As you know, I always like to begin with full disclosure. KRCs perspective on energy policy issues is framed by the fact that we represent those who feel the brunt of energy policy decisions that dont fully account for the footprint the impact of extraction, beneficiation, and utilization of energy sources and disposal of resulting wastes and management of emissions or discharges. KRC believes that the full life cycle costs of all of our energy choices need to be analyzed and accounted for in our policy and investment decisions.
Over the years, we have all learned a number of acronyms NEPA, SMCRA, RCRA, MSHA, OSM, and more recently, CTL for coal to liquids and IGCC for integrated gasification, combined cycle plants that convert feedstock to synthesis gas. CCS, or carbon capture and sequestration, will in future years become an increasing part of the energy lexicon.
While I know it will surprise the Subcommittee to hear that I have been sometimes wrong, occasionally mistaken, and intermittently in error in predicting the future trends over these past 35 years, I think it is not inaccurate or a misstatement to suggest that management of geologic carbon released in the process of conversion and utilization of fossil-fuel energy is THE key legal, technical and policy challenge for short- and intermediate-term environmental and energy policy with respect to conversion of fossil fuels to energy.
There is a growing consensus towards a national policy response to climate change and specifically, towards a mandatory program for reductions on emissions and of atmospheric concentrations of greenhouse gases from fossil fuel utilization. In looking at any energy path, the ability to capture and manage (through sequestration or otherwise) carbon dioxide and to minimize other pollutants over the life cycle of a fuel will drive our energy choices. As I indicated to the House A&R Committee and the Senate Agriculture and Natural Resources Committee recently, KRC believes that state coal-related initiatives should be targeted at addressing research and development in carbon capture and management and not underwriting new syngas or coal-to-liquids plants that do neither.
Just as the overwhelming weight of the scientific community acknowledges that climate change is occurring and that the increase in concentration of carbon and other greenhouse gases is responsible for that trend, there is growing consensus in the business community and government on the need to reduce emissions of greenhouse gases in order to minimize the coming consequences of warming that will follow emissions already released into our atmosphere. There is general agreement within the scientific community, that emissions of greenhouse gases should be reduced by 60-80% by mid-century to minimize irreversible effects of climate change. There is also general consensus that we have a relatively brief period in which to restructure the manner in which we produce and consume energy, before the exigencies of climate change will impose dramatic costs on our communities and our economy and narrow our options to mitigate, rather than adapt, to climate change.
The Congressional response will most likely follow the recommendations of the Climate Action Partnership, which has recommended
mandatory approaches to reduce greenhouse gas emissions from the major emitting sectors including emissions from large stationary sources, transportation, and energy use in commercial and residential buildings that could be phased in over time, with attention to near-, mid- and long-term time horizons;
flexible approaches to establish a price signal for carbon that may vary by economic sector and could include, depending on the sector: market-based incentives; performance standards; cap-and-trade; tax reform; incentives for technology research, development, and deployment; or other appropriate policy tools; and
approaches that create incentives and encourage actions by other countries, including large emitting economies in the developing world, to implement GHG emission reduction strategies.
The implications for Kentucky are significant, perhaps as much or more so than for any other state in the Union.
The NAS has just released a report entitled Coal: Research and Development To Support National Energy Policy, which has a number of findings that are important to your work. Given the wide band of uncertainty concerning coal use and the impending carbon mandate, I have to take exception to the previous speakers chart predicting a linear increase in coal use. It is more prudent to view it as a range of sharp increases or decreases in use dependent on several national policy decisions related to carbon and climate change.
Most significantly, the NAS made these observations:
The context for any assessment of future coal production is inextricably linked with the development of a national carbon emissions policy. Potential constraints on greenhouse gases (especially CO2) emissions, and the technical and economic feasibility of CO2 control measures, are the dominant issues affecting the outlook of the future of coal use over the next 25 years and beyond. The difficulty of predicting prices and availability of alternative energy sources for electric power generation provides additional uncertainty.
If coal is to continue as a primary component of the nations future energy supply in a carbon-constrained world, large-scale demonstration of carbon management technologies especially carbon capture and sequestration (CCS) are needed to prove the commercial readiness of technologies to significantly reduce CO2 emissions from coal-based power plants and other energy conversion processes. In addition, detailed assessments are needed to identify potential geological formations in the United States that are capable of sequestering large quantities of CO2, to quantify their storage capacities, to assess migration and leakage rates; and to understand the economic, legal and environmental impacts of both near-term and long-term timescales.
We would do well to read the signs and to heed the observations of the MIT Study on the Future of Coal and the NAS Report. KRC believes it imprudent to invest public monies in supporting deployment of fossil fuel-based gasification or coal-to-liquid fuel technologies unless carbon emissions are addressed by the companies in order to move us towards the reductions needed to mitigate climate change.
Requiring that plants be carbon-capture ready adds nothing unless there is a strategy to manage that carbon, since all coal modern gasification plants are capture-ready.
KRC believes that substantial investment in R&D for research and large-scale demonstration of carbon capture, management and sequestration (CCS) from existing utility plants as part of a larger, balanced portfolio of investments in renewable energy and energy efficiency, is the prudent course of action.
The issue that concerns me most, both because the people I represent are the most vulnerable ratepayers and are persons who spend a higher percentage of their limited income on energy, is the least talked about issue the lack of preparedness of our Commonwealth to respond to the coming national carbon reduction mandate. I believe that we should focus our limited financial means and incentives on the coming carbon mandate and on anticipating and developing a strategy for avoiding the potentially dramatic impact on Kentuckys ratepayers and citizens.
Nationally, coal provides around 49% of the nations electricity. In Kentucky, coal provides 97 and 98% of the LGE and KU profile and somewhere around 90% overall. What has historically been our economic strength is becoming, in a carbon-constrained future, our vulnerability. The inevitable mandatory program for emissions reductions will hit hard on Kentuckys ratepayers because we are so unprepared. Our regulated coal-fired power plants will be obligated to internalize carbon costs, either by retrofitting the existing fleet with post-combustion OC2 scrubbers to capture and sequester carbon, by purchasing carbon credits, or by deploying new base-load plants that offer more efficiency or more effective carbon capture. The sticker shock, and the potential adverse effects on the most vulnerable ratepayers and on our economy, if we fail to plan now and to invest now in a strategy to reduce carbon emissions from the combustion of coal for electricity, will be staggering. To say we havent perfected CO2 postcombustion capture, as suggested by a previous speaker, is an understatement of epic proportion. A recently released Draft DOE/NETL study predicted increases approaching 60% in the cost of electricity from installation of a MEA or chilled ammonia CO2 scrubber.
The most important area in which state investment could help hedge against the impacts of a mandatory carbon reduction program is energy efficiency. Investment in improving efficiency of conversion and use of energy offers a way to mine inefficiencies in the way that power is generated and consumed. Kentuckys electricity is relatively low-cost, but our bills certainly are not, because we consume power inefficiently. In 2005, there were 20 states with lower monthly residential electricity bills than Kentuckys. In that year, Kentuckys residential ratepayers consumed more electricity than our counterparts in 43 other states; our businesses, more than 19 other states and our industries, more than counterparts in 47 other states. Efficiency improvements are a key to creating a sustainable Kentucky economy, and generate good jobs, increase disposable income, keep money circulating in the state, and make our industries and products more cost-competitive in the world market. Reducing waste, upgrading building codes, creating incentives for energy efficient home construction and renovation, enhancing demand management programs to encourage utilities to invest in more efficient use of power by customers, and increasing weatherization programs, particularly for rental housing all of these are bricks on the path to real energy independence and should be prominent parts of any energy bill.
Returning to the specific issue of funding CCS research, the other area where can we best place our investment dollars is in the advancement of technologies that better account for carbon in production of fuels and power. Just as the DOE budget for carbon sequestration is extremely underfunded, the budgets of both the Center for Applied Energy Research and the Kentucky Geological Survey in this area have been trending in the wrong direction and are in need of substantial augmentation. We cannot (and should not) try to go toe-to-toe with Illinois in throwing money after gasification or CTL plants that do not have a strategy in place for carbon capture and management. We can and should strategically invest in improving our Commonwealths capacity for research and demonstration on CCS, particularly on retrofitting existing power plants to scrub and manage carbon emissions efficiently and at reasonable cost.
We have a fleet of pulverized coal power plants that will need to be retrofitted or mothballed under a carbon mandate. The current technologies available to do capture are extremely energy intensive, and according to a recent DOE-NETL study, could increase the cost of electricity by 59% over plants without carbon capture. CAER and KGS could partner to test carbon capture and sequestration at a commercial scale through partnerships with a range of existing PC and other plants, to substantially reduce the cost and improve the efficiency of capture and management. There are other areas of potential for carbon management because sequestration that also deserve investigation.
The technical, legal and policy questions regarding carbon capture and management are numerous, and should not be understated. Through strategic use of research money and early development support, and relying on the expertise of CAER and KGS each in their own fields, in partnership with other universities and private and non-profit sector interests, we can position Kentucky in the front, rather than the back of the line, in states that are ready to address the challenge of carbon management (including tertiary recover, permanent sequestration, and other management options).
KRC believes a sound energy strategy has several components, one of which is the particular focus of todays meeting:
1. Restrict incentives for alternative fuel facilities to technologies that result in net reductions of atmospheric carbon loading over baseline over the life cycle of the fuel. As a condition of financial incentives, a comprehensive life-cycle analysis of environmental impact and risk, a business plan with feasibility study, and a comparative assessment of alternative investment strategies that would yield comparable production of energy or reduction of demand. No project for coal gasification or liquifaction should be supported absent a realistic business plan demonstrating economic viability under a range of assumptions concerning costs of production, of carbon capture and management, and of natural gas market conditions. Certainly the financial markets and institutional end-users (including the Air Force) will demand a business plan that includes management of carbon and an improvement over baseline by not merely achieving carbon neutrality, but reductions over baseline.
Incentives should include state assistance in the development of front-end engineering design if, and only where, carbon capture and management is an integral component of the design.
2. Significant funding increases for comprehensive investigation into various strategies for carbon capture and management, including tertiary recovery, conversion of waste CO2 to methanol, and permanent sequestration to the Center for Applied Energy Research and Kentucky Geological Survey. The fate, interaction, and transport of CO2 used for tertiary recovery and sequestered carbon dioxide, is an area where formation specific and statewide research is needed.
3. Comparable investment in research and demonstration of renewables and energy efficiency for all sectors, including partnerships with business and industry to development a strategic plan in order to position our economy and our manufacturing base to accommodate and flourish in a carbon-constrained world.
The ability and timing of the maturation of hybrid, fuel cell, and other technologies is not static, but is instead directly tied to the investment of funds and brainpower into addressing technical obstacles. Dollar for dollar, investment in coal-related research should be matched with investment in energy efficiency and deployment of renewables.
4. A strategy to jumpstart the development of a balanced portfolio of state and local investment in renewable energy and energy efficiency, as a hedge against the coming carbon mandate and as a way of mining the tremendous inefficiency in how we currently utilize energy.
5. A multi-stakeholder advisory group should be empanelled to explore the many legal and regulatory issuers associated with use of CO2 for tertiary recovery and for sequestration. Issues of ownership of the pore space, of the various mineral and surface interests, of groundwater and its use, of ownership of the formation and the right to sequester, of long-term monitoring, ownership and liability, and of how best to protect public and private interests from liability and unknowns related to sequestered carbon dioxide all need thorough vetting with involvement from mineral and surface owners.
6. An accurate inventory of greenhouse gas emissions is needed.
7. Utility regulatory policy must be revised to require full-cost accounting in planning, and an alignment of consumer interests with that of producers through demand-site management and efficiency improvements.
From this day forward, the General Assembly should send a clear message that no new electric generation plant proposing to utilize a carbon-based fuel will be able to pass along the costs of a later retrofitting or modification to install carbon capture equipment. Enough is known about the impending carbon mandate that any prudent utility will deploy all cost-effective efficiency measures to delay new generating capacity construction until after the goals and timeframe of the carbon mandate becomes clearer. Shareholders rather than ratepayers should bear the future add-on costs of a failure to utilize carbon capture and management as an integral component of new capacity construction.