Using Cap-and-Trade Bonuses to Promote Early Adoption: Carbon Capture and Sequestration in the Draft American Power Act

Author:Mr Brandon Barnes, Susan M. Cooke and David O. Crump
Profession:McDermott Will & Emery

The Kerry-Lieberman climate bill promotes accelerated carbon capture and sequestration through cap-and-trade bonuses for electric utilities and industrial facilities that are early adopters of carbon storage technology and practices.

Senators John Kerry (D-MA) and Joe Lieberman (I-CT) introduced a discussion draft of the American Power Act on May 11, 2010. The bill follows the same general format as other climate change proposals (see McDermott's On the Subject "Kerry and Lieberman Introduce Much-Anticipated Climate Change Bill" ) and includes several provisions to promote development of carbon capture and sequestration (CCS) technologies. The CCS provisions combine financial incentives and mandates to encourage the commercial deployment of CCS at electric power plants and large industrial operations; this mirrors the CCS strategy found in the Waxman-Markey bill, H.R. 2454. The Kerry-Lieberman bill is less detailed in some respects than H.R. 2454, leaving room for agencies and policymakers to create a more detailed framework as it is implemented. For instance, unlike H.R. 2454, it does not mandate a certification and permitting program for geologic storage.

The CCS process involves capture and separation of CO2 gas at an emission source, compression of the CO2 gas, pipeline transport of the gas, and its injection into geological formations or deep ocean locations for long-term storage. While various components of CCS technology have been utilized in the United States (such as oil-recovery-enhancing CO2 injection), the scope of CCS projects has been limited primarily by cost and the lack of financial constraints or regulatory limits imposed on CO2 emissions.

The bill creates a federal agency task force to identify the key roadblocks to commercial scale deployment of CCS. The U.S. Environmental Protection Agency (EPA) Administrator is directed to appoint members to the task force to study and make recommendations on the adequacy of existing laws, regulations and private sector mechanisms for addressing liabilities, risks and affected property rights associated with the use of CCS.

The bill supplements the $2.4 billion carve-out in the Economic Stimulus Act for carbon capture projects with a special grant program financed by a fee on fossil fuel power generation. The grant program could fund up to $2 billion per year for 10 years to accelerate the commercial availability of CCS technologies and methods.

The bill also provides for the distribution of...

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