Like nuclear, Carbon Capture and Storage (or Sequestration) (CCS)—capturing CO2 from large emission sources and storing it permanently underground—is a technology seen as essential in most modeling efforts of how climate targets are to be achieved. It is therefore disturbing that progress in the near-term has been so slow, particularly in the U.S.

Two interesting developments occurred this week regarding these efforts. First, the Department of Energy is returning $1.27 billion in unspent CCS stimulus funding (out of $2 billion allocated) to the Treasury because none of the four remaining potential recipients had met required milestones by the September 30 deadline to distribute those funds.  (One positive contrast with the earlier problems with stimulus money— Solyndra etc.—is that these projects had to achieve real milestones before money was handed over, although the failure of so many CCS projects is a major disappointment in the wider context of addressing climate change.)

Two of the four projects (Leucadia in Louisiana and Future Gen 2.0 in Illinois) were already dead. A third, HECA (Hydrogen Energy California) has been on life-support since July. The fourth, Summit Power’s Texas Clean Energy Project (TCEP) remains a question mark. Although TCEP will now lose $104 million in DOE grant money, TCEP just announced that the IRS has awarded it $487 million in new federal tax credits (on top of the $324 million it had previously received). Will $800 million in federal largesse be enough to secure the remaining funding for the $2.5 billion plant? Will China’s Export-Import Bank (yes, really) maintain its project financing commitment? Stay tuned.

Speaking of CCS tax credits, the second development this week was Southern Company’s admission that it will miss yet another deadline for its Kemper project, and as a result will have to pay back $234 million in those federal subsidies. While no one likes to lose that kind of money (although when you’ve dropped close to $6 billion of your own on a project, another couple of hundred million really may not change things that much), this could actually turn out to be a good thing for the project.

Every article about Kemper carries the obligatory phrase about how it will “capture 65% of its CO2 emissions.”  As we have previously written, the only possible legal obligation that Kemper do so came as a condition of those Phase II tax credits. With those now gone, Kemper has no CCS obligation in any state or federal law or permit beyond a condition in a DOE grant that Kemper “establish, and actively work toward, the goal of capturing and sequestering 50% of CO2 emissions from the plant by 2020 and thereafter.” Now freed from any actual CCS obligation (if its lawyers cannot make the case that it is actively “working toward” that aspirational goal, having spent $6 billion and with the risk of incurring hundreds of millions of dollars more in future losses, then Southern needs better legal help), Southern is also freed from what we estimated was a loss of at least $20/ton on its CCS operation. Thus, the only possible incentive we see for Kemper to operate its CCS system is to demonstrate the technology. Given that EPA has essentially removed the CCS requirement for any new U.S. coal plants, a demonstration would be targeted to foreign buyers (viz., the Chinese interest in the TCEP project, mentioned above.)

That will be an interesting calculation. As we noted, we estimate that it will cost Kemper around $50/ton to capture its CO2, and it has contracts to sell that CO2 for enhanced oil recovery at (again, our estimate) $30/ton.  In addition, EPA estimates that Mississippi’s Clean Power Plan compliance costs are about $10/ton; together, these mean that the question is whether Southern thinks a $10/ton loss leader is worth it to demonstrate its technology. It might be, but with the caveat that in 2016 (or whenever Kemper’s CCS comes online), the prospect that the CPP will be imposing costs in 2030 may not be worth all that much.

As we’ve said before, we would dearly love to see the spreadsheets where Southern is weighing all these costs and possibilities.

The failure—for that is what it is—of recent U.S. CCS efforts blows a hole in any comfortable assumption that CCS can be major contributor to near-term mitigation efforts. But it remains a critically important technology that has to be got right. To revive it means, first, a meaningful carbon price and, second, a workable regulatory regime. CCS advocates, notably those in the coal industry, would be well-advised to focus their efforts on these two goals. More government money may also be needed, but without those two prerequisites, CCS will not succeed no matter how many billions we throw at it.