"KPI's" for Climate Change - how do we know we're there yet?
Looking back on how it's going for CCUS so far - we've been at this since 2005
Funny how we obsess over, trade on, and invest in forecasts but don’t seem to care whether they’re right. I do research and analyses for a corner of the energy markets, and typically provide forecasts for capital projects. Multi-billion investments in new plants, new business lines, acquisitions. There are a lot of ways to avoid accountability if you’re the forecaster, with Number 1 being to switch jobs, and preferably industries periodically. Makes it much harder to find a track record. But as the client, wouldn’t you want one? The goal of my forecasts weren’t to come up with the exact path for prices, it was to provide a range that had more than a 50% probability of including the actual outcome. Otherwise, why not just flip a coin? Or today, you could just ask GPT-4 to generate a set of numbers based on history. Of course, your banker might not be willing to take its word unless you also manufacture a CV to support it. No problem, that’s coming.
I had the good/bad fortune to revisit one of my prediction sets this year. It was a price series done in 2016 for a client building a massive chemical plant, which is now in operation. Waiting years to find out if your decisions and advice were good is actually the norm for all of us who invest for the long term - despite all the modelling and computer gimmicks, you won’t know what the balance in your 401(k) is when you’re 65 until you’re 65.
In this case, the advice was sound - in spite wars, COVID-19 and the rest, the supply/demand situation in that market today looks pretty much as we’d expected 2023 would be back then.
So, how about some other predictions? Here’s a recap of the results on Carbon Capture, Sequestration and/or Storage initiatives, from back in 2005. At that time, these credits were in support of Clean Coal, and were supposedly going to allow us to keep coal in the “clean” air energy mix for power generation after US domestic natural gas prices rose by over 100% in the early “aughts”. The original 45Q credit for CO2 capture in the 2005 Act was $10 a ton for material reused and recycled in Enhanced Oil Recovery, and $20 a ton for storage. In 2018 we upped the credits and expanded the eligible project list by boosting the credit to $35 for use in EOR, and $50 for storage. The “use” cases eligible for the $35 credit were expanded to include Direct Air Capture projects, algae-based fuel and use in industrial applications. Interestingly enough, the damage done to water and communities subjected to the gigantic piles of coal ash and tailings from coal mining weren’t considered issues by the old “clean” crowd either. Seems similar to the avoidance of placing restrictions on mining and mining waste disposal we see today with materials for renewables. We’re obsessed with the air, not the land and water.
There was a great flurry of activity on the part of project developers and regional business development groups to come up with imaginative “Future Gen” systems that would capture the CO2 from coal and use it in greehouses on site, among other things. Back then, there was very little discussion on social media around the costs and challenges involved in pulling CO2 out of the air post combustion, much less the costs involved in designing and building a Serial Number 1 demonstration project. Ultimately, of the 7 projects actually begun prior to the further expansion of the old credit program in 2018, only 1 was completed and put into service as an actual CCUS project. This one involved recovering CO2 from a plant south of Houston, piping it to a nearby oil reservoir and using it for oil recovery. In spite of having all the right pieces and players involved, this project shut down when oil prices fell below -0- in May 2020 and remained closed even when prices shot to over$130/bbl in June 2022. It has since been restarted.
Strangely, you don’t see any of this history mentioned in the press releases about the “new” CCUS projects. Perhaps the much higher credits on offer will make the economics work this time? Or perhaps the ability to use the credits to offset income from other projects will bring investors from other industries to the table? Since the US government is running massive deficits these days, we’ve yet to hear where the “tax spending” on these credits is to be made up.
For a somewhat sarcastic but on point recap of how things are going with Australia’s CCUS program, check out Juice Media’s “Honest Government” ad here:
Do we really want to see one of these here in the US in 2030?
Energy is life - too serious an issue to continue to treat it as a ‘war’ between groups seeking government handouts which will be paid for directly by higher energy prices and/or indirectly by inflation or at the extreme by war. We already know that coal and nuclear power have the highest potential for producing large amounts of baseload power - it’s been proven, no forecast required. We also know how to manage the capital costs of these projects, clean up or dispose of the waste, and clean the emissions from them. The rest of the world outside the “G7” bloc seems to have got the message, will keep pushing forward to use them, and in the process will likely figure out better cheaper ways to make them work. The US has natural gas that can be used as a lower carbon backstop instead of expensive batteries for the wind and solar power we have while we connect the existing renewables and expand the grid, and come up with ways to use energy more efficiently. Will common sense come to the rescue? Or will we be looking back at our forecasts in 2030 and wondering who came up with them?