensuring that these elements were fully and clearly described in the plan.

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Each MRV Plan will be Unique

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— EPA does not require the use of any single approach/ technique all MRV Plans. — The operator must identify appropriate site-specific monitoring and quantification approaches/ techniques. — The selected approaches/techniques will be determined based on site conditions, such as:

¡ Geology ¡ Likely leakage pathways ¡ Current site monitoring approaches ¡ Other

The Basis for Occidental’s Approach

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Knowledge of the subsurface, gained through CO2 EOR experience. Oxy’s standard operating procedures for CO2-EOR. The operating history at the Denver Unit. The flexibility to tailor the MRV plan for specific site characteristics, as provided in Subpart RR. Feedback from EPA during the process of developing the MRV plan.

Key Elements Supporting the MRV Plan

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Denver Unit has a strong containment zone with no faults or fractures. Denver Unit is most updip in the Wasson Field, which will tend to keep CO2 in the formation over time.

Key focus of Oxy’s risk assessment is existing wellbores, implemented via:

¡ Compliance with regulatory requirements. ¡ A rigorous program of subsurface performance and well bore monitoring.

Key Elements (2)

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Key Elements (2) 31 Very Low Risk for Most Theoretical Leakage Pathways —   Faults —
Very Low Risk for Most Theoretical Leakage Pathways
Very Low Risk for Most Theoretical Leakage Pathways

— Faults

— Natural and Induced Seismicity

— Previous Operations

— Overfill through Lateral Spill Points

— Dissolution of CO2 into Formation Fluid and Subsequent Migration

— Drilling Through the CO2 Area

Key Elements (3)

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Information Management
Information Management

— Piggy-backing on CO2- EOR Control Systems:

¡ Use of automated data systems for performance evaluation and incident tracking. ¡ Developing criteria to identify those events that could involve CO2 leakage.

to identify those events that could involve CO2 leakage. Monitoring —   Leakage detection via: ¡
Monitoring
Monitoring

— Leakage detection via:

¡ Daily visual inspections at each facility and using aerial inspections. ¡ Use of H2S monitors worn by all personnel and fixed monitors at the Denver Unit CO2 Recovery Plant. ¡ Monitoring of injection and production performance.

An Iterative MRV Plan Review Process

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An Iterative MRV Plan Review Process 33 OXY —   Shared draft MRV plan with EPA
OXY
OXY

— Shared draft MRV plan with EPA in late Spring 2014.

— Revised draft and resubmitted a few more times.

— Submitted final version in late Summer 2015.

EPA
EPA

— EPA provided feedback on initial draft.

— EPA provided additional feedback on subsequent drafts.

— EPA approved the MRV Plan on December 22, 2015.

The EPA Process

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— Entire approval process took about 18 months.

¡ First 12 months: Oxy was refining the MRV Plan. ¡ Last 6 months: EPA was developing the approval decision, and briefing up.

— Following an MRV Plan approval, “interested parties” have 30 days to appeal to EPA’s Environmental Appeal Board (EAB).

¡ Focus is on the elements of EPA’s approval document. ¡ No appeals were filed on the Denver Unit MRV plan

A few tips for those considering an MRV Plan…

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— Review the Oxy plan for the Denver Unit, with the goal of understanding the general requirements and how to present the necessary information. — Meet with EPA after identifying the site, and an initial approach for the MRV plan has been developed. — Expect significant feedback from EPA, and several revisions of the plan.

¡ EPA’s goal is to ensure that no approved MRV Plan will be overturned by the Environmental Appeals Board.

MRV Plan Links

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— Approved MRV Plan for the Denver Unit

https://www.epa.gov/sites/production/files/2015-12/

documents/denver_unit_mrv_plan.pdf

— EPA’s Decision on the Denver Unit MRV Plan

https://www.epa.gov/sites/production/files/2015-12/

documents/denver_unit_final_decision.pdf

Note: The decision document is long, as it contains all of the MRV Plan drafts submitted by Occidental, as well as the revisions requested by EPA.

CCUS Opportunities under EPA’s Clean Power Plan

CCUS Opportunities under EPA’s Clean Power Plan
CCUS Opportunities under EPA’s Clean Power Plan
CCUS Opportunities under EPA’s Clean Power Plan

Key GHG Rules for Power Plants

Key GHG Rules for Power Plants —   Final Rule: Standards of Performance for Greenhouse Gas

— Final Rule: Standards of Performance for Greenhouse Gas Emissions from New, Modified, and Reconstructed Sources: Electric Utility Generating Units (EGUs).

¡ Published in the Federal Register on October 23, 2015. ¡ Litigation pending.

— Final Rule: Carbon Pollution Emission Guidelines for Existing Stationary Sources: EGUs.

¡ Published in the Federal Register on October 23, 2015. ¡ Stayed by the Supreme Court on February 9, 2016. ¡ DC Circuit has decided to hear the case “en banc,” and will hold oral argument on September 27, 2016.

The NSPS Final Rule

The NSPS Final Rule
The NSPS Final Rule
The NSPS Final Rule

CCS in the Final NSPS

CCS in the Final NSPS —   EPA has determined that the “Best System of Emission

— EPA has determined that the “Best System of Emission Reduction (BSER)” for new steam units is a highly efficient supercritical pulverized coal unit with partial CCS.

¡ The required emission rate for new fossil-fired EGUs under the NSPS is 1,400 pounds CO2 per MWh-gross. ¡ This is equivalent to the performance of an SCPC unit capturing about 20% of its carbon pollution.

— EPA’s final BSER is less stringent than the proposed standard of 1,100 pounds CO2 per MWh-gross.

CCS Opportunities under the NSPS

CCS Opportunities under the NSPS NSPS rules set a Standard, not a Market-Based Approach —  
CCS Opportunities under the NSPS NSPS rules set a Standard, not a Market-Based Approach —  
NSPS rules set a Standard, not a Market-Based Approach
NSPS rules set a Standard, not a Market-Based Approach

— New Coal Units:

¡ Few (if any) new builds are expected. ¡ These units would have to meet the required rate of 1,400 pounds CO2/MWh- gross. ¡ Within the NSPS, there is no incentive to reduce emissions below the standard, because NSPS units cannot trade.

— New NGCC Units:

¡ Many units are likely to be built. ¡ These units can comply with the final standard (1,000 lbs- CO2/MWh-gross) without CCS. ¡ As with new coal units, within the NSPS, there is no incentive to reduce emissions below the required standard.

CCS in the Final NSPS

CCS in the Final NSPS —   If an affected power plant captures CO2 to meet

— If an affected power plant captures CO2 to meet emissions standard:

¡ The power plant must report under Subpart PP (Suppliers of CO2) regarding whether the CO2 was injected on-site, or transferred for off-site injection. ¡ In addition, both on-site and off-site injection of captured CO2 must be reported under Subpart RR (Geologic Sequestration of CO2).

— “Innovative Technology Waivers” are available for CCU projects, based on a demonstration that the project would store CO2 as effectively as geologic sequestration with minimal risk to health and welfare. — See 80 FR 64654-55, 60.5505(f) and (g)

Clean Power Plan Final Rule

Clean Power Plan Final Rule
Clean Power Plan Final Rule
Clean Power Plan Final Rule

CCS in the Final CPP

CCS in the Final CPP —   EPA confirms CCS is an available compliance option. ¡

— EPA confirms CCS is an available compliance option.

¡ “We are confirming our proposal that CCS is not an element of the [Best System of Emission Reduction], but it is an available compliance measure for a State Plan.” 80 FR 64884

— “Affected EGUs may utilize retrofit CCS technology to reduce reported stack CO2 emissions from the EGU.” — Retrofitting CCS on an existing unit should not be considered a “modification,” which would bring the unit into the NSPS.

¡ Footnote 898: “Addition of retrofit CCS technology should not

80 FR 64883

trigger CAA section 111(b) applicability for modified or reconstructed

sources.”

CCS in the CPP (continued)

CCS in the CPP (continued) —   Following the requirements of the NSPS and CPP will

— Following the requirements of the NSPS and CPP will not lead to a change in the UIC well class.

¡ Footnote 901: “Under final requirements …, any well receiving CO2 captured from an affected EGU, be it a Class VI or a Class II well, must report under Subpart RR. A UIC Class II well’s regulatory status does not change because it received such CO2, nor does it

change by virtue of reporting under Subpart RR.

80 FR 64883

— “Affected EGUs that apply CCS under a State Plan must meet the same requirements as new units that implement CCS” under the Final NSPS.

¡ Specifically, Subparts PP and RR of the GHGRP, as described on slide 7.

CCS Opportunities: Rate-Based Trading

CCS Opportunities: Rate-Based Trading —   New sources cannot participate in the CPP’s rate-based trading approach,

— New sources cannot participate in the CPP’s rate-based trading approach, per 60.5800(c)(1), 80 FR 64950. — CCS retrofits are allowed at existing coal- and gas-fired units.

¡ The Emission Rate Credits (ERCs) generated by such projects could be used by the EGU, or sold to other EGUs.

— The monitoring requirements for ERCs generated by existing power plants are much less complicated than the requirements for renewable energy and energy efficiency. — ERC prices alone are unlikely to be high enough to incentivize CCS retrofits in a rate-based system.

CCS Opportunities: Mass-Based Trading

CCS Opportunities: Mass-Based Trading —   Incentivize CCS retrofits of existing power plants via: ¡  

— Incentivize CCS retrofits of existing power plants via:

¡ Targeted allowance allocation; ¡ Establishing allowances set-asides; ¡ Using allowance auction revenues.

— Bring new sources into the existing source program.

¡ States that implement this approach would have a larger emissions cap to cover the additional sources. ¡ This approach would enable both new and existing power plants to consider developing CCS projects.

The best way to drive CCS under the CPP

The best way to drive CCS under the CPP —   Create state-level mass-based trading markets

— Create state-level mass-based trading markets that include both new and existing sources. — This approach is the most likely to incentivize CCS because it:

¡ Establishes a clear price signal on CO2 that will apply to both new and existing power plants. ¡ Ensures that all fossil generation – new and existing, gas and coal – will have incentives to consider CCS. ¡ Including new sources will probably lead to higher allowance prices, which would be helpful for CCS.

— Additional Federal and/or state financial incentives may be needed.

A Brief Discussion on Financial Incentives

A Brief Discussion on Financial Incentives 49
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A Brief Discussion on Financial Incentives 49

Currently, few incentives for CCS

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— Tax Credits for Renewables and CCS not comparable. From 2010 – 2014:

¡ Renewable Federal Revenue Cost : $37.3 billion ¡ CCS Federal Revenue Cost: $1 billion

— DOE Budget Outlays from 2012 – 2016:

¡ Renewables: $2.5 billion ¡ CCS: $1 billion

Information for this section taken from the National Coal Council report “Leveling the Playing Field: Policy Parity for Carbon Capture and Storage Technologies.”

IRC Section 45Q Tax Credit

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— Promulgated in 2009. — Provides a financial incentive to the capturer of the CO2 of $20/ton for Class VI injection and $10/ton for Class II EOR injection. — Modifications for the 45Q tax credit are needed:

¡ Lower the limit on CO2 capture to enable smaller sources to participate. (Currently set at 500,000 tons/year.) ¡ Provide transferability of the credit between parties in the capture and injection chain of custody. ¡ Increase the credit for both Class VI and EOR injection.

— This incentive appears to have the best prospects currently.

Other Financial Incentives

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— Contracts for Differences (CFD)

¡ DOE could create an approach under which a limited number of projects could receive financial support from a menu of incentives. ¡ First step would likely be for DOE to lay out how a CFD program would work.

— Production and Investment Tax Credits

¡ Available for renewables, but not for CCS.

— Tax-preferred bonds

¡ Funded by local governments. ¡ Available for renewables, but not for CCS.

— Master Limited Partnerships

¡ Allows for taxation at the individual level, as opposed to both the individual and corporate level. ¡ Currently neither renewables nor CCS are eligible.

Contact:

Contact: KRUGER ENVIRONMENTAL STRATEGIES LLC DINA@KRUGERSTRATEGIES.COM (301) 801-9676

KRUGER ENVIRONMENTAL STRATEGIES LLC DINA@KRUGERSTRATEGIES.COM

(301) 801-9676