CARBON MANAGEMENT OF A COAL-TO-LIQUID PLANT AND ITS IMPLICATIONS FOR CHINA

Hui Su, Ph.D. Candidate, Natural Resource Economics PhD Program

West VirginiaUniversity, Phone+1 304 216 1628, E-mail:

Haixiao Huang, Research Associate, Energy Biosciences Institute

University of Illinois at Urbana-Champaign,Phone+1 217 333 7239,E-mail:

Jerald J. Fletcher, Professor and Director, US-ChinaEnergyCenter

West VirginiaUniversity,Phone+1 304 2934832 x 4452,E-mail:

Overview

In a carbon-constrained world,carbon management options for climate change mitigation are becoming increasingly important as the level of atmospheric CO2 increases. In recent years, rapidly developing carbon markets, particularly project-based carbon emission trading between developed and developing countries under the Clean Development Mechanism (CDM), have facilitated the development and implementation of carbon management. Carbon trading provides an attractive economic incentive for greenhouse gas (GHG) mitigation.

China isfacing both domestic and international pressure to mitigate GHG emissions, especially after overtaking US as the world’s top CO2 emitter in 2007. China has begun to take more responsibility for mitigating GHG emissions including reducing GHG emissions by energy efficiency improvements and renewable energy development. The fact that China has been the largest carbon seller under the CDM since 2005 is an example of China’s effort to mitigate its carbon emissions.

The world’s first direct coal-to-liquid (CTL) plant is currently under development in Inner Mongolia, China. During its operation, it will releasean estimated 3.6 mmt of CO2 per year, approximate 90% of which ispure enough to be sequestered without significant capture costs. Carbon capture and sequestration (CCS), as a major method for climate change mitigation, is particularly well suited to the CTL plant since the cost of capturing CO2 is the main contributor to the total cost of CCS. Furthermore, carbon sequestrated from the CTL plant may be treated as Certified Emission Reductions (CERs) and traded under the CDM. The CERs are expected to offset much, if not all, of the cost of CO2 mitigation. In this context, the CCS project now represents a significant step in China’s carbon management efforts. Research on the CCS potential contributes to finding practical and cost-efficient solutions for emitters to engage voluntarily in GHG mitigation. In addition, the results demonstrate the potential for CO2 sequestration related to coal liquefaction and gasification, and the economic and environmental feasibility of coal as a source of liquid fuels for coal-rich countries.

Methods

Following previous CCS techno-economic modeling research, estimated capital, operation and maintenance (O&M)costs for the compression, transportation and injection processes are described and developed as a function of physical and geological parameters including pressure, pipeline configuration and reservoir characteristics.Based on these factors, the paper develops a profit-maximizing mathematical programming model that characterizes the integrated CCS process chain in order to estimate optimal sequestration levels as a function of these parameters. Different types of reservoirs and processes examined in this study includeCO2 flooding for enhanced oil and/or gas recovery (EOR/EGR), enhanced coalbed methane recovery (ECBM) and sequestration in depleted oil and/or gas fields, unmineable coal seams and saline aquifers.

Results

The economic profit maximization problem can be solved to obtain the optimal carbon sequestration level for different types of sinks in each time period at different given carbon prices.These initial results can be used to construct a step-function CO2 sequestration supply relationship (or equivalently, a marginal minimum abatement cost curve for CO2 emissions). The shape of the supply curve is in accord with the basic processes of carbon sequestration: value-added processes such as EOR and ECBMwill be utilized first since they have a direct economic payoff in addition to the value of the CERs provided. As the amount of sequestration increases, reservoirs with a direct economic return have all been utilized and only deep saline aquifers may be applicable. Sensitivity analyses show that carbon price, distances from point source to reservoirs available and flow rate all have an obvious influence on the optimal level of carbon sequestration.

Conclusions

Regarding the implications of project-based carbon management, this research offers insights into whether or not the carbon sequestration activity is economically feasible. This analysis indicates the potential costs of proposed climate policies that mandate emission reductions such as CCS.

In terms of implications for macro-level carbon management, the Shenhua CCS project and similar projects in the near future could likely change the mix of CDM projects in China considering that few mitigation options (i.e., energy efficiency improvement, renewable energy use etc.) can reach scales or project size comparable to the scale of geoseqestration options.

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