This article was written by Oilprice.com, the leading provider of energy news in the world.
Carbon capture and sequestration (CCS) technology has long been considered a middle-ground approach to climate change mitigation. It allows for the continued burning of fossil fuels, namely coal, for energy generation but then captures the CO2 before it can enter the atmosphere, pumping it deep underground where it is stored indefinitely. This would be a win-win situation for both climate-hawks and the fossil fuel industry—if it were not so expensive.
Projects that simply capture the carbon and store it on site have proven uneconomical. Finding a commercial use for this CO2 greatly increases the economic feasibility of CCS and, as a trade-off to help CCS along, the Obama administration has allowed the sale of CO2 to an unlikely buyer—oil companies. These companies pump the CO2 into oil reservoirs, helping to build pressure and enhance oil recovery. This tactic has been used for decades but was never associated with climate change mitigation until now.
"By using captured man-made carbon dioxide, we can increase domestic oil production, promote economic development, create jobs, reduce carbon emissions and drive innovation," said Judi Greenwald appearing before Congress in July. Greenwald is now the deputy director of the Department of Energy's climate, environment, and energy efficiency office; before joining the DOE, she co-convened the National Enhanced Oil Recovery Initiative, a consortium of fossil fuel companies, utilities, and officials that promote the process.
The Obama administration has passed new rules requiring that all new coal plants must incorporate CCS technology. Republican lawmakers shot back, calling the rules "unrealistic" and painting the requirement as the newest derivation of Obama's "war on coal." To assist in the transition, the DOE has thus far provided $1.1 billion in funding for six CCS projects. The EPA has highlighted two of these projects, receiving a combined $858 million in federal funds, as a key measure on the road to emissions reduction. What was not highlighted was that both of these projects plan to sell their carbon in order to make their model commercially viable.
The irony is that in the process of reducing emissions from power plants, the Obama administration is essentially providing subsidized production feedstock to oil companies. The administration is also easing the regulatory burden associated with the process, with the EPA recently excluding CCS from its hazardous waste regulations. Using CO2 for oil recovery is far from risk-free, however, and reductions in oversight should be taken cautiously.
In 2011, an oil well operated by Denbury Resources blew out in Mississippi. Denbury had been using CO2 injection to increase the recovery rate on site and pressure had built to a point where the well caps ruptured, venting "carbon dioxide, oil and drilling mud for 37 days." In fact, so much CO2 was emitted that it settled in surrounding lowlands, suffocating local wildlife. As CCS technology ramps up, the likelihood of accidents is bound to increase. Incidents like this are currently rare, but they should serve as a warning that CO2 injection requires regulation and oversight.
The road to emissions reduction will be bumpy and paved with seeming contradiction. For now, it looks like a policy aimed at reducing the environmental impact of coal-fired power will also effectively subsidize the country's oil producers.
This could also be OPEC's demise
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!
Related article from Oilprice.com: What China's Energy Trajectory Says about Climate Change
Related article from Oilprice.com: Where is the U.S. Wind Energy Sector Headed?