Impacts of Future US GHG Regulatory Policies on Large-Scale Coal to Liquids Plants

Mandatory US regulation of greenhouse gas (GHG) emissions could strongly impact the design and financial return of future US coal-to-liquids (CTL) projects due to the size of their carbon footprint. This paper presents the results of a Department of Energy (DOE) sponsored analysis examining the impact that future carbon prices could have on a nominal 50,000 barrel per day (BPD) Illinois CTL plant. The first phase of the paper presents the results of two CTL plant designs: one with and one without carbon sequestration. Basic information on the plant layouts, performance, cost, carbon emissions, financial results (without placing a value on CO2), and major sensitivities provides the basis for subsequent analysis. The second phase discusses the major CO2 regulatory policies being evaluated in the 110 Congress, and how these policies, by placing a value on CO2, could impact the financial performance of CTL plants. Two different methods are undertaken for estimating CO2 cost: a range of flat prices throughout the life of each project, and a ramp-up of CO2 price during the performance period, reflecting the potential for tighter emissions regulations in 2020 and beyond. These costs are entered into the base case financial models for each CTL plant design. The results show the expected return on investment for each project under a range of CO2 price scenarios, and what CO2 price(s) would be necessary to economically justify the sequestration of CO2. Preliminary results at a $0/ton value for CO2 show an ROI for the CTL plant without capture at 15.3% and an ROI of 12.0% once compression and sequestration is included. A flat CO2 price of $12.50/ton throughout the life of the plant would be required to justify the additional expenditure on the CTL plant with capture. In the alternate CO2 price scenario, a government target to stabilize CO2 concentrations at 550 ppm or lower would be necessary to provide a sufficient economic driver for CO2 capture from CTL plants. Of the 5 major CO2 reduction policies being considered in the US Senate as of April 2007, only one, Sanders-Boxer, would provide a clear price signal to support CTL plants with carbon capture and storage. This information is relevant to a complete understanding for how CO2 regulations could impact this emerging US industry. Project developers considering CTL plants today will likely want to consider including the necessary technology for CO2 capture and compression since the marginal cost is small relative to other large fossil fuel plants.