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CARBON MANAGEMENT OF A COAL-TO-LIQUID PLANT AND ITS
IMPLICATIONS FOR CHINA
Hui Su, Ph.D. Candidate, Natural Resource Economics PhD Program
West Virginia University, Phone+1 304 216 1628, E-mail: [email protected]
Haixiao Huang, Research Associate, Energy Biosciences Institute
University of Illinois at Urbana-Champaign, Phone+1 217 333 7239, E-mail: [email protected]
Jerald J. Fletcher, Professor and Director, US-China Energy Center
West Virginia University,Phone+1 304 293 4832 x 4452, E-mail: [email protected]
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 is facing 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 release an estimated 3.6 mmt of CO2 per year, approximate 90% of which is
pure 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 CO 2 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 include CO2 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 ECBM will 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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