Tenaska Deal Signals Sea-Change in Climate Change Regulation, but Itself May be Too Good to be True

by Victor Flatt

April 23, 2010

On Monday, the Environmental Defense Fund announced that it had reached a settlement with Tenaska Inc. to withdraw opposition to that company’s proposed “Trailblazer Energy Center,” a 600 megawatt coal fired power plant in West Texas. In return for dropping its objections, the EDF signed an agreement with Tenaska that the company will sequester 85% of the CO2 it produces, selling much of the gas to companies who will use it for enhanced oil recovery (EOR) in the West Texas Permian Basin oil field.

The agreement is stunning on many levels. Trailblazer is the first large-scale proposal (and presumably will be the first operational coal fired power plant) to sequester significant amounts of the CO2 it produces. It is also the first large-scale use of enhanced oil recovery as a market for captured CO2. Last, it firmly and finally illustrates the reality of the fate of new coal fired power in the United States today. Sequester or give it up. Given the EPA’s endangerment finding on CO2, no new air permits can be granted by the EPA or delegated states without “considering” the impact of CO2. So even in a fossil fuel friendly state like Texas (one of the few who were even entertaining the idea of new coal fired power), the reality is that new coal without emissions capture is on the way out (and this is without a comprehensive climate change bill).

Despite the important reality this deal represents, as an individual deal, it may leave something to be desired. The agreement is not public yet, and it is unclear what penalties or breach of contract remedies will be available if Tenaska abandons the deal in the face of say a depressed oil market. Will the sequestration continue for the life of the coal plant? What if the Permian Basin is spent in ten years? And without access to studies of the specific area where the EOR will occur, it is also not clear what level of sequestration permanence we are talking about. Last, by engaging in this capture before the imposition of a mandatory cap and trade system, Tenaska might even be able to profit by selling its sequestration as an “offset” in the voluntary or unregulated market.

Still, the longer term implication is very important.

Victor- Although I can understand your skepticism behind the proposal, your lack of basic research is glaring. For instance, your comment "what if the Permian Basin is spent in 10 years" signifies your ignorance in the area. The Permian Basin is one of the older Oil and Gas producing regions in the country and is known for having shallow decline curves on its producing assets. Ask any Engineer or Geologist with experience in the Permian Basin and you can expect to hear that the Permian Basin will be producing Oil and Gas for the next 100 years. Additionally, the EOR process has been pioneered in the Permian Basin, and with the infrastructure that goes along with it, operators will not simply stop a major project such as this one because of a decline in short-term oil prices. I'm not sure if these facts fit in with your convenient conclusion, but I think the readership deserves to know a fair and balanced take on the proposed EOR program. Thank You, MJG
— Matt Guisinger
These are good points. My example of the Permian Basin is an illustration of the possible variables that we don’t know for sure and are as yet unregulated. Thanks for fine tuning the information on this particular location.
— Victor Flatt
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Victor B. Flatt is the  Dwight Olds Chair and Faculty Director of the Environment, Energy and Natural Resources Center, University of Houston Law Center, and a Distinguished Scholar, Global Energy Management Institute at the University of Houston.

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