Carbon Market Architects

Crowded into a retro-industrial office in Berkeley, California, that looks like it could have been designed by Howard Roark from The Fountainhead is the staff of C12 Energy. Indeed, the independent, capitalistic drive that C12 Energy exudes makes the link with Roark uncanny. The CEO, Kurt Zenz House, displays portraits of Albert Einstein, Teddy Roosevelt and J.D. Rockefeller. For House, the trio represents the mix of science, policy and industry that he sees as the foundation of C12 Energy as it turns carbon emissions into a valuable product by exploiting market opportunities now rather than waiting for policy to shift.

My series on carbon storage developments in the United States concludes with a telephone conversation between Kurt House and myself. I have edited his responses for readability.

Building carbon markets

What does C12 Energy do?

C12 Energy manages industrial carbon dioxide (CO2) for enhanced oil recovery and regulatory compliance by developing, owning and operating CO2 pipelines, oil fields and CO2 storage sites.

Without a tax or market constraint on carbon, is C12 Energy participating in any niche markets that put its carbon storage assets to use now?

Primarily, C12 Energy acquires CO2 waste from industrial processes and pipes that CO2 to domestic oil fields to enhance their oil recovery. The industrial sources include ammonia production facilities, electricity generators and hydrogen developers. Some factors determining where C12 Energy acquires CO2 are proximity of the source to the oil field and economies of scale.

Using industrial CO2 emissions to enhance oil recovery results in “carbon neutral” oil. Each ton of CO2 injected into an ageing oil field yields roughly two barrels of incremental oil. When those 2 barrels get burned they in turn yield ~1000 kg (a short ton) of CO2.* Thus compared to algal and other biofuels, enhanced oil recovery is the only carbon neutral fuel source.

What is the most unlikely niche market that exists now for carbon emissions?

We don’t think in terms of niche markets so much as niche regulations. Right now, California, Oregon and Washington have greenhouse gas performance standards that make coal-fired electricity production impossible. We focus on opportunities in those states to, where it makes sense, partner with power producers who could not produce power without removing CO2 from their waste stream.

The federal EPA, too, is proposing and imposing rules and relicense requirements under the Clean Air Act that make it a near certainty that the only way coal-fired plants will be able to get relicensing is with carbon removal.

Does C12 believe policy levers like a carbon tax, carbon market or removal of oil and gas subsidies are necessary to reduce carbon emissions?

What we see happening are slow policy changes in pockets of the country rather than a sweeping policy change that will regulate CO2 emissions nationally. That said, I personally think a carbon tax would be the most effective policy lever from a Pareto optimal viewpoint. But I think the most practical and helpful policy change would be using incentives to get industry to use CO2 emissions productively, as happens with enhanced oil recovery. Such incentives could be tax advantages for using rather than wasting CO2 emissions.

However, for the past few years the US has been on a declining CO2 emissions curve without any grand policy. The two reasons for this are a major recession and the natural gas boom. With its lower cost, natural gas displaces coal in electricity production thereby lowering carbon emissions overall since it burns nearly 45% less CO2 than coal.

North Dakota, Wyoming, Louisiana and Texas have laws that transfer liability from a carbon storage developer to the state after a few years of the storage site operating. Does C12 Energy see a problem with the public bearing the risk of long-term failure?

The public takes on liability all the time. For instance, if buildings fall the public is potentially exposed to the damage. But that’s where the role of insurance comes in. In regards to the carbon storage laws, the operator of a long-term carbon storage site must pass onerous requirements before it is able to pass the liability to the state. Then it must also post a large bond that will cover the premium for the insurance in case of failure. So the only true liability that the public takes on is if the actuarial accounting for insurance is done poorly.

Does carbon storage in some sense simply return the problem of carbon emissions back into an externality? If not, why not?

For over 100 years, with untold man-hours, engineering and money thrown at the problem the best humans can do is extract 25% of oil from a field before they have to move on. The reason is that the geology that has trapped the substance for over 100 million years is tight and won’t let the resource escape. If that’s true for extracting oil, it therefore must be true that those same geologic formations will store CO2 gas securely for hundreds of years.

*Note, this was edited to reflect accurate numbers. Thank you to Kurt for pointing out my mistake.


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