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The Future of Coal under Carbon Cap and Trade

Submission to Committee on Energy Independence and Global Warming

WRI submitted this document on September 14th 2007 to the U.S. House Select Committee on Energy Independence and Global Warming, in response to the Committee's invitation to submit written testimony.

Executive Summary

Global climate change is the greatest environmental challenge we face. We have at most a few decades to make the necessary investments to prevent the most serious impacts of climate change. Future generations will judge us based on the investments we are considering now.

In its February 2007 report, the Intergovernmental Panel on Climate Change (IPCC) warns that global emissions must peak no later than 2015 if we are to hold average global temperature increases to 2.4°C (4.3°F) or less. Moving to an emissions pathway that will hold temperature increases and other impacts to a minimum will require a colossal effort. There is no time to lose given the long lag in research and development cycles, and energy-intensive infrastructure and product turnover.

Fundamentally altering the world’s energy system is unlikely to occur within this timeframe. It is thus imperative to find means to reduce the footprint of the existing system – most particularly, of coal, which is the most greenhouse gas intensive of the fossil fuels driving climate change. It is in this context that carbon dioxide capture and sequestration (CCS) becomes one of the most critical technologies in the menu of choices we have to cut greenhouse gas emissions. It is the only option that provides a potentially near-term solution to rapidly expanding coal use here, in China and around the world. CCS must play the critical role of curbing growth in emissions from coal until other alternatives are ready.

Energy efficiency and renewable energy have enormously important roles to play in helping countries meet their development goals more cleanly, but together are unlikely to be able deliver the quantity of energy needed to offset sufficient coal use in the near future. Some predict nuclear power could enter a renaissance, but it seems likely its contribution will be limited due to high costs and public concern. We have been reminded quite painfully over the past few years that oil and natural gas supplies are increasingly concentrated in a few, often unstable countries and are unlikely to substitute for coal on sufficient scale. Other low-carbon energy options are still more speculative. Given that coal fuels over half of this country’s electricity production and almost 80 percent in China, while all low-carbon options need to be deployed to prevent the more serious impacts of climate change, a solution must be developed for the coal that will undoubtedly be consumed over the next few decades.

Unfortunately, we are not yet in a position to widely install CCS technology. It is currently expensive in all but relatively niche applications. The question of how the public will react to CCS is largely untested. And the issue of whether we can successfully scale up its use beyond the relatively small applications we have today is still hard to assess. But while CCS is not a panacea to the climate challenges we face, it is currently the only tool that allows us to deal with emissions from coal. Several steps will be critical, and we believe should be adopted to promote the rapid penetration of this technology.

Public funding to support energy research, development and demonstration (RD&D) has declined notably in most industrialized countries over the past few decades. WRI believes that greater spending on climate RD&D is called for in general, and more on CCS specifically. The knowledge gleaned from this RD&D will help us understand more quickly what role CCS will play in the climate solution.

A carbon cap and trade regime will be a critical first step in driving development and deployment of CCS technologies at the scale necessary to avoid catastrophic climate change. By creating a price for carbon, a cap and trade regime will provide incentives for industry to invest in low carbon technologies. It will also help the Department of Energy, Environmental Protection Agency, and other key institutions prioritize their work plans more effectively. However, even the most robust legislative proposals for cap and trade offered today will not be sufficient to drive large-scale investment in CCS over the first decade or so. Estimated carbon prices under such proposals are too low to offset the high capture costs that exist today.

Other policy tools are available and should be adopted to speed CCS deployment. These include special incentives for rapid technology development and deployment, and establishing clear siting regulations Barriers to widespread deployment of CCS, including lack of public understanding and acceptance, the need for accelerated RD&D, and resolution of legal and regulatory issues, must also be addressed.

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