The upside to FutureGen's demise

In January, the Energy Department announced it would back out of its 2003 commitment to FutureGen, a public-private partnership that planned to build an advanced coal power plant employing carbon-capture-and-storage technology (CCS). Some have decried the government's apparent about-face on its commitment to clean-coal technology, but actually, the death of FutureGen is a good thing. Taxpayer's money can be more effectively invested elsewhere to develop the CCS industry.

Here are three reasons why Energy shouldn't attempt to revive FutureGen:

Reason #1: FutureGen is unlikely to produce any significant technological breakthroughs.

Broadly speaking, CCS is any technology that isolates carbon dioxide produced during the oxidation of fossilized carbon and prevents it from being released into the atmosphere, either by storing the carbon dioxide underground or chemically transforming it. FutureGen--short for "the future of power generation"--would be the first integrated gasification combined cycle (also referred to as IGCC) power plant to employ CCS, but other carbon-capture technologies are being investigated for different types of power plants. These include post-combustion separation of carbon dioxide from flue gas using thermally activated solvents such as monoethanolamine; cryogenically separating nitrogen from air prior to combustion to enable pure-oxygen combustion; and reacting synthetic gas (i.e., carbon monoxide and hydrogen generated by gasification, as employed in an integrated gasification plant) with steam to produce hydrogen and carbon dioxide.

Nearly all of the components of these various systems have already been developed for other industrial processes such as reforming and purifying natural gas and producing synthetic fuels, but the ultimate cost of each integrated CCS system is uncertain, which makes predicting a winning technology difficult. Indeed, a combination of technologies will be required for large-scale CCS deployment. For instance, retrofitting existing pulverized coal plants requires post-combustion capture of carbon dioxide, but new construction projects that aim to employ CCS technology are likely to favor integrated gasification plants.

FutureGen would be an integrated gasification plant that makes carbon dioxide and hydrogen from coal and steam and then separates the carbon dioxide prior to combusting the hydrogen in a gas turbine. The only major component of the FutureGen project that hasn't been proven in other industrial processes is the hydrogen-gas turbine. It makes little sense to build a multibillion-dollar integrated gasification plant just to test new turbines--clearly, FutureGen was intended to do more. Most significantly, it would involve systems integration for existing CCS technology and a large-scale demonstration of geologic carbon dioxide storage. But systems integration with multibillion-dollar capital projects has proven difficult to standardize (consider the nuclear power industry), and it's likely that with or without FutureGen, the first several CCS plants will involve substantial site-specific systems integration work anyway. Furthermore, large-scale geologic storage of carbon dioxide is being demonstrated by Statoil in the North Sea, by British Petroleum in Algeria, and by Chevron in Australia. If FutureGen were completed today, its only significant contribution would be an industrial-scale demonstration of hydrogen-gas turbines. But even here, several private developers, including British Petroleum, have their own projects that involve building integrated gasification plants with such turbines.

Therefore, does it make sense for Energy to spend nearly $2 billion--and probably much more once all is said and done--to build an integrated gasification plant to test hydrogen-gas turbines that private developers will demonstrate anyway?

Reason #2: FutureGen perpetuates two myths regarding CCS technology.

A pernicious myth exists that the technology required for CCS is still years away. That's not true. However, a stalled FutureGen would enable the continuation of that myth by providing stakeholders an excuse for inaction: Why should we think hard about CCS until FutureGen has showed us the way?

Furthermore, FutureGen has contributed to a parallel myth that it's nearly impossible to retrofit existing pulverized coal plants for CCS--again, not true. The United States already has nearly $1 trillion invested in pulverized coal plants, and it's highly unlikely that all that invested capital will be scrapped. Making significant reductions in national carbon dioxide emissions requires retrofitting a large fraction of existing pulverized coal plants for CCS. But by publicly betting the majority of its CCS investments on FutureGen, Energy gave the coal-power industry the impression that it was putting all of its eggs in the IGCC basket. That command-and-control selection of technology has provided stakeholders with another excuse for inaction: We can't do anything about the emissions from our installed base of pulverized coal plants, but if FutureGen works, then we can think about building new plants like it.

Reason #3: The money could be spent more effectively to help stimulate a CCS industry.

The history of scientific funding from Samuel Langley's Aerodome to Ronald Reagan's Star Wars is full of examples of expensive projects with dubious scientific and commercial returns. Since the technology for nearly every component of the CCS process exists in various industrial processes, it seems more sensible for Energy to assist private projects with systems integration support rather than build an expensive demonstration project. For a fraction of FutureGen's cost, Energy could provide several private projects with grants and technical support for initial systems integration work. Those investments would substantially decrease the initial risk for a project developer considering building a power plant with CCS.

Additionally, Energy could provide loan guarantees to lower the cost of capital for a given CCS project. Currently, the economics of CCS development depend heavily on the timing and form of a carbon cap or tax. As such, it's difficult to finance construction of a power plant with CCS that might ultimately be too expensive to operate. If Energy guaranteed the fraction of the debt associated with the incremental capital investment for CCS, then the rest of the project could be financed as a standard power plant. Such an arrangement would enable CCS plants to begin construction even with large uncertainties surrounding carbon dioxide emissions regulations. If regulations are timely and sufficient, the plant will operate profitably, and Energy will have helped stimulate CCS developments without spending a dime. On the other hand, if regulations are slow, then Energy would assume the debt associated with the incremental capital and the plant would be operated without CCS. Energy could provide such loan guarantees to the first several plants that apply, thereby stimulating more CCS than FutureGen could-- and for a lesser investment.

Another area where taxpayer's money would be better spent for CCS development is by assuming long-term liability from private CCS projects. Long-term liability for damage caused by leakage of geologically stored carbon dioxide will likely be a significant roadblock to private development. Energy could implement a technical verification procedure to assess the quality of a private CCS project, and any project that passes the evaluation would relinquish leakage and damage liability to the federal government once the carbon dioxide has been injected into the ground. In that scenario, the private developer would be entirely responsible for the project during the injection process while Energy would assume responsibility after the injection and into perpetuity.

The technology for CCS exists, and power plants employing it will be built by private companies when the economics work and potential liabilities are constrained. FutureGen will retard the development of CCS by consuming investment that could be more effectively employed elsewhere and by perpetuating the myth that CCS technology is still years away. Achieving significant reductions in carbon dioxide emissions will almost certainly require large-scale CCS deployment because coal power comprises more than 50 percent of U.S. power generation. That deployment hinges on capital investment in private development of CCS and on mitigating the long-term liability. It should not rely on a single expensive demonstration project.