Bloomberg News

Oil Drilling Finds Friends Among Greens Embracing Carbon Capture

February 28, 2012

Oil drilling, long opposed by environmentalists worried about climate change, gained a friend among green groups that say old wells may offer a low-cost way to keep a gas linked to global warming out of the atmosphere.

At an event today in Washington, Southern Co. (SO) and Arch Coal Inc. (ACI) will join their usual green foes to push tax breaks for so- called enhanced oil recovery, which advocates say will boost domestic production and curb emissions of carbon dioxide, a greenhouse gas scientists blame for rising temperatures.

The two-dozen companies and groups “may not agree on many things,” Judi Greenwald, vice president for technology and innovation at the Center for Climate and Energy Solutions in Washington, said in an interview. “But this is a solution that we all can agree on.”

Greenwald assembled a 36-page report, which will be released today. The group is calling for a production tax credit for capturing and transporting carbon dioxide. That would encourage makers of ethanol, natural gas and electricity to tap the carbon dioxide produced in their industrial processes and send it through pipelines to oil wells.

Drilling companies pump carbon dioxide into the earth, where it acts as a solvent to help extract oil from older deposits. It helps produce 281,000 barrels of oil a day in the U.S., or 6 percent of domestic production, according to the report by the Center for Climate and Energy Solutions and Great Plains Institute. Once it is pumped deep into the ground, most of the gas remains trapped, and kept from release into the atmosphere where it can cause global warming, Greenwald said.

Underground Reservoirs

Most of the carbon dioxide used in oil drilling is pulled from underground reservoirs and transported to the wells. Meanwhile, U.S. power plants emitted 2.3 billion metric tons of carbon dioxide equivalents in 2010, according to the Environmental Protection Agency.

With investments in pipelines and upgraded technologies to improve collection of carbon dioxide, oil companies could buy the gas from manufacturers or utilities instead of extracting it from underground deposits. The cost of carbon dioxide tracks the cost of oil, with a metric ton usually costing $39 when a barrel of oil is at $100, said Brad Crabtree, policy director for the Great Plains Institute, a Minneapolis-based nonprofit group working on projects that support renewable energy, and another report author.

The final report is endorsed by representatives of Atlanta- based Southern, which produces power from coal; Arch Coal, a St. Louis-based mining company; and General Electric Co. The environmental groups include the Natural Resources Defense Council and Clean Air Task Force.

Oil companies discussed the group’s recommendations and declined to endorse the final report to avoid appearing to ask for tax breaks while lawmakers and the Obama administration debate the industry’s current tax liabilities, Crabtree said.

“They are standing on the sidelines about any new incentives,” he said.

The groups recommends giving the tax breaks to suppliers of carbon dioxide, not oil companies.

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net


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