1. ++++++++++++++ ++++++++++++++ Washington Coal Group January 9, 2008 Accelerating Deployment of CCS: A Trust Fund Approach Based on papers written by Vello Kuuskraa; Naomi Pena and Edward Rubin Pew Center On Global Climate Change Coal Initiative

2. ++++++++++++++ ++++++++++++++ The Pew Center’s Coal Initiative Addressing emissions from coal-fueled power plants I.U.S. Policy Options a)Standards b)Trust fund (Pena and Rubin) II.U.S. Technology Solutions (Kuuskraa) III.State-level Opportunities IV.Options for China and India

3. ++++++++++++++ ++++++++++++++ Presentation Overview I.The need for carbon capture and sequestration (CCS) II.Options to accelerate use of CCS III.A program that covers incremental costs A.Program components B.Alternative scales and objectives C.First order cost estimates IV.A trust fund to manage the program A.U.S. trust funds B.Lessons learned C.Design Features Considerations for the Coal Community

4. ++++++++++++++ ++++++++++++++ The Need for CCS 1.30% of U.S. and 80% of U.S. electricity sector CO 2 emissions come from coal 2.These emissions must be significantly reduced to address climate change 3.CCS is the only suite of technologies that currently has promise to enable coal to be a major electricity-sector energy source while meeting climate objectives.

5. ++++++++++++++ ++++++++++++++ Current Barriers to CCS Deployment High expected costs (~30-70% increase in cost of electricity) Large losses in net electricity output Lack of experience with technologies, particularly at-scale, integrated use in the utility sector Regulatory uncertainty, including liability Current lack of regulatory drivers

6. ++++++++++++++ ++++++++++++++ How CCS Might be Accelerated  Stringent enough cap on CO 2  Mandate on generators or retailers (standards)  Tax credits (must be revenue neutral)  State & regional policies; PUC actions  Program that pays incremental costs of CCS

7. ++++++++++++++ ++++++++++++++ Program Description Cover incremental costs of CCS (installation; O & M for 5 years; reimburse revenue lost due to reduced generation) Test CCS technologies for: –Alternative electric generation technologies (PC, IGCC, new & retrofit) –Different coal types –Different geologic settings

8. ++++++++++++++ ++++++++++++++ Program Size and Cost Sufficient funds for: ~10 plants (500 MW) + 5 other large-point sources ~30 plants (500 MW) + 10 other sources Average per 500 MW unit –High: $950 million –Low: $730 million Total Program Costs (10 -15 years) –Smaller program: $8-10 billion –Larger program: $24 - $30 billion

9. ++++++++++++++ ++++++++++++++ How to Pay for the Program? Fees on electricity generated –Coal-fueled generation only –All fossil fuel generation –All electricity generation Fees on coal Allowances Other

10. ++++++++++++++ ++++++++++++++ Scale of Fees if per kWh on Coal Based on current generation from coal: Smaller program: $0.0004 to $0.0005 per kWh Larger program: $0.0011 to $0.0014 per kWh Costs (and fees) decline as: As coal-fueled generation increase Costs of CCS decline Costs (and fees) could be reduced by: Requiring cost-sharing Supporting fewer projects per year

11. ++++++++++++++ ++++++++++++++ Trust Fund Basics Trust funds can: Raise and administer large sums Ensure that funds are dispersed only for specified purposes Federally established trust funds use legislation to determine: Whether funds go into Treasury and through annual appropriations or not The entity that manages the fund

12. ++++++++++++++ ++++++++++++++ Some Successful U.S. Trust Funds Highway Trust fund: $38 billion over 15 years; built new infrastructure across U.S. Propane Education and Research Council – fees enabled by federal legislation; up and running in 2 years Ultra-Deepwater and Unconventional Natural Gas and Other Petroleum Resources – managed by private stakeholder group under DOE oversight.

13. ++++++++++++++ ++++++++++++++ U.S. Experience: Key Lessons Establish clear objectives Establish clear guidelines for program termination Ensure reliability of fund dispersal: –insulate funds from annual appropriations –do not use tax-credits Use independent or quasi-independent entity to manage funds Self-financed programs survive

14. ++++++++++++++ ++++++++++++++ Well-designed Trust Fund Very rapid start-up possible Reliable fund dispersal Cost-effective: private-sector standards for project selection and management Transparent: stakeholder + experts control under federal oversight

15. ++++++++++++++ ++++++++++++++ Considerations for Coal Community Climate legislation is on the way  Possibility of move away from coal if CCS costs remain high  Urgency of gaining CCS experience  Means to quickly and cost-effectively achieve deployment of CCS at coal- fueled power plants

16. ++++++++++++++ ++++++++++++++ For Further Information See papers at www.pewclimate.org/white_papers/coal_initiative 1. A Program to Accelerate the Deployment of CO 2 Capture and Storage: Rationale, Objectives, and Costs. 2007. Vello Kuuskraa 2. A Trust Fund Approach to Financing a CCS Deployment Program. 2008. Naomi Pena and Edward Rubin.