New Tax "Reform" Bill Guts Carbon Capture Lifeline For U.S. Coal Industry

Carbon capture is one of the few remaining avenues left for coal to continue generating power in the low carbon economy of the future, but it looks like the new Republican-backed tax overhaul bill will slam the door shut. The House version of the bill tosses out a key financial instrument for building carbon capture facilities -- along with highways, seaports and other critical infrastructure.

So much for bringing back coal jobs. President Trump campaigned on the promise of reviving the U.S. coal industry, but on his watch the torrent of coal power plant closures has continued unabated.

The carbon capture solution

When carbon capture is the topic, the notorious FutureGen project comes to mind. FutureGen was a billion-dollar public-private investment intended to make the case for "clean coal." Unfortunately the technology was economically unsustainable. The Energy Department stopped investing taxpayer dollars in FutureGen back in 2015, under President Obama.

That could also be the fate of a Shell carbon capture project in Canada's oil sands fields. The project launched in 2012 with a big assist from Canadian taxpayers, but last spring the company decided to sell off most of its oil sands assets.

Nevertheless, the general idea of carbon capture is still very much alive. The source doesn't necessarily have to be a coal power plant. It could be any source of waste gas, including factories and other industrial facilities.

Co-locating carbon capture with a carbon recycling opportunity could be the key to making the operation financially viable.

One representative example is in Canada, where a demonstration carbon capture project is located at a paper and pulp mill. The captured carbon dioxide goes to greenhouses where vegetables are grown for sale.

If all goes well the ambitious project will demonstrate that carbon capture is a workforce multiplier. When fully built out in 2019, the greenhouses are expected to employ 400 people.

On the high tech side, a company called LanzaTech has developed a microbe-based system that recycles waste gas into useful fuels.

Carbon capture could be a lifeline for U.S. coal...or not

Fossil fuel stakeholders are also beginning to explore carbon capture as a means of staying relevant in a low-carbon world. In one example, back in 2014 NRG launched the Petra Nova project in Texas, aimed at using waste carbon from a coal power plant to extend the life nearby oil fields. The project became operational earlier this year.

The project received financial help in a $190 million grant through the Department of Energy, and also from a financial instrument called a private-activity bond (PAB).

PABs are low cost bonds issued by state or local agencies for infrastructure projects that serve a clear public purpose. They let private companies raise low-cost funding for seaports, airports, water and sewer projects, highways and low income housing.

Until the 1980s, utilities routinely used PABs to finance air pollution upgrades. That practice was restricted to "special circumstances" the last time there was a major tax overhaul (for those of you keeping score at home, that was back in 1986 under a Republican administration).

The "special circumstances" provision enabled NRG to use PABs for the Petra Nova plant, as a disaster recovery project after Hurricane Rita struck Texas in 2005.

In 2015 bipartisan legislation was introduced in the House and Senate to enable more carbon capture projects to move forward without having to qualify as a disaster recovery measures. Legislation to loosen the restrictions on PABs for carbon capture projects was also introduced earlier this year, but it's a long way from becoming law -- if ever.

Last Friday the Washington Post published an in-depth article on the PAB situation and its implications for the U.S. coal industry. Do read the full piece for detail, but for those of you on the go here's a snippet:

...House lawmakers are poised to undermine reviving the financial tool before the effort gains traction in Congress. Among the ways House Republicans decided to change the tax code in the tax overhaul bill passed in November was to scrap the use of PABs for the construction of everything from highways to seaports.

The House and Senate versions of the tax bill are being reconciled this week. As of this writing, the Senate version retains the existing PAB landscape and some House Republicans are advocating for the Senate version to win out. That doesn't do all that much to help finance new carbon capture projects, but it's something.

Meanwhile, the march of coal power plant closures continues unabated. Until recently, cheap natural gas was the main driver pushing coal out of the picture, but a new round of closures slated in Wisconsin and Missouri indicates that renewable energy is also becoming a force.

As for President Trump, he appears to be tied up with other matters. No word yet on whether or not the President supports PABs as a mechanism for promoting "clean" coal and protecting US coal jobs, but stay tuned.

Photo: Petra Nova carbon capture facility via US EIA.