Coal vs. natural gas competition in electricity and hydrogen production

Because natural gas produces only about half the CO2 emissions of coal in electricity or hydrogen production, displacing coal capacity with natural gas combined cycle plants is a cost-competitive way of reducing carbon emissions by about 50%. A competing strategy for cutting CO2 emissions is equipping coal-based plants with carbon capture and storage (CCS) technology, an approach which would decrease emissions by roughly 90%.

Tom Kreutz and Bob Williams carried out an economic analysis of these two strategies this year to determine what size carbon tax would make coal with CCS competitive with natural gas with venting for both electricity and H2 production. The authors found that the breakeven carbon tax was much lower for hydrogen than for electricity production, since much of the hardware needed for carbon capture already exists in hydrogen plants. For hydrogen production, a tax of 30-40 $/tonne carbon was sufficient to make coal with CCS competitive (at natural gas prices greater than $3.5/GJ). For electricity production, a carbon tax of about $90/tonne would be required. This cost of avoided CO2 emissions is significantly smaller than that estimated for a natural gas combined cycle plant with CCS.


Small-scale vs. large-scale hydrogen production

In a related project, Tom Kreutz and Joan Ogden (now at UC Davis, formerly of CMI) are analyzing the economic competition between two routes toward the “hydrogen economy.” One scheme, small-scale steam reforming of natural gas, would produce hydrogen at many decentralized stations, avoiding the large costs associated with transporting H2. A large drawback of this scheme is that carbon capture and storage are unlikely to implemented on such a small scale, so this transitional technology would provide no reduction in carbon emissions.

Alternatively, “slipstreams” of hydrogen fuel could be produced at large hydrogen-powered central power plants where CCS is economical, then provided to nearby concentrations of hydrogen vehicles. The researchers are currently comparing the cost of building many stations in the small-scale strategy with the cost of fuel distribution in the large-scale strategy to see if there is an economical way to implement CCS-based slipstream hydrogen.


Coal – DME Clean Fuels Initiative

Solid fuels are used extensively for cooking in the developing world, but the negative health impacts of indoor biomass and coal burning are well-documented. Cleaner cooking fuels would therefore be a boon to billions of people around the world, but production of propane and butane, the most common clean-fuel alternatives, is small relative to the potential demand. Natural gas is another alternative clean fuel, but is only practical for urban use due to the expense of either building pipelines or refrigerated transport of liquefied natural gas.

CMI researchers Eric Larson and Huiyan Yang have calculated that, in China, dimethyl ether (DME) made from coal could provide a cost-competitive alternative to imported LPG, especially when oil prices are high. If co-produced electricity can be exported to the grid, Larson and Yang estimate that domestically produced DME would be competitive at $30/barrel in coastal areas and $20-26/barrel in inland areas (due to the added cost of LPG transport). Compared to providing the same amount of electricity and cooking services from a stand-alone coal power plant and direct coal combustion in stoves, the domestic DME would reduce total coal use by 25%.


Public instruments to foster IGCC

The Capture Group is also focusing on public instruments to facilitate construction of integrated gasification combined-cycle (IGCC) plants in the U.S. in the next decade. Promoting IGCC construction is important for future carbon mitigation because carbon capture in IGCC plants is estimated to be half as costly as for coal steam-electric plants.

The Capture Group helped William Rosenberg of Harvard develop his 3-Party Covenant (3 PC) scheme to facilitate construction of the first few IGCC plants. The 3 PC scheme involves a low-cost subsidy in the form of a government loan guarantee that reduces financing costs, so that electricity generation costs are less than for conventionally financed coal steam-electric power plants, even for the very first IGCC units built. The Capture Group is now exploring how the 3 PC scheme might be extended to the first few IGCC plants that also involve CO2 capture, along with possible additional incentives for CO2 storage in these early plants.