Daily on Energy: Crunching the numbers on carbon capture

“On a dollar per megawatt hour basis, I was kind of surprised at how small 45Q looks,” said Julio Friedmann, a senior research scholar at the Center and a lead author on the paper. “For a gas plant, that’s $10 a megawatt hour. That’s less than half the wind production tax credit.”

To get the fastest and deepest deployment in the power sector, “you’re probably going to need a mix of things,” Friedmann told Abby. Revenue enhancements like production tax credits, for example, work best for gas plants, while coal plants are better served by measures that lower capital upfront costs like master limited partnerships, the report found.

Why does this matter now? Lawmakers, especially Republicans, are sharpening their focus on the 45Q tax credits as discussions heat up over future coronavirus relief packages — and especially as those talks may pivot to helping the energy sector.

The carbon capture industry, like many in the energy sector, is feeling the pain from the virus outbreak and related economic slowdown. It’s risking the first big set of projects that could take advantage of the tax credits, advocates for the technology say.

House Democrats have already started talking about an infrastructure package with a climate focus, and some are likely to continue pushing extensions of tax credits for wind, solar, and even electric vehicles.

Many Republicans hate the idea, and they now have a counter: If renewable energy provisions are being “seriously considered,” then Congress must also take immediate action to support carbon capture, in part by extending the deadlines for the 45Q tax credits, five GOP senators, led by North Dakota’s Kevin Cramer and including Senate Environment Committee Chairman John Barrasso, wrote last week.

The senators already have legislative language ready, they wrote in the letter to Senate Majority Leader Mitch McConnell. “It is time to level the playing field,” they wrote of renewable tax credits. “Either we finally let these credits expire or balance the equation with incentives for baseload generation, innovative technology and energy infrastructure.”

House Republicans, too, are calling for extending the 45Q credits. While some Democrats are “shamelessly” using the coronavirus crisis “to push extreme pet projects” on climate, House Energy Committee Republicans say boosting carbon capture would create millions of jobs.

Boosting the 45Q tax credits would help: But it won’t be enough to commercialize carbon capture in the power sector, per Columbia’s report. Investors won’t put major capital behind carbon capture retrofits until they feel they have a guarantee they can get enough of a return on their investment, said Emeka Richard Ochu, a research assistant and co-author of the paper.

“I think the discussion around the power sector has been limited in its imagination,” Friedmann said. “We hope this report will widen the aperture for what’s possible.”

Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Josh Siegel (@SiegelScribe) and Abby Smith (@AbbySmithDC). Email [email protected] or [email protected] for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.

‘OILY’ HOT POTATO MEANS NEGATIVE PRICING COULD RETURN: The eye-popping sight of negative oil prices may not be a fluke. The June West Texas Intermediate futures contract — the most actively traded right now — is at $13.33 per barrel as of this writing.

It briefly touched $10.24 per barrel this morning, which if it continued would have been the lowest closing level for an actively traded contract since at least 1986, the Wall Street Journal reported.

Last week’s subzero May futures contract was expiring, and thus not the best measure of current market sentiment.

But traders are expecting the next few months to look grim as well. “S&P Dow Jones said it will roll all of its West Texas Intermediate contracts for June into July, due to the risk that the nearer contract will go negative,” the Journal said.

Rystad Energy, a research group, projected Tuesday that negative prices would happen again absent a major boost in demand or further production cuts on top of the nearly 10 million barrels per day agreed to by OPEC+, along with market-driven reductions in Western countries.

“Negative prices was a normal development and consistent with what we have been warning all along,” said Rystad’s head of oil markets Bjornar Tonhaugen. “When nobody wants the produced oil, when there is nowhere to store it, then it is like a hot ‘oily’ potato, that nobody wants to keep in his hands.”

But Rystad attributed the slight gains in the June WTI price later in the morning to the progress of U.S. states reopening their economies, which President Trump drew attention to on Twitter.

“U.S. reopening industrial activity can give a temporary boost to prices as traders need space to breath, but we don’t expect the levels to last,” Tonhaugen said.

BIDEN’S PROMISE TO BAN DRILLING WOULDN’T DENT EMISSIONS MUCH: Call it the “gimme” policy of the 2020 Democratic primary (everyone had to have it).

But Joe Biden‘s pledge to block oil and gas drilling on federal lands and waters would likely not be effective in reducing emissions over the long term, analysts tell Josh in a story running in our magazine this week.

Why’s that?: Most of the shale boom has occurred on private land.

About 8% of U.S. oil and 9% of natural gas were produced on federal land as of fiscal year 2018, according to the Bureau of Land Management.

Targeting fossil fuel production on public land and water would not significantly decrease emissions over time because production could move to other areas of the U.S. or to countries with less cumbersome regulations.

In addition, supply-side restrictions are less predictable than those targeting reductions in fossil fuel demand, such as a carbon tax or a zero-carbon electricity mandate.

“Emissions may reduce a little bit, but it’s a global oil market,” said Arvind Ravikumar, an assistant professor of energy engineering at the Harrisburg University of Science and Technology.

Counter-argument: Supporters of the policy say it would be symbolically important and contend supply-side restrictions are necessary to dent emissions in the next decade.

“It’s such an obvious first step to a clean energy economy,” said Rep. Jared Huffman, a California Democrat and a member of the House Select Committee on the Climate Crisis. “You just can’t keep digging the hole deeper.”

BP SUFFERS PROFIT LOSS FROM ‘DEMAND DESTRUCTION’: British oil major BP is reporting a decline in profit and an increase in new debt over the last three months amid the price collapse from the coronavirus pandemic.

BP became the first oil major this week to report its quarterly earnings Tuesday, and the numbers aren’t pretty. Shell will issue its report on Thursday, followed by ExxonMobil and Chevron on Friday.

BP posted a $800 million profit for the first quarter, compared to $2.4 billion for the same period a year earlier. That result reflected lower prices and “demand destruction” in March from coronavirus, among other things, BP explained.

BP also saw its net debt rise $6 billion this quarter to $51.4 billion. The company is not reducing its dividend payment to shareholders.

BP’s response: CEO Bernard Looney reiterated a series of measures the company is taking to strengthen its finances.

“We are reinforcing liquidity, rapidly reducing spending and costs, driving our cash balance point lower,” Looney said.

The BP chief also said he does not expect the “exceptional level of uncertainty” regarding the outlook for oil prices and demand to change the company’s commitment to reaching net-zero emissions.

“We are determined to perform with purpose and remain committed to delivering our net zero ambition,” Looney said.

WHAT DOES A NET-ZERO DUKE ENERGY LOOK LIKE? In the next three decades, the North Carolina-based utility would go from majority gas- and coal-fired power to a majority renewables, nuclear, and energy storage, according to the utility’s first-time analysis of its net-zero emissions by 2050 goal.

In 2050, Duke Energy expects to emit only about 8 million tons of carbon dioxide (about 5% of its 2005 emissions), which it will address by purchasing offsets. Those emissions will come from its remaining gas-fired capacity (about 24 gigawatts), which the utility expects it will use only to maintain electric reliability during peak demand periods. The bulk of its 2050 generation will come from renewables, existing nuclear generation, and zero-carbon baseload power such as advanced nuclear reactors or natural gas with carbon capture.

Renewables do a lot, but not everything: Duke Energy is planning a massive buildout of renewables, aiming to add more than 40 GW of wind and solar by midcentury. But the company cautions that at a certain point, adding more renewables becomes “uneconomic” to cut emissions. That’s why Duke Energy says it’s critical for its entire nuclear fleet to stay online, why it’s necessary to keep a certain amount of gas-fired power, and why the sector and policymakers must increase focus on developing zero-carbon baseload power.

Throwback: Duke Energy isn’t the only utility thinking this way. Abby took a look back in February at the challenges utilities will face as they target net-zero emissions.

WIND AND SOLAR ARE GETTING REALLY CHEAP: The two renewable energy sources are now the cheapest sources of new electricity build for two-thirds of the world, according to a new report from BloombergNEF.

The levelized cost of electricity (how much it costs to produce 1 megawatt hour from a new project) has dropped 9% for onshore wind and 4% for utility-scale solar just since the second half of 2019, BNEF found. For battery storage, that metric has been cut in half over just two years. That levelized cost excludes subsidies and tax credits, which could bring down costs even further.

BNEF analysts say the falling renewable costs put existing coal and natural gas generation at risk. Even so, falling commodity costs for coal and gas due to the coronavirus could actually “help shield fossil fuel generation for a while from the cost onslaught from renewables,” said Seb Henbest, BNEF’s chief economist.

DON’T FORGET PFAS IN INFRASTRUCTURE BILL, LAWMAKERS SAY: Any water infrastructure package as part of future virus relief efforts should include provisions to restrict industrial facilities from dumping “forever chemicals” into waterways, more than 80 lawmakers of both parties wrote Monday.

The lawmakers, led by New Hampshire Democrat Chris Pappas, are pointing to several provisions from the PFAS Action Act, which House Democrats passed in January with the help of two dozen Republicans, as examples of ways to address industrial PFAS contamination. Those provisions include directing the EPA to issue regulations requiring industries like chemical companies and textile mills to obtain permits under the Clean Water Act before discharging PFAS and to pretreat PFAS waste before sending it to a wastewater treatment facility.

ENERGY DEPARTMENT ASSURES CONGRESS OIL TRANSPORT BY RAIL IS SAFE: The Trump administration has concluded it does not need to issue new regulations, and is discouraging Congress from making legislation, to improve the safe transport of crude oil by rail.

The Department of Energy issued its “crude oil characteristics” report to Congress Tuesday, as required by the FAST Act, a surface transportation bill approved in 2015.

Congress directed DOE, along with the Transportation Department, to issue the report after a number of high-profile crude by rail accidents in 2013-14, raising questions about the safety of transportation of large amounts of oil by rail.

The study examined the physical, chemical, and combustion properties of crude, in particular “tight” oils found through the process of fracking in the Bakken shale region that became the type mostly transported by rail. It focused on the “volatility” of crude, or the level of vapor pressure. Comparing tight oils to other types, the DOE study determined “vapor pressure is not a statistically significant factor” in affecting the safe transport of crude, and recommends no further policy on the matter.

The Rundown

Bloomberg The pandemic is accelerating coal’s demise

Washington Post López Obrador wanted to make Pemex Mexico’s economic engine. Now it’s Pemex that needs help.

Reuters No silver lining: Mexico City smog defies coronavirus lockdown

New York Times It calls itself the energy capital. Now it faces 2 ‘horrifying’ crises

Calendar

TUESDAY | APRIL 28

The Senate will return May 4. The House hopes to return soon.