National Regulatory Research Institute paper stresses importance of decarbonization plans, pricing when considering carbon capture

Published on February 10, 2022 by Chris Galford

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In a new paper published by the National Regulatory Research Institute (NRRI) this week, the research arm of the National Association of Regulatory Utility Commissioners discussed current and emerging pricing issues for pricing carbon capture and sequestration (CCS), as well as the need for decarbonization plans when considering its use.

“An important aspect of the paper is its discussion of the role of utility regulation on the success of CCS both in terms of the examination of the prudence of adding CCS plants into utility rate base and by reviewing alternative methods to reduce the revenues needed to fund CCS,” NRRI director Carl Pechman, who co-authored the paper, said. 

Seeking to educate state utility regulators on the matter, the authors touted CCS technologies as an important means of decarbonizing the electric system and larger economy. However, its viability can be tested by factors such as revenues and costs. In this regard, the NRRI concluded that direct subsidy payments benefit organized markets more so for financing CCS than tax credits. 

According to the report, CCS has a role to play in decarbonization through:

  • Improving resilience of networks with high renewable penetration
  • Supporting beneficial uses of carbon
  • Providing services that enhance the grid reliability

It also listed five means of revenue for CCS in the authors’ assessments: electric market revenues, tax subsidies provided by Section 45Q, carbon pricing, greenhouse gas-related revenue, and utility rates that would allow CCS cost recovery. Each was evaluated, along with other current and emerging issues associated with pricing in the wholesale electric markets and impacts of carbon offsets on CCS as a revenue source, along with its competitiveness as an alternative for outright decarbonization. 

In their conclusion, the NRRI authors made 10 recommendations to guarantee the most effective use of CCS. These included basics, like the development of a national decarbonization plan that addresses the desired role of and need for CCS, state regulatory actions to reduce in-service costs and regulatory risks of CCS plants, mechanisms to verify and measure the value of carbon offsets, as well as analyzing carbon pricing proposals and their impacts on CCS, among others.