CBO Releases Report on Federal Efforts to Reduce the Cost of Capturing and Storing Carbon Dioxide

June 28, 2012

Coal-powered facilities account for roughly a third of all U.S. emissions of carbon dioxide, and most climate scientists believe that the buildup of carbon dioxide and other greenhouse gases in the atmosphere could have costly consequences.

Today CBO released a report—prepared at the request of the Chairman of the Senate Energy and Natural Resources Committee—on federal efforts to reduce the cost of carbon capture and storage (CCS), a much-discussed option for reducing the nation’s greenhouse gas emissions while preserving the ability to produce electricity at coal-fired power plants.

No CCS-equipped coal-fired power plants have been built on a commercial scale because any electricity generated by such plants would be much more expensive than electricity produced by conventional coal-burning plants: Engineers’ estimates indicate that electricity generated by the first CCS-equipped commercial-scale plants would initially be about 75 percent more costly than electricity generated by conventional coal-fired plants. Since 2005, lawmakers have provided the Department of Energy with about $6.9 billion to develop CCS technology, demonstrate its commercial feasibility, and reduce the cost of electricity generated by CCS-equipped plants.

In the absence of a significant technological breakthrough, it seems clear that a large amount of new CCS capacity—installed either at new plants or, through retrofitting, at existing plants—would be needed to reduce costs substantially. Such an investment seems unlikely in the foreseeable future and it might not occur even if the technology became more competitive economically. Unless the federal government adopts policies that encourage or require utilities to generate electricity with fewer greenhouse gas emissions, the projected high cost of using CCS technology means that the government’s current program for developing CCS is unlikely to do much to support widespread use of the technology.

Lawmakers have a number of options: They could continue current efforts; redirect resources towards research and development; impose costs—for example, through a tax on carbon—on users of electricity whose generation releases greenhouse gases (thereby making CCS more competitive); experiment with different types of subsidies that would provide more incentive for private-sector investments in CCS; or reduce or eliminate future spending for CCS, leaving most of the potential for further development of CCS technology to countries—for example, China and India—with high rates of growth in the need for new electricity-generating capacity.

This study was prepared by Philip Webre of CBO’s Microeconomic Studies Division and Samuel Wice (formerly of CBO).