There is potential for a new energy revolution that can follow on the success of shale gas. Carbon dioxide based enhanced oil recovery (CO2-EOR) offers the opportunity to produce billions of barrels of oil domestically while simultaneously eliminating gigatons of carbon dioxide emissions.

The debate over climate change has brought the issue of excessive CO2 emissions from the use of fossil fuels to the forefront. Carbon capture and sequestration (CCS) has been identified by the UN IPCC, the International Energy Agency and other leading institutions as indispensable for meeting carbon emissions reduction targets. CCS is the process of capturing CO2 from the exhaust of power plants and other industrial facilities, pressurizing it into liquid form, and moving it by pipeline to suitable locations where it can be injected deep underground for safe, permanent storage away from the atmosphere.

CCS is also critical for keeping coal in the energy mix in a carbon constrained future. But CCS has been stymied as a pollution control device due to high costs and technical complexity. Much of the efforts around CCS have focused on treating CO2 as waste and disposing of it in deep saline aquifers that have been identified for having large storage capacity. The problem with this approach is that no revenues are generated, only costs and liabilities, which naturally creates resistance in industry to implementation.

But a superior approach is to find value in the CO2 and use it productively. And the best option for CO2 utilization is to inject large quantities of CO2 is into mature oil fields where CO2 is quite useful in extending the productive life of the field. This process is called CO2 enhanced oil recovery and it is an established industry that dates back to the 1970s. Much of the technical understanding for how to do CCS is rooted in the EOR industry.

There are enormous quantities of oil available to be produced using CO2-EOR, if enormous quantities of CO2 can be supplied to the oil fields at the right price. Conventional oil drilling only produces about 1/3 of the original oil in place, CO2-EOR can potentially liberate another 1/3 of the original oil while leaving the CO2 in the ground.

Numerous studies from the Dept of Energy and industry have found that there are tens of billions of barrels of oil available to be produced using CO2-EOR which will result in billions of tons of CO2 being permanently sequestered. It has also become clear that the revenues earned from selling CO2 are absolutely critical to financing carbon capture projects and infrastructure. Almost every successful commercial carbon capture project has sold the CO2 for use in EOR, while projects like FutureGen that proposed to bypass those revenues have mostly failed.

The EOR industry has demand for billions of tons of CO2, but only at the right price, and today the cost of capture from coal power plants is too high, there is a price gap. The coal industry is producing many billions of tons of CO2, but cannot afford to capture it. The EOR industry will pay around 2.5% of the price of a barrel of oil for one ton of CO2, the CO2 price is linked to the oil price. The price gap currently is $30-$50 per ton of CO2.

The environmental community has generally favored policies that make carbon based fuels more expensive than renewable energy, whether through subsidies of renewables, or the imposition of a price on carbon such as a carbon tax. These efforts are inadequate to resolving the problem of carbon emissions because they do not address the fundamental demand across society for hydrocarbon fuels, which is growing.

It would be better to make decarbonization technologies, such as carbon capture, more affordable and productive, rather than making carbon based fuels more expensive.

Federal policies should work to bridge the price gap and market failure that is preventing CO2 from being utilized in the market. There is enormous potential demand for CO2. The DOE studies indicate that 20 gigatons of CO2 (giga = 1 billion) would be needed to produce 85 billion barrels of oil from US oil fields, this is equivalent to all of the CO2 from roughly half of the current US coal power fleet for the next forty years. But to make this ambition a reality, carbon capture costs need to be cut in half.

Even though carbon capture is expensive, the technology works and is improving. The best way to bring down costs in any industry is to ramp up production. This has been demonstrated in the last decade with wind and solar where costs have fallen dramatically as factories have ramped up. The same will be true for CCS, more projects are needed.

There is a list of historical policy measures that can be applied to carbon capture that are not in effect today. Tax credits such as investment tax credits for capture equipment or sequestration tax credits are the most broadly applicable, and if structured properly can be revenue positive for the Treasury over time. Additionally, there are opportunities for tax free bonds to be leveraged. There are needs for regularity clarity around the injection of CO2 and proper accounting for CO2-EOR as a bona fide carbon emissions reduction strategy. There is much that can be done to improve the permitting for CO2 pipelines and establishing pipeline corridors, particularly on federal lands out west where most of the EOR opportunities are. And more funds are needed for demonstration projects that can help the industry move beyond expensive first of a kind facilities.

The recent retrofit of the Boundary Dam coal power plant in Saskatchewan, Canada has been a huge success. The facility now captures 90% of its CO2 and markets all of its sulfur and coal ash, it is the cleanest coal power plant in the world. This success should be repeated.

The framework is clear, CCS is a requirement for meeting carbon emissions targets, CCS needs the revenues from CO2-EOR to be financially viable, there is an enormous energy prize available if CO2-EOR is widely employed, and in doing so the coal industry will be revitalized. By following this path the USA will make great strides on both energy security and environmental goals. The challenge now is to put forward effective policies that will help bridge the price gap on carbon capture.