Carbon sequestration has been both celebrated and vilified in the investor world. Proponents tout it as coal's great comeback opportunity, while critics denounce it as another pipe dream. New research from MIT scientists may have finally revealed carbon sequestration for what is truly is: a whole lot of hot air.
The dirty details
Carbon sequestration, the process of isolating carbon emissions from power plants and burying them deep below the earth's surface, has been considered by some to be coal's saving grace until now. MIT researchers have been hard at work analyzing what could actually happen thousands of feet below our feet. Their findings, published last month, point to a surprisingly scary fact: carbon doesn't stay put. While previous research asserted that carbon dioxide injected around 7,000 feet below the earth's surface would react with local minerals and solidify, the vast majority of carbon dioxide remains gaseous, ready to leak to the surface.
Speaking to MIT News, postdoc researcher Yossi Cohen noted that "If [carbon dioxide] turns to rock, it's stable and will remain there permanently. However, if it stays in gaseous or liquid phase, it remains mobile and it can possibly return back to the atmosphere."
Sequestration or not, coal is an essential part of America's current energy portfolio. In 2013, coal-fired power plants provided 39% of the 4 trillion kilowatthours of electricity we generated, three times that of renewables.
But coal also produces nearly 20% more carbon dioxide emissions than oil, and nearly double that of natural gas. The U.S. Environmental Protection Agency's proposed Clean Power Plan is set to essentially cut coal out of our energy future -- unless it can cut its own carbon emissions. If this latest research is any indication, sequestration won't be coal's saving grace.
What this means for investors
There are two main corporations that are hit hard by this latest failure: coal producers and coal-reliant utilities.
On the coal producer front, corporations like Alpha Natural Resources (NASDAQOTH:ANRZQ) and Peabody Corporation (NYSE:BTU) are feeling the defeat worse than others. This latest finding comes on top of an already controversial $1.65 billion carbon capture and sequestration project partnership with the U.S. Department of Energy. Fellow Fool Maxx Chatsko recently reported on the project's progress. The bottom line result: possible, but prohibitively expensive. When combined with this latest MIT research, that "possible" becomes "not as possible as we thought," which leaves investors with: not as possible as we thought, and prohibitively expensive. That's not very much progress at all.
American electric utilities are also interested in carbon capture and sequestration opportunities. While most utilities have been retiring coal-fired power plants, some are investing heavily in "clean coal" technologies. Most notably, Southern Company's (NYSE:SO) increasingly expensive Kemper power plant has made it the bane of income investors' portfolios, even without sequestration intentions.
The utility was also part of a decade-long carbon capture and sequestration research project partially sponsored by the Department of Energy and also conducted under the auspices of MIT scientists. But just a few months after the project was announced, Southern pulled its 160 MW plant out of the project and replaced it with a 25 MW unit, allegedly due to cost concerns. As it turns out, that might've been Southern's smartest sequestration move to date.
Is sequestration stuck?
Coal-fired power won't disappear overnight, and corporations will continue to research carbon-cutting alternatives. But carbon sequestration isn't the easy out coal investors had hoped it would be, and it may be high time for corporations to cut their losses.