In the past week, there have been two news items in Canada on the pricing of CO2. The first came from Alberta’s new NDP government. Rachel Notley‘s government announced that large emitters in Alberta will need to reduce their CO2 intensity by 20% by 2017. Any emissions above that level will be charged a tax of $30/tonne. Two big problems with this policy:
- It won’t reduce emissions.
- It will simply drive business investment away from Alberta
Reducing CO2 intensity by 20% in two years would require a very dramatic program by these large emitters (coal fired power plants, oil sands facilities, large gas fired power plants) to dramatically increase energy efficiency. The problem is that these plants are already running into a fundamental physical limit. It’s called the Second Law of Thermodynamics. I won’t go into detail explaining the second law – you can read about it elsewhere. In a coal fired power plant, approximately 33-40% of the chemical energy in the fuel is made available as power. This is typical of any Rankine cycle power plant. The remainder of the chemical energy is rejected as heat. This means that 60-67% of the CO2 emissions are due to thermodynamic inefficiencies. Overcoming those would require completely replacing coal fired power plants with expensive Integrated Gasification Combined Cycle Power Plants – which can achieve perhaps 60% efficiency. But these cost billions of dollars and take about 5 years to engineer and construct. Alternatively, the coal fired power plants could invest in Carbon Capture and Storage facilities and inject the CO2 into the ground. However, this costs something north of $100/tonne, so it isn’t cost competitive versus PAYING the tax. So the most economic choice for the coal fired power plants is to pay the tax. The proposed tax would increase operating costs by about 15% of revenue. If coal fired plants do not get higher price, they will not make money and with therefore close. This will reduce generation capacity. Higher cost generating capacity will need to be added, either as combined cycle gas fired power (which will need higher prices to pay out new capital investment), or ineffective and expensive green options (like wind or solar). Nuclear may become economic, if regulatory hurdles can be overcome. But Albertan’s will end up paying more, either because the coal fired operators will require higher prices to compensate for the CO2 tax, or they will close, reducing supply and driving up power prices to pay for further investment. Like Ontario and Germany, power prices in Alberta will rise under these regulations. And CO2 emissions in Alberta will only fall if the coal fired plants close, which will result in us all paying more.
Oil sands facilities are even worse. Almost all of the energy input to in-situ oil sands facilities has to do with boiling water to make steam. But none of the energy put is recovered. It is absorbed by the earth to heat oil so it can be removed from the ground. While the produced fluid is hot, it is far too cold to boil water into steam at pressure. It can only be used to preheat some combustion air to reduce fuel consumption by a few percent. Reducing intensity by 20% would require reducing how much heat is required underground – and this is a fact of geology. There are improvements in technology to better distribute steam underground, but this is largely a black art because the geology is so variable and unknowable. Alternatively, other technologies like injecting gas or solvents may reduce intensity. But operating costs will rise, and at $30/tonne, the cost of paying the tax is probably lower than the alternatives. I will bet that ExxonMobil will be paying the tax, not changing it’s behaviour. Rex Tillerson, XOM’s CEO, has stated that climate change is an engineering problem – we will adapt. And he’s right. We will adapt to climate change, if and when it happens. Trying to stop it when we aren’t even sure what the causation is is a fool’s errand.
I’ve done a lot of studies on CO2 emissions, capture and alternatives. CO2 taxes would need to be far higher (>$100/t) to make anyone take significant action. But such taxes would drive up power costs, reduce employment and drive investment to other jurisdictions. The only way emissions fall is through economic contraction.
Justin Trudeau made similar statements this week regarding imposing national carbon pricing. Like the Notley government, this is economically naive. Imposing margin CO2 taxes will have negligible impact on emissions, negative economic impacts and does nothing but make people feel good about voting for the NDP or Liberal parties. But it do any good.