Carbon Capture Convolution (part I)
An exploration of a plan to keep a New Mexico coal plant running
In July 2017, Public Service Company of New Mexico, or PNM, which provides electricity to most of the state, dropped a bomb on the Four Corners region: In 2022 they would close the coal-fired San Juan Generating Station and the accompanying San Juan Mine for good. The 40-something-year-old plant was costing the company and its ratepayers too much. They could get cheaper power elsewhere.
The closure would mean cleaner air over the entire region and cut carbon emissions by millions of tons per year. It would bring an end to the constant stream of sulfur dioxide, nitrogen oxides, mercury, arsenic, and other harmful pollutants that form vista-dimming smog and eventually fall on the people, wildlife, land, and waters of the region. And it would inflict a deep economic wound to the already beleaguered region, as well, with the loss of hundreds of jobs and millions in tax and royalty revenues to the federal, state, and local governments.
During the months after the announcement, local leaders fretted over the impending disaster. The region had lost thousands of jobs a decade earlier when the natural gas industry—which had been a mainstay of the economy for a century—went into steep decline. And though a brief oil boom in the Chaco region had lifted hopes for a recovery, it, too, had faded away. The oil and gas giants—BP, ConocoPhillips, WPX—sold out to smaller companies, taking away high-level jobs and leaving behind only scars and empty, cavernous office buildings. “We’re on a death train, economically,” the owner of a local oil and gas company once told me, summing up the sentiments of much of the community. “I don’t know the answer. I’ve been here 30 years and I don’t know the answer.”
Then, in early 2019, a virtually unknown company based in New York called Acme Equities swooped in and announced that they had the answer that would save the power plant, the community, and the carbon economy. Acme would partner with the City of Farmington to keep the plant running, capture the carbon from the plant, and turn around and sell the carbon to oilfield operators on the other side of the state. It was a win-win-win situation that would save jobs and tax revenues, clean up the air, and even boost oil production—or so it seemed.
Energy-economics experts were baffled and even dismissive of the proposal from the start. After all, PNM was abandoning a coal plant into which it had just invested millions of dollars in pollution-control technology because it was no longer economically tenable. Now Acme thought they could take that same plant, spend at least $1.4 billion on a carbon capture system, and still turn a profit? It simply did not pencil out.
Although a few coal plants had been semi-successfully retrofitted with carbon capture equipment, the SJGS project would be the largest to date, by far. And it would be headed up by an obscure company whose main claim to fame was that its co-founder, Jason Selch, had once mooned his big-bank employers after they fired his buddy. The most obvious customer for electricity from the plant was PNM, but they refuse to buy it. Other utilities are shying away from coal power, as well, for both economic and environmental reasons.
Even odder was the timing of the announcement, coming just as the state legislature put the finishing touches on the Energy Transition Act, a sort of mini-Green New Deal that would phase out carbon emissions from the utility sector and funnel tens of millions of dollars to impacted communities for worker retraining and economic development. The “just transition” provisions in the act were formulated in direct response to the SJGS closure, and the emissions limits were aligned with PNM’s plan to go carbon-free.* If the plant and mine remained open, it could throw some of the funding into doubt. And even if Enchant achieved its goal of capturing 90 percent of its carbon, it would still have to shut down in 2045 under the ETA’s emission limits.
Acme’s bid appeared to critics to be a mere flash in the pan that would soon vaporize, leaving local officials to prepare for the plant’s closure by building up the non-fossil-fueled sectors of the economy.
Yet Acme and its enthusiastic backers, which include Farmington Mayor Nate Duckett and the coal miner’s union, persevered. Acme changed its name to Enchant Energy and hired Peter Mandelstam, a veteran of the wind and solar industries, as its chief operating officer, later bringing on as CEO Cindy Crane, who previously helmed Rocky Mountain Power. The company managed to get $2.7 million from the US Department of Energy, along with a $17.5 million DOE grant for New Mexico Tech to study the feasibility of permanently sequestering the captured carbon onsite. Meanwhile the Trump administration’s DOE funded a paper on the SJGS proposal that reads like marketing material put out by Enchant, itself.
None of that, however, was as significant as a piece of “guidance” handed down last year by the Internal Revenue Service regarding section 45Q of the tax code, which pertains to tax credits for carbon capture. Congress first enacted the credits in 2008 in hopes of encouraging industry of all sorts to capture and sequester the carbon they would otherwise emit, and then expanded and tweaked the credits in 2018. The IRS confirmed those changes in 2020, handing Enchant a potentially powerful weapon in its bid to turn a pipe dream into pipeline-grade carbon dioxide.
When looked at from a certain angle, with eyes squinted just right, the Enchant Energy proposal looks like a pretty good solution to a tough problem. But zoom in and really focus on the details and the San Juan Generating Station of the future starts to resemble some sort of bizarro-world contraption: a power plant that once produced carbon as a nasty byproduct transformed into a carbon-factory that produces electricity as a byproduct. Enchant’s proposal, summarized:
•PNM and the other plant owners would abandon the plant, essentially giving it to the City of Farmington. Enchant would then buy 95 percent of the plant for $1.
•Enchant and other investors would spend an estimated $1.4 billion to install carbon capture equipment on the plant. Most of this financing would come via the tax equity exchange market, in which entities with large tax burdens would invest in the project in order to reap the 45Q tax credits once the plant is running.
•The plant would operate as before, with coal mined from the San Juan Mine, then burned to generate steam (and carbon dioxide) to turn turbines to generate electricity.
•70 percent of the plant’s electricity would be sold on the open electricity market via existing high-voltage transmission lines that radiate out from the plant (Enchant says it doesn’t need long-term power purchase agreements and will act as a merchant generator).
•30 percent of the electricity will be used by the plant, itself, to operate the carbon capture equipment.
•The goal is to pull 90 percent of the carbon dioxide produced by coal combustion from the flue gas (the technology only captures carbon, not any of the other pollutants that form smog and are hazardous to humans and wildlife).
•Sargent & Lundy, the company that is expected to lead the plant’s retrofit, estimates that it will cost between $39.15 and $43.49 to capture each ton of carbon.
•That carbon will then be put into a yet-to-be-built pipeline (construction cost: $40 million) that will tie into an existing pipeline that runs from the McElmo Dome subterranean carbon dioxide reservoir in Colorado to the Permian Basin oil fields.
•There, oil companies will theoretically purchase the carbon for $17.50 per ton and then inject it into aging oil wells in order to stimulate more oil production, a technique known as enhanced oil recovery, or EOR.
•Per 45Q, Enchant would get a tax credit of $35 per ton of carbon captured and used for EOR (or $50 per ton if the company opts to sequester it onsite without EOR). These credits would pay back investors for the capital costs.
•Enchant would bring in a total of $52.50 per ton of carbon captured and sequestered, for a $9 to $13 profit per ton. Since it hopes to capture 6 million tons of carbon per year, the company would gross some $300 million and net around $70 million annually, not including electricity sales.
Or, put another way:
•Enchant is going to exhume the carbonized remnants of 60-million-year-old swamp flora (i.e. dig up a bunch of coal),
•burn the coal to release the carbon from the rock,
•capture the carbon,
•pipe it hundreds of miles to oil companies that will inject the carbon back into the ground in order to push out the fossilized remains of 70-million-year-old sea creatures (i.e. oil and gas)**,
•and send the oil to refineries where it will be distilled into gasoline, which will be burned up in automobiles, emitting carbon dioxide.
It is an intricate plan with a lot of moving parts. And if one of those parts doesn’t perform as expected it can throw the whole machine into disarray.
If a pandemic dampened oil demand and sent crude prices tumbling, for example, there would be a corresponding drop in demand and price for carbon dioxide in the oil fields, mucking up the economics of the project. That’s exactly what plagued the Petra Nova carbon capture-EOR project in Texas, contributing to its shutdown last year for an indefinite period of time.
As is the case with Enchant, Petra Nova’s success relied upon a 90-percent carbon capture rate. Though details are scant, it appears as if Petra Nova did not reach the goal, ultimately capturing about 660,000 metric tons less than hoped for, according to a report by the Institute of Energy Economics and Financial Analysis. That equals a $23 million tax credit-revenue shortfall.
If Enchant’s performance were similar, capturing about 78 percent of carbon rather than the hoped-for 90 percent, it would reduce yearly 45Q revenues by more than $27 million, a substantial blow to the investors banking on those credits. And then there’s another wrench thrown into the machine by the pandemic: During tight economic times the tax equity exchange markets tend to dry up, since no one’s making enough profit to need big fat tax credits.
And what about the environmental benefits? Enchant claims that their project will reduce carbon dioxide emissions by about 6 million metric tons per year compared to now. Since the plant would otherwise shut down altogether, bringing emissions to zero, that’s a meaningless claim. Even with carbon capture operating as hoped, Enchant’s plant will continue to emit 600,000 tons of carbon dioxide each year. That’s in addition to around 22,000 tons of methane emitted by the San Juan Mine each year, which in the short term has the global warming equivalent† of about 2 million tons of carbon dioxide.
And coal-burning’s deleterious effects on the environment go far beyond the climate. The plant will continue to emit hundreds of pounds of mercury, arsenic, sulfur dioxide, nitrogen oxides, and volatile organic compounds. It will produce millions of tons of coal ash and other solid waste every year, containing a multitude of contaminants that can blow into the air or leach into the water, harming the people who live nearby. And the power plant will continue to suck billions of gallons of water out of the San Juan River for steam-generation, cooling, cleaning, and carbon capture.
All of this for a $1.4 billion price tag that will be shouldered, in the end, by American taxpayers via 45Q.
It kind of makes you wonder: Why bother? And why have so many local leaders ardently embraced such a Byzantine plan? After all, the writing is on the wall: Coal power is going the way of the dinosaurs, no matter what kind of contraptions might be strapped onto aging plants to keep them chugging away a bit longer. It’s clearly time to move on, to embrace the transition rather than resist it, and to build up newer, greener, more sustainable industries to replace the old.
But try telling that to a unionized coal miner making $86,000 plus benefits—the median pay for an employee of the San Juan Mine. Try telling that to the local shoe store where the company that runs the San Juan Mine spent $27,000 in one four-month period, or the machine shop where they forked out $47,000, or the soil remediation firm where they spent $118,000, to list just a few examples. Arvin Trujillo, CEO of 4Corners Economic Development, a private non-profit based in Farmington, compared it to a giant spiderweb, with the coal plants in the middle, which will be torn asunder if and when the plants go down.
Other industries will come to help offset the pain. Photosol U.S., for example, is planning to build a 372-megawatt photovoltaic array with battery storage on BLM land near the San Juan Generating Station, employing 500 people during the construction phase. But once it’s up and running the facility will employ just 15 to 30 people. And it’s unlikely that they’ll pay as much as coal mining, as even the most ardent economic-diversification advocates admit. “These jobs with the fossil fuel industry are irreplaceable,” said Mike Eisenfeld, Energy and Climate Director of the San Juan Citizens Alliance, last spring. “I don’t make $80,000 per year. That kind of salary is what happens when they don’t have to deal with externalities.”
A coal power plant and mine combine to make up an enormous, terribly inefficient operation when compared to solar-, wind-or hydro-power facilities. And yet it is this very inefficiency with which economic development folks are enamored, because inefficiency in this case means more jobs. Though solar facilities will generate property and sales tax revenues, they won’t be able to replace the $17 million per year the San Juan Mine’s owners pay in federal royalties for the privilege of extracting Americans’ coal (part of which comes back to the state), or the $7 million to the federal black lung tax, or the $5.8 million in state severance, excise, and conservation taxes. Since there is no royalty or severance tax on sunshine, and solar power doesn’t lead to black lung, the industry is immune to most of these expenses.
All of which is to say that when the mainstay industry—be it a factory, a hardrock mine, or a power plant—ups and abandons its host community, it punches a big hole in that economic spiderweb. And there is little chance of any one industry sliding in and filling the void. Re-weaving the web must be done strand-by-strand, an effort that takes time, initiative, and forward thinking. It is, in other words, hard, slow work.
So it’s no wonder that folks want to hang on to that industry for as long as they can, even if it means throwing their weight behind a precarious proposition. Still, as painful as it may be, it’s time to let go and start planning for a fossil fuel-free future. Even if the Enchant Energy plan works out as promised, it won’t keep the regional coal industry going forever. At best it will extend its life by another decade or two. Then what?
“The carbon capture proposal is a costly distraction from efforts that could actually help workers and communities in the Four Corners,” said Camilla Feibelman, the Sierra Club’s Rio Grande Chapter Director, last spring. “I understand the instinct to stick with what you have, but economic success is always paired with diversification, innovation and creativity, not clinging to the past—especially when the economics aren’t there.”