Solutions for a Carbon Constrained World

(May 2008, Dean Oskvig and Rodger Smith for General News Media)

The balance between providing the needed energy supplies for a growing world economy, while addressing the climate change issue, has created a landscape filled with tough decisions for policy makers, energy providers and consumers.

The energy sector, specifically, has a very tall mountain to climb: How do we effectively utilize our most abundant energy resources and reduce carbon dioxide emissions? These carbon emissions are targeted with an ultimate goal of lowering the level of all greenhouse gases.

Power generation is front and center in the climate change debate. Some studies suggest that the power generation sector makes up about 24 percent of man-made CO2. However, other energy-consuming sectors such as transportation, building energy use and other industry account for even more – approximately 36 percent. Solid waste, agriculture, and land use make up the remaining 40 percent. Many industries and consumer groups must align their efforts. This is truly a global challenge.

A recent Black & Veatch survey of U.S. electric utility executives showed that 72 percent believe that federal legislation to limit carbon emissions will be approved in the next five years. The most likely form of regulation is to set a total cap on carbon emissions from electric generation plants, and possibly other sectors. This emissions cap would be reduced over time. Many other industrialized countries are already coping with the early phases of such a regulatory regime. Regulations to reduce carbon emissions will have a major effect on the power industry, especially for coal-fired generation plants. These plants produce more than 40 percent of the world’s electricity – and 50 percent in the United States.

Where will we find solutions? Certainly, cost-effective conservation and energy efficiency measures are a fundamental part of the overall solution, and will help mitigate the cost impacts on consumers.

On the supply side, Black & Veatch has been a pioneer in many fields of energy technology. Climate change poses a different set of problems, but we remain confident that workable solutions will be found.

One approach is integrated gasification combined cycle generation that combines two technologies – coal gasification and combined cycle generation. This provides increased generation efficiency and lower carbon capture costs, but current capital requirements make its lifecycle costs appear to be higher than conventional pulverized coal with carbon capture. Another solution is supercritical coal generation technology, which increases steam temperature and pressure, making the plant run more efficiently and lowers the effective rate of carbon emissions. It is possible with current technology to capture and sequester the remaining carbon emissions produced during coal-fired power generation. The exact costs of this process can only be established by pilot programs and then over time by commercial-scale application.

Several other technologies can, in principle, generate electrical power with zero or very low carbon emissions, including nuclear, wind and solar. These technologies will undoubtedly gain market share in a carbon-controlled world. They also have their limitations. Nuclear generation cannot meet the near-term needs for more power. In the United States, even with an expedited licensing process, it’s uncertain how long it will take to ramp up the next generation of nuclear plants. It’s been 20 years since the last U.S. nuclear power plant was built, and much of the design, equipment manufacturing and construction capabilities for these complex facilities need to be expanded to meet the expected demand. Additionally, financing risks, the ongoing political debate on spent fuel disposal, and public acceptance issues will affect the timing and magnitude of a U.S. nuclear generation capacity increase.

Wind power is clean from a fuel standpoint and increasingly cost-competitive as a source of energy to displace more carbon-intensive generation. However, since the wind is not available all the time, it cannot be counted on as an uninterrupted source of electric generation for consumers. We still need high capacity factor generation like coal gas or nuclear to deliver assured energy in peak demand periods. Natural gas-fired generation has lower per megawatt carbon emissions than conventional coal. However, natural gas has historically had much higher price volatility, which makes utilities even more nervous about relying too much on this fuel source.

Taking together the cost impacts of these various pieces of the overall solution, economists estimate that to eliminate most power industry carbon emissions would increase the average retail cost of electricity by about 30 percent in the United States, compared to the situation with no carbon reductions. Rate increases to pay for these higher costs probably would not start for five to ten years, and would be spread over 10 to 20 years as the regulations are phased in and associated infrastructure developed. Regions or countries heavily served by coal-fired generation (e.g., China, Poland, or South Africa) could experience the highest rate increases when they adopt carbon constraints. In the United States, this would include the Midwest and Southeast. Those areas less dependent on coal would see lower increases in energy costs. Costs of using other carbon-based types of energy, such as natural gas, would also increase, but not likely as much as coal.

These increases in energy costs will cause economic pain. The run-up in oil and natural gas prices in the past three years has driven up total energy costs by a much higher percentage. There is legitimate concern, however, that large energy cost increases may encourage migration of energy-intensive industries from the United States and other developed nations to countries that are not controlling greenhouse gases and thus have lower energy costs. Likewise, there is concern that people on fixed incomes and lower economic classes will be hardest hit by the future energy price increases.

The utility industry and the regulators who oversee utility operations and rate structures will face significant challenges. Higher rates would be felt by customers, who may be inclined to look at the utilities as the culprits for higher costs, and at the regulators for allowing these costs to flow through. Regulators certainly will want the utilities to minimize the additional costs, but the best approach may not be immediately clear when economy-wide impacts are considered. Moreover, utilities should be provided a way to recover costs invested in the research and implementation of technologies that improve energy efficiency and environmental improvements. Before consumers will accept paying higher costs for energy, they must understand the impacts of their own consumption decisions in a carbon-constrained world. This is a multi-generational challenge in consumer education.

As a global engineering, consulting and construction services provider for the energy and water industries, Black & Veatch is heavily involved in developing and implementing energy and environmental technology solutions. Accordingly, we launched an initiative in 2006 to focus more of our considerable technical resource on developing solutions to help address the inter-related issues of climate change, energy security, and water availability, as well as their impacts on the world’s energy and water industries.

The energy supply mix of the future must be wisely structured to make use of all our resources, from renewables to gas to clean coal. We have no realistic choice other than to depend on coal and other fossil fuels for the foreseeable future, even as we push forward with utilization of lower carbon energy sources. Much time and money investment will be needed to deploy technologies that make the use of these abundant fossil fuels environmentally sustainable – through greatly reduced greenhouse gas emissions – as well as being commercially viable. And that is why decisions on carbon emissions legislation will have a lasting impact that will affect both global climate change and the pocketbook of the electricity customer. The public debate and the actions it produces are vital to our future. It is time for all informed voices to be heard.

(About the Authors: Dean Oskvig is President and CEO of Black & Veatch’s energy business. Rodger Smith is President of the management consulting division of Black & Veatch. They are headquartered in Overland Park, Kan.)