K
Nonquantified Uncertainties That Could Influence the Costs of Carbon Storage

The estimates of potential costs of geological storage of carbon dioxide (CO2) presented in Chapter 4 of this report are “bottom-up” and based largely on engineering estimates of expense for transport, land purchase, drilling and sequestering, and capping wells. However, ample experience suggests that the full cost of storage cannot be captured by such an approach because of various barriers to implementation that increase cost.

Historical experience with nuclear power-plant construction provides useful insights. The 2003 Massachusetts Institute of Technology study The Future of Nuclear Power articulated the problem: “Our ‘merchant’ cost model uses assumptions that commercial investors would be expected to use today, with parameters based on actual experience rather than engineering estimates of what might be achieved under ideal conditions” (MIT, 2003, Chapter 1) and “construction costs of nuclear plants completed during the 1980s and early 1990s in the United States and in most of Europe were very high. … The reasons for the poor historical construction cost experience are not well understood and have not been studied carefully. The realized historical construction costs reflected a combination of regulatory delays, redesign requirements, construction management and quality control problems” (MIT, 2003, Chapter 5). The study noted that the high costs were not predicted and that the experience was not being reflected in current estimates of future construction by the industry.

The issues facing storage are distinct from the problems encountered in nuclear power, but they share an uncertainty in the regulatory environment that arises from attitudes on the part of the general public and policy makers that are obscure, are not fully formed, and are likely to evolve under the influence of



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K Nonquantified Uncertainties That Could Influence the Costs of Carbon Storage T he estimates of potential costs of geological storage of carbon dioxide (CO2) presented in Chapter 4 of this report are “bottom-up” and based largely on engineering estimates of expense for transport, land purchase, drilling and sequestering, and capping wells. However, ample experience suggests that the full cost of storage cannot be captured by such an approach because of various barriers to implementation that increase cost. Historical experience with nuclear power-plant construction provides use- ful insights. The 2003 Massachusetts Institute of Technology study The Future of Nuclear Power articulated the problem: “Our ‘merchant’ cost model uses assump- tions that commercial investors would be expected to use today, with parameters based on actual experience rather than engineering estimates of what might be achieved under ideal conditions” (MIT, 2003, Chapter 1) and “construction costs of nuclear plants completed during the 1980s and early 1990s in the United States and in most of Europe were very high. . . . The reasons for the poor historical construction cost experience are not well understood and have not been studied carefully. The realized historical construction costs reflected a combination of reg- ulatory delays, redesign requirements, construction management and quality con- trol problems” (MIT, 2003, Chapter 5). The study noted that the high costs were not predicted and that the experience was not being reflected in current estimates of future construction by the industry. The issues facing storage are distinct from the problems encountered in nuclear power, but they share an uncertainty in the regulatory environment that arises from attitudes on the part of the general public and policy makers that are obscure, are not fully formed, and are likely to evolve under the influence of 

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 Liquid Transportation Fuels from Coal and Biomass future events (Palmgren et al., 2004). A reliable quantitative assessment of future costs of storage would emphasize, at least qualitatively, the uncertainty arising from such attitudes, so quantitative estimates based on engineering analysis may represent a lower bound on future costs. Storage entails a health risk associated with acute leaks and exposure of workers or populations to hazardous concentrations of CO2 near facilities, an ecological risk to soils and groundwater due to chronic leakage, and a warming risk associated with sudden or chronic leaks that may partially or entirely vitiate the climatic value of a storage site (Anderson and Newell, 2004; Socolow, 2005). The likelihood of such acute or chronic leaks is discussed elsewhere in this report. The public and policy makers are likely to anticipate those risks and require that they be taken into account in the design, monitoring, and carbon-accounting pro- cedures and in associated regulatory frameworks that would be part and parcel of storage (Wilson et al., 2007). Cost estimates therefore need to anticipate delay in initiating demonstration projects due to time lags in conception and develop- ment of the overall regulatory regimen for storage, as well as regulatory delay in licensing of each specific project, both in the demonstration phase and beyond. Some issues, such as liability insurance for near-term operation and for long-term site maintenance, require political resolution that may introduce additional delays (IRGC, 2008). Uncertainty in the probability of long-term leaks could translate into regulations that require the purchase of allowances equivalent to a fraction of the carbon stored by sources that are planning to sequester carbon; this require- ment would increase the net cost of carbon capture and storage (CCS) compared with other alternatives. Although there is no a priori reason for extended licensing delays to occur beyond the demonstration phase, experience with siting of a variety of industrial facilities (Reiner and Herzog, 2004) suggests that delays of a year to several years would not be unusual. Once CCS attains full commercial-scale operation, delays could arise because of accidents that cause or threaten releases. The technologies, monitoring, and regulation of storage are likely to be closely related or even identical among sites, so interruption of operations at one site could affect operations at other sites and broadly reduce or temporarily eliminate storage; undermine credibility of the tech- nology among investors, regulators, policy makers, and the general population; and add a substantial risk premium to investment in CCS.

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Appendix K  Continuous storage may be subject to multiple regulatory regimens (and varied siting, licensing, and monitoring requirements) at various government levels. Moreover, storage rights to the large amount of belowground space that needs to be set aside to hold the lifetime emissions of a facility like a coal plant presumably need to be acquired at the start of a project. That involves a cost that is usually not recognized in storage-cost calculations. Depending on the details of the regulations and the degree of isolation from human settlements that is ulti- mately required for storage-well fields, surface-land costs may also exceed initial expectations. One feature of CCS that improves the odds that deployment will evolve without major disruption is that many of the early CCS projects will be enhanced oil-recovery projects. These would be at sites where the general population is already familiar with and generally favorably disposed toward the oil and gas industry and where revenue streams will benefit all royalty holders, including local and state governments (Anderson and Newell, 2004; Socolow, 2005). One can expect less resistance to CCS in such instances. Each of the aforementioned risk factors may be anticipated rationally, handled smoothly, and reflected in the cost of capital and insurance for storage operators. Or they may be ignored by all parties until experience establishes them as low risks or they cause systemic disruption of operations on a wide scale, as occurred in the United States in the case of nuclear-power-plant construction and long-term waste disposal and to a lesser extent in nuclear-power-plant operation. There are examples of cases in which risks associated with storage were handled in the normal course of events—with smooth and reliable licensing, operation, and monitoring—and regulatory delays did not cause a serious finan- cial burden or were appropriately recognized and incorporated in planning. CO2 is routinely transported over long distances, injected underground, and stored without much attention being paid by the public or policy makers. Natural-gas storage and chemical storage are long-time facts of life (Reiner and Herzog, 2004), and even serious accidents and leaks do not threaten operations, at least on an industry-wide basis. But counter examples, from Bhopal to Three-Mile Island to Yucca Mountain, are also easily cited. Furthermore, the proposed scale of CO2 storage puts it in a class by itself, and the public reaction to failure may be unique and unpredictable. Such uncertainty needs to be reflected in estimates of the cost of implementation of this technology.

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0 Liquid Transportation Fuels from Coal and Biomass REFERENCES Anderson, S., and R. Newell. 2004. Prospects for carbon capture and storage technologies. Annual Review of Environment and Resources 29:109-142. IRGC (International Risk Governance Council). 2008. Regulation of carbon capture and storage. Available at http://www.irgc.org/IMG/pdf/Policy_Brief_CCS.pdf. Accessed October 21, 2008. MIT (Massachusetts Institute of Technology). 2003. The Future of Nuclear Power. An Interdisciplinary MIT Study. Cambridge: MIT. Palmgren, C., M.G. Morgan, W. Bruine de Bruin, and D.W. Keith. 2004. Initial public perceptions of deep geological and oceanic disposal of carbon dioxide. Environmental Science and Technology 38:6441-6450. Reiner, D.M., and H.J. Herzog. 2004. Developing a set of regulatory analogs for carbon sequestration. Energy 29:1561-1570. Socolow, R.H. 2005. Can we bury global warming? Scientific American (July):49-55. Wilson, E.J., S.J. Friedmann, and M.F. Pollak. 2007. Risk, regulation and liability for car- bon capture and sequestration. Environmental Science and Technology 41:5945-5952.