Carbon capture initiative could benefit ethanol producers

By Kris Bevill | February 29, 2012

Leaders of the National Enhanced Oil Recovery Initiative  were joined by Sen. Kent Conrad, D-N.D., and Rep. Mike Conaway, R-Texas, on Capitol Hill Feb. 28 to unveil a set of recommendations aimed at encouraging greater use of CO2 from industrial facilities such as power plants and ethanol facilities for enhanced oil recovery (EOR) activities throughout the U.S. Among the group’s recommendations is that Congress modify an existing CO2 sequestration tax credit to make it more workable for applicants, a request to implement a 10-year tax credit provision for industrial CO2 sources, and suggestions for state policies to further incentivize industrial CO2 capture and storage.

Currently, about 6 percent of U.S. oil is produced using EOR, a method by which CO2 is injected into geological formations to draw otherwise inaccessible oil to the surface. This extraction method can prolong the life of aging oil fields, but the expansion of this practice is currently constrained by limited CO2 supplies, according to NEORI. By incentivizing industrial sources to supply oil fields with CO2, NEORI estimates that EOR oil production could increase to 400 million barrels per year while reducing CO2 emissions by 4 billion tons over the next 40 years. Leaders of NEORI said the incentives are also economically sound investments for U.S. taxpayers. Funding has already been allocated for the existing tax credit and would require no further financial investment. The recommended 10-year credit would pay for itself within 10 years through increased federal revenues by boosting domestic oil production, the group said.

Industrial facilities such as power plants and cement plants are expected to be the most significant sources of CO2 for EOR in the long-term, but ethanol plants present an immediate opportunity for EOR expansion because those facilities produce a pure stream of CO2 which can be captured at a lower cost. “Ethanol won’t be a large source of CO2 over time compared to power plants, but it will be an important one because it can be an early participant in providing CO2 to the oil industry—there really are no technological barriers whatsoever,” said Brad Crabtree, policy director for the Great Plains Institute. While most ethanol producers currently sell their CO2 for food and beverage applications, Crabtree noted that the market for CO2-EOR is much larger and represents an opportunity for ethanol producers to lower their carbon footprints, allowing the possibility for ethanol produced at those facilities to command a premium price in markets where low carbon fuel standards are in place.

One drawback for the ethanol industry is that pipelines would need to be constructed to transport their CO2 for EOR activities. However, Crabtree said the incentives recommended by NEORI could be used by ethanol producers to install those necessary pipelines. He noted that several mature oil fields in Illinois, Indiana, Michigan, Kansas and North Dakota present opportunities for ethanol producers in the Corn Belt to supply CO2 to oil companies.

NEORI was created last year to explore CO2-EOR’s potential as part of a national energy security, economic and environmental strategy and is led by the Great Plains Institute and the Center for Climate and Energy Solutions, both nonprofit, nonpartisan groups focused on environmentally sustainable energy solutions. Various environmental organizations and energy producers have signed on to the initiative, including Archer Daniels Midland Co., which is currently developing a CO2 capture and sequestration project that will capture 1 million tons of CO2 annually from its 290 MMgy ethanol facility in Decatur, Ill., and transport it to the Mt. Simon Sandstone Formation for geological storage.

A number of Congressional members have also signaled their support for NEORI’s recommendations, including Conrad, Conaway, and Sens. Max Baucus, D-Mont., and Dick Lugar, R-Ind. Conrad noted that the U.S. continues to be “dangerously dependent” on foreign oil, spending $1 billion per day imported energy, and said that NEORI’s recommendations, if implemented, would help reduce those costs. Conaway said expanding domestic energy production is a top priority for many members of Congress and EOR can be a vital tool in that effort. “We all look to a time when our nation will import less oil, create more jobs and has a growing economy, thanks in part to EOR and increase production of domestic energy,” he said.

Crabtree expressed optimism that supporters of the initiative will draft legislation to move forward on incentives for CO2 capture and said the group has already engaged in positive dialogue with members of Congress. “Obviously it’s a difficult time in the U.S. to get legislation passed, but clearly we have proposals that have the unusual benefit of people from the fossil fuel industry, the chemical industry and environmental groups on board,” he said. “That’s not a common thing.”