US Clean Energy Act, Carbon Sequestration and CO2 merchant market utilization: a Biofuels Digest special report

BACKGROUND

The ongoing debate in terms carbon dioxide management via cap and trade, outright taxation, etc, remains underway; and this subject should further be considered in terms of sequestration, cap and trade, or like programs v. market utilization.

In terms of a bill being passed containing carbon management within the Clean Energy Act of 2009, remains an unknown quantity – however, given what stance we take as in favor or against the passage of legislation controlling emissions and the endgame, in terms of cap and trade, allowing for trading or selling credits as a form of currency thru the year or during each year end, and the initial purchase of permits to cover carbon management, is somewhere between the narrowly-passed U.S. House of Representatives bill, and the U.S. Senate, at least in part, with an end result currently unknown. It is the pledge of the Obama Administration that greenhouse gas management will take place, and carbon dioxide is the major component which no one has been able to courageously approach this until the current US administration entered the scene. CO2 is the worst of the greenhouse gases, in terms of ultimate damage to the planet, and our very survival.

Today we are faced with a poor economy, however, with hopes that we are on the slow rebound, per some indicators. Separately, the biofuels industry has been hard hit by the lack of investment, poor access to capital, numerous bankruptcy filings, and perhaps more to come – particularly with stand – alone fuel ethanol plants. On the other hand, in reality, petroleum products are finite, and more finite than many of us might think. Petroleum, globally, per many strong estimates will run out in full somewhere between the years 2036 and 2050.

That is a very short time, when considering the need to further develop our bioenergy resources, infrastructure, making such fuels available and compatible with industry and motor vehicles at large. So, here we have it – the challenge to develop biofuels – renewable, environmentally friendly options grown from mother earth v. extracting hydrocarbons at great expense, producing more CO2 emissions in the process, along with inflated oil prices which the oil industry is hoping to brainwash those into prices well over $70/barrel; while the lack of investment in biofuels and renewable energy at large is not being fulfilled as it should be. This, stance will eventually reverse, despite the passage of the 2009 Clean Energy Act – since petroleum is finite; and should the Canadian Sands project continue and bloom, even more emissions will come forth from this expensive, and extremely environmentally unfriendly form of hydrocarbon extraction.

CAP AND TRADE OR SIMILAR SCHEMES – ECONOMIC BENEFITS

Theoretically, in the case of the cap and trade scenario, or something similar, permits will be issues at the beginning of the year. Should cap and trade be implemented, a cap will be established on the emissions from each plant – probably not as a function of gross CO2 emissions company wide, but on a plant – by – plant basis. It is understood that a threshold of 25,000 TPY (tons per year) is the point at which whatever format of regulation would begin.

Should this be a cap and trade system, a cap on carbon dioxide emissions would be established, and from this point, the incentive to reduce emissions from the established point at the beginning of the year would be rewarded, if, say, fewer CO2 emissions occur by the end of the year. Within this system, carbon credits – acting like a form of currency could be sold to other companies – should there be an excess of credits from the originally established point at the beginning of the year. In this respect, those companies which end up with a surplus of credits, that being fewer emissions are rewarded at the end of the year, on a monetary basis, via selling such credits (and perhaps trading credits during the year); this is the incentive to reduce emissions. On the other hand, should emissions grow by the year end, from the original point where this carbon cap was established, then penalties would probably be enforced, the opposite of credits; therefore proving the advantage in reducing emissions. This format would charge or penalize these plants which emit more than the original initial year cap point; or provide this currency – like credit for fewer emissions at year end – allow trading of credits with other companies. It is assumed that ongoing monitoring of emissions will be a requirement with this system.

Such is the format, and to my knowledge, and per all updates so far, the amount established for emissions of carbon dioxide per ton – this being bought and sold, acting like a currency, has not been quantified. In many world markets, values have been suggested to range from a few dollars per ton to $20/ton – however, the system must also be practical in order to work; and ultimately be passed by the U.S. Congress – and in order to pass, this system should be workable in real – world industry today and tomorrow.

So we are still at a point not knowing exactly where this carbon dioxide regulatory system will actually go, as well as the value where carbon emissions will be valued, in such a cap and trade, or alternate system. Some have suggested outright carbon taxation; but I think cap and trade, with the rewards associated with carbon reduction, process and emissions modifications within each plant will be more palatable – since there is a reward system available to those who improve upon the current way of doing business – and this is needed in order to provide incentives; not simply outright taxation and penalties.

Many sequestration schemes have been proposed, however, a number of these are in a DOE sponsored phase of investigation, while it is known that via chemical manufacturing, specific geological implementation, and subterranean aquifers are the most viable options today.

CO2 MERCHANT MARKETS – ECONOMIC BENEFITS

The US and Canadian CO2 markets are probably worth an estimated $800 million to $1 billion in annual sales. The US segment is about 80% of the volume derived from the North American CO2 market, and the largest single market in the world – perhaps up to 40% by volume in sales. The markets are diverse, from the large percentage of merchant volume dedicated to food and beverage use; some 70%; with the remainder a wide range of industrial applications. Separately, there is a large and ever growing captive, chemical process, and oil & gas market for the product, in some world markets well in excess of the merchant volume stated.

The call for CO2 use in the energy sector, specifically oil & gas (including EOR or enhanced oil recovery and CBM or coal bed methane projects); plus the chemical process industry is in high demand today, due to volumes of CO2 which need to be displaced or sequestered, depending upon the application chosen. Some of these applications can be the single – most applied methods of CO2 in many regions; such as large enhanced oil recovery projects. Depending upon the method of application, purity requirements, and distance for delivery, this can often provide a lesser price per ton than the more ‘conventional’ merchant markets – i.e. food and beverage, water treatment, blast cleaning, agricultural, solvent replacement – related, etc.

If, for example, the U.S. has an average selling price of $90/ton for CO2 to the traditional merchant sector, and say if distribution costs range from the high teens to the mid $20s/ton, plus the cost of production ranging from the $20s to the upper $30s per ton – when considering traditional (concentrated, usually chemical manufacturing and reformer by-product) sources; one might notice the gross profit margin possible with this scenario. This gross margin is in consideration of the company infrastructure handling the CO2 business, their overhead, etc.

The further advantage in the sale of CO2 within the merchant and/or EOR (and like large commercial sectors), would be the growing number of applications for CO2 – particularly of an environmentally friendly nature. The growing use of CO2 in mineral acid replacement, CO2 rice ice in replacement of solvent and sand blasting, for example are ever growing; as well as region -specific opportunities in all world markets. In the United States, for example, new sourcing for quality and reliable CO2 by-product could be put to good strategically valuable use particularly in the US East, West and Northwest.

The so-called U.S. Jackson Dome will eventually disappear for most merchant sourcing to gas refiners in favor of EOR, thus another region which will require source replacement, perhaps. Many such opportunities exist in all other developed and developing world markets; and when considering the developing world, should there be new biofuels or new underground CO2 wells discovered, or other sources of CO2 of a reliable and quality nature, the opportunity to make money can be extraordinary.

WHICH WAY TO GO?

The examples surrounding CO2 money – making opportunities in all world markets should be carefully evaluated both from any government sponsored cap and trade, or emissions control perspective, in terms of the impact should one not participate, or simply vent the product, or have marginal success in attempting a reduction in emissions; thus facing the consequences of possible economic sanctions or possible gain as a product of the emissions emitted or reduced by year end.

On the other hand, when a CO2 source is available and must be considered in light of forthcoming or existing government run emissions standards; the prospect for CO2 use the merchant markets and specific segments of industry can represent valuable economic rewards, some large, or small; however, fully driven by market composition, and market developments for the merchant sector. It is needed to evaluate the cap and trade like scenarios v. merchant sector opportunities in the form of direct to customer or wholesale gas or liquid sales to a refiner.

Today, in some world markets, where a cap and trade system does exist, it is a bit more clear, when considering venting v. cap and trade options – when compared with the merchant (or EOR and like wholesale destinations) for the carbon dioxide recovered, processed, and sold to a wide, and ever-growing market. These days, more usage of CO2 is being developed and utilized in green markets than ever before, and this should have an impact on the overall environmentally driven alternative to pure merchant sales – perhaps in a very positive nature as related to the entity which is sourcing the CO2 product.

Further, there have been more demands in the enhanced extraction and processing of various forms of hydrocarbon and underground sourced energy products – from uranium to oil and gas, to enhanced coal bed methane recovery – All benefit from CO2, and the ever – hungry planet we live on is demanding more and more energy on a longer term schedule. The recession has hampered this somewhat, however, not globally, and not forever.

One should fully understand the implications behind the government led cap and trade, or like systems v. the merchant market opportunities before diving into one or the other, as a form disposing of or making money from their carbon dioxide – this requires a full investigation into the options and their composition.

Sam A. Rushing is president of Advanced Cryogenics, Ltd., a domestic and international CO2 consulting firm, in business for 20 years; plus Mr. Rushing has over a decade in the merchant trade as well as being a chemist by background. All forms of CO2 consulting expertise is offered globally. For consulting expertise please contact via phone or electronically. Phone 305 852 2597, e-mail ; web.

Other CO2 articles by Mr. Rushing:

Algae and CO2 sources: a special Biofuels Digest report
Ethanol sourced carbon dioxide and the energy sector: a Biofuels Digest special report
Carbon dioxide sources and ethanol: second in a Biofuels Digest series on CO2 markets
Carbon Dioxide – Regions of Greatest Strategic Value, Production and Purity Requirements; Ethanol Industry Sourcing for the Merchant CO2 Trade, plus Second Generation Ethanol Developments

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