China’s Economic Reckoning
The Price of Failed Reforms
In June 2011, American Electric Power halted their flagship integrated clean coal and power project at the Mountaineer plant in West Virginia. The venture, jointly funded by AEP and the U.S. Department of Energy, was meant to be an international showcase for a promising environmental technology, carbon capture and sequestration (CCS), which steeply reduces the greenhouse gas emissions from large industrial facilities. In the wake of the project's end, the future role of CCS remains an open question.
Since 2004, when Tad Homer-Dixon and I wrote "Out of the Energy Box" (Foreign Affairs, November/December 2004), the energy sector has changed dramatically. Key events along the way included Hurricane Katrina, the global financial crisis, the Arab Spring, and the tragedies of the disasters at the Deepwater Horizon oil rig and the Fukushima Daiichi nuclear plant. Our assessment of CCS is basically the same now as it was in 2004: Yes, CCS remains a critical technology. But more needs to be done to develop and implement it, especially in the policy world.
Man-made climate change remains the primary environmental issue of our day. The fourth assessment of the Intergovernmental Panel on Climate Change shows an overwhelming global scientific consensus: rising greenhouse gases are a major component of observed climate change; some of the effects of climate change, such as the shrinking of the Greenland ice cap, are accelerating; and some profound changes to the physical climate system (for example, loss of Arctic sea ice) are being felt more quickly than climate models generally predict. These facts are not formally disputed by any of the 183 member nations that signed the reports.
What's more, the world is emitting more carbon dioxide than even the worst-case IPCC models allow. In 2010, roughly 35 billion tons of man-made CO2 entered the atmosphere -- about 70 times the weight of all human beings on earth. That annual volume is about seven billion tons more than it was in 2004, largely because of rapid economic growth in developing countries.
Unfortunately, energy technology, on the whole, has not evolved fast enough to cope with the CO2 problem. Novel nuclear reactor research continues, including new fuel cycles (like thorium), proliferation-resistant designs, new "inherently safe" designs, and lower-cost approaches. However, the tragedy of the tsunami-induced reactor failures in Japan has delayed the deployment of new nuclear technologies. And even as some coal plants are decommissioned or slated for closure, others are built, and not only in developing countries. (In 2010, the United States commissioned ten new coal plants, which would put out 6000 megawatts.) Natural gas development, which also emits CO2, has continued apace. And although wind and solar power use have increased rapidly in both OECD and developing countries, electrical grid instability and average power costs have increased as well. On a global and national basis, the fossil-fuel fraction of energy supply has hardly changed and emissions have risen steeply, even with much more renewable supply.
Nowhere is this trend clearer than in China. Over the past seven years, China's economy has grown over 50 percent, with more than 250 million people moving into cities. Growth and urbanization are driven by energy supply, and China has tried to meet its needs by making investments in new gas and oil pipelines from Russia and in clean-energy technology of all kinds. By 2020, China is expected to produce 100,000 megawatts of wind power, 50,000 megawatts of nuclear power (including new reactor types), nearly 50,000 megawatts of hydroelectric power, and 20,000 megawatts of solar power. All this involved over $400 billion of investment and will add virtually no extra carbon emissions.
Still, China continues to rely on coal. In the past seven years, it has built new coal power plants that will put out 400,000 megawatts of power, and with them over 2.5 billion tons of CO2. China has plans, moreover, to build plants that will produce 500,000 megawatts more. These will cost nearly $800 billion and will emit nearly six billion tons of CO2 every year.
The good news is that Chinese executives and politicians understand the risks posed by global climate change and the role that CO2 emissions play. Given that understanding and its reliance on coal, it is not surprising that China is investing substantively in CCS. The world's largest power company, Huaneng, has almost finished the GreenGen plant, soon to be the largest integrated gasification combined cycle plant on earth. It is being built to International Green Construction Code Standards with 80 percent indigenous technology -- and in less than three years. Moreover, the 250-megawatt plant will sequester 90 percent of GreenGen's emissions in the next three years, roughly one million tons per year. Huaneng also plans to undertake a large-scale CCS retrofit to a 600-megawatt plant near Shanghai, which will capture between two and four million tons of CO2 per year.
Meanwhile, China plans to undertake several other large-scale CCS projects. The Chinese oil giants PetroChina, Sinopec, and CNOOC are pursuing enhanced oil recovery (EOR), which will produce additional oil from old fields using CO2. Chinese state-owned enterprises are investing in indigenous capture technology of all kinds, including advanced pre- and post-combustion capture technology as well as oxygen-fired combustion. They are pursuing CCS at plants that convert coal to liquid fuels, chemicals, and natural gas, as well as new designs for ultra-high-efficiency coal conversion, all with major investments from China's National Energy Administration and the Ministry of Science and Technology. These projects will be large-scale enough to test and validate the safety and effectiveness of sequestration, as well as to provide insight into the real costs of these technologies. Not surprisingly, many Western companies have partnered with Chinese firms to develop and demonstrate novel CCS technology, including GE, Duke Energy Inc, Powerspan, Peabody, and others. These relationships are a pathway for advancing the technologies and lowering their costs.
There is other progress on the CCS front, as well. In July 2010, the United States' National Association of Public Utilities Commission declared CO2-based EOR an important platform that domestic utilities should use to reduce their emissions. The European Commission released guidelines for CCS development in 2011, with the goal of helping operators and regulators focus on the most important steps to achieving successful CCS. (China is working on its own guidelines, for release in late 2011.) Australia, Canada, China, Norway, the United Arab Emirates, the United Kingdom, and the United States have all announced large-scale CCS projects in various stages of completion with strong government support.
These promising developments live squarely in the ongoing challenges of today. The costs for CCS remain high: a retrofit to an existing plant costs roughly $70-100 per metric ton of CO2 captured at new plants, or roughly $500 million per plant. Most utility commissions in the United States and elsewhere will not allow companies to recover these costs, and CCS does not fit nicely within renewable portfolio standards, which have grown in prominence for many countries. Moreover, most countries do not have any emissions guidelines for CO2, and many remain reluctant to develop or enforce them for fear of slowed economic growth during a global recession. This means that companies lack market or regulatory incentives to invest in CCS. Today, none of the five large-scale commercial CCS projects in the world are power plants; this reveals, in part, the cost and regulatory challenges the power sector faces in CCS deployment.
Since 2004, the world has basically gone one step forward and one back in terms of energy. Progress on clean energy is slower than expected, but the lack of progress in CCS development and commercialization is particularly apparent. Most people in OECD countries (including the United States) still have no understanding of carbon capture and sequestration -- what it can and cannot do and what it entails. At full deployment, CCS could manage 25-50 percent of global carbon reduction needs. However, full deployment remains challenging because the lack of policy drivers limits market penetration. Global greenhouse emissions are expected to grow by 25 percent by 2050; over 2000 large-scale (approximately 500 MW) CCS plants would be needed to capture their emissions.
Ultimately, CCS must compete in the marketplace, like everything else, in terms of price, reliability, and access to capital. But in the near term, more government support is needed to get the ball rolling. Without CCS, the cost of meeting the climate challenge will be 50-80 percent higher than with it -- for many markets, especially those lacking large wind and natural gas resources, CCS remains the cheapest, best option. But as nations have shied away from strong commitments to carbon reduction, they have also delayed the demonstration and development of CCS and other vital clean energy technologies. Ultimately, CCS will continue to play a supporting role. Whether it will reach center stage as a critical environmental technology worldwide remains to be seen.