Canadian Manufacturing

Obama’s $1B carbon capture plan pumps up oil sector

Power companies have started to capture and sell carbon dioxide to oil companies, which pump it into old oil fields to force more crude to the surface

DE KALB, Miss.—America’s newest, most expensive coal-fired power plant is hailed as one of the cleanest on the planet, thanks to government-backed technology that removes carbon dioxide and keeps it out of the atmosphere.

But once the carbon is stripped away, it will be used to do something that is not so green at all.

It will extract oil.

When President Barack Obama first endorsed this“carbon-capture” technology, the idea was that it would fight global warming by sparing the atmosphere from more greenhouse gases. It makes coal plants cleaner by burying deep underground the carbon dioxide that typically is pumped out of smokestacks.

To help the environment, the government allows power companies to sell the carbon dioxide to oil companies, which pump it into old oil fields to force more crude to the surface. A side benefit is that the carbon gets permanently stuck underground.

The program shows the ingenuity of the oil industry, which is using government green-energy money to subsidize oil production. But it also showcases the environmental trade-offs Obama is willing to make, but rarely talks about, in his fight against global warming.

Companies have been injecting carbon dioxide into old oil fields for decades. But the tactic hasn’t been seen as a pollution-control strategy until recently.

Obama has spent more than $1 billion on carbon-capture projects tied to oil fields and has pledged billions more for clean coal. Recently, the administration said it wanted to require all new coal-fired power plants to capture carbon dioxide. Four power plants in the U.S. and Canada planning to do so intend to sell their carbon waste for oil recovery.

Just last week, former Energy Secretary Steven Chu announced he was joining the board of a company developing carbon capture technology.

The unlikely marriage of coal burners and oil producers hits a political sweet spot.

It silences critics who say the administration is killing coal and discouraging oil production. It appeases environmentalists who want Obama to get tougher on coal, the largest source of carbon dioxide.

It also allows Obama to make headway on a second-term push to tackle climate change, even though energy analysts predict that few coal plants will be built in the face of low natural gas prices and Environmental Protection Agency rules that require no controls on carbon for new natural gas plants.

“By using captured man-made carbon dioxide, we can increase domestic oil production, promote economic development, create jobs, reduce carbon emissions and drive innovation,” Judi Greenwald told Congress in July, months before she was hired as deputy director of the Energy Department’s climate, environment and energy efficiency office.

Before joining the Energy Department, Greenwald headed the National Enhanced Oil Recovery Initiative, a consortium of coal producers, power companies and state and environmental officials promoting the process.

The EPA last week exempted carbon dioxide injection from strict hazardous waste laws. It classified the wells used to inject the gas underground for oil production in a category that offers less protection for drinking water.

Oil companies using carbon to get oil also aren’t subject now to the tougher reporting and monitoring requirements that experts say are necessary to ensure the carbon stays underground, and they’re fighting an EPA proposal that would require them to be if the carbon comes from power plants covered by the new federal rules.

The administration also did not evaluate the global warming emissions associated with the oil production when it proposed requiring power plants to capture carbon.

In Mississippi, where Southern Company’s Kemper County power plant eventually will supply two oil producers with carbon dioxide, Denbury Resources Inc. says it would not be able to produce oil there otherwise.

Denbury is already using carbon dioxide trapped beneath a salt dome near Jackson to produce oil in the state. But it can use more carbon dioxide than nature can provide. That’s where the power plant comes in.

The federal support for Kemper lowers the cost of installing the carbon capture equipment, and ultimately, the cost of carbon dioxide for the oil producer.

The company has entered into a long-term contract with Southern for carbon dioxide. It will permit Denbury to recover a total of between 3.5 million and 4.2 million barrels of oil, a tiny fraction of the 91 million barrels of oil the world consumed daily last month. But for the oil companies, it still means millions of dollars more in revenue.

The nearly $5-billion project received $270 million from the Energy Department, prior to the Obama administration, and $279 million more in federal tax credits.

While Kemper is the first, it’s not the only one.

The Energy Department has provided $1.1 billion to six projects that capture carbon and sell it to oil companies. Four of those projects are power plants.

The EPA recently highlighted two of those projects, with a combined $858 million in federal money, as a way to reduce power plant emissions. Both plan on selling the carbon dioxide to oil companies.

“We sold the carbon dioxide immediately,” said Laura Miller, a spokeswoman for Summit Power’s Texas Clean Energy Project, which is still working on getting the financing needed to break ground on the 400-megawatt power plant in West Texas. “The projects that are still alive are the ones that are selling the carbon dioxide.”

Despite billions in federal aid, coal projects that simply stored carbon dioxide failed to take off.

In 2010, a plan for a $1.8 billion power plant in Illinois was replaced with a scaled-back project after it couldn’t secure private financing. In July 2011, American Electric Power, shelved a project in West Virginia that had received $334 million in late 2009, in part because a Democrat-controlled Congress failed to enact legislation, backed by the administration, that would have created a marketplace for carbon dioxide.

Oil recovery provided a market for carbon dioxide in the absence of federal legislation or regulations that put a price on it. For power plant operators, it could help offset the cost of the technology to capture it.

Associated Press writer Matthew Daly in Washington contributed to this report.

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