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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 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
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(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 procedures 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 development 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 requirement 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 citing 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 technology among investors,
regulators, policy-makers, and the general population; and add a substantial risk premium
to investment in CCS.
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 ultimately 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 construction and long-term waste disposal and to a lesser extent in
nuclear-plant operation.
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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 financial burden or were
appropriately recognized and incorporated in planning. CO2 is routinely transported over
long distances, injected underground, and stored with not much attention 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 industrywide 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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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. Accessed on October 21, 2008 at
http://www.irgc.org/IMG/pdf/Policy_Brief_CCS.pdf.
MIT, Massachusetts Institute of Technology. 2003. The Future of Nuclear Power. An
Interdisciplinary MIT Study. Cambridge: Massachusetts Institute of Technology.
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
carbon capture and sequestration. Environmental Science and Technology
41:5945-5952.
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