1. KEYNOTE PRESENTATIONSCCS PROGRESS IN CANADA: Dr Carmen Dybwad IPAC-CO2CCUS IN THE UNITED STATES: Judi Greenwald C2ESCCS IN AUSTRALIA: Dick Wells National CCS Council

2. A Diverse Coalition Recommends Incentives toAccelerate Commercial Deployment of EOR UsingCaptured CO2Judi GreenwaldVice President for Technology and Innovation, C2ESGCCSI International Members MeetingOctober 11, 2012 3. Overview of presentation Why CO2-EOR is so important? What is National EOR Initiative? What we all need to do 4. Background on CO2-EORCommercial CO2 use to enhance oil recovery is happening now,and its bigger than most people realize. The CO2-EOR industry has 40years of commercialoperational experience (beganat significant scale in WestTexas in 1972). Today, CO2-EOR producesnearly 300,000 barrels of oilper day (100 million barrelsannually), or about 6 percentof U.S. domestic production. 5. Why is CO2-EOR so important? Energy Security o Can at least double U.S. reserves (20 billion barrels) o 27 to 62 billion barrels with existing technology, 67 to 137 billion barrels with next generation techniques Economic Opportunity o Job creation, increase tax revenues, reduce U.S. trade deficit (cumulatively) by $600 billion by 2030 Environmental Protection o Reduce U.S. GHG emissions by 10-20 billion tons o Drive innovation in carbon capture and storage technology o Produce oil with less environmental impact 6. Map of Current U.S. CO2-EOR Activity6Source: NETL, 2010 7. So why arent we doing more ofit?Problem: Theres Not Enough CO2We have some ideas about where CO2 might be found 8. NEORIs Three-Part Agenda1. Recommend and advocate for incentives and other policies to support commercial CO2-EOR deployment that are self-financing through revenues from additional incremental oil production.2. Prepare key analyses to inform and support incentive policies for anthropogenic CO2-EOR3. Increase policy-maker, media and public awareness of CO2-EOR, its benefits and the need for deployment incentives. 9. Project Participants & ObserversCoal and Coal-Based GenerationLaborArch Coal AFL-CIOBasin Electric Power Cooperative United Transportation UnionSummit Power GroupTenaska Energy State OfficialsIllinois, Indiana, Michigan, Mississippi, Montana, NewIndustrial Suppliers of CO2/Technology Vendors Mexico, Texas and West Virginia Air Products AlstomAcademic Institutions Archer Daniels Midland Enhanced Oil Recovery Institute (University of WY) C12 GE Energy Observers Jupiter Oxygen Oil and Gas Linde Chaparral Energy Praxair Core Energy AssociationsEnvironmental NGOs Interstate Oil and Gas Compact CommissionClean Air Task Force North American Carbon Capture and StorageNatural Resources Defense CouncilAssociationOhio Environmental Council Project DevelopersWyoming Outdoor Council Leucadia Energy 10. Consensus recommendations released February 2012 Incentives to use captured CO2 in enhanced oilrecoveryo Federal Reform of existing Section 45Q tax credit New production tax credito State Model state incentives 11. Bipartisan Congressional SupportThe following Members of Congress provided statements ofsupport welcoming the NEORI recommendations Senator Kent Conrad (D-ND)Participated in NEORImedia event to release Congressman Mike Conaway (R-TX) recommendations Senator Max Baucus (D-MT) Congressman Rick Berg (R-ND) Senator John Hoeven (R-ND) Senator Richard Lugar (R-IN)This bipartisan interest has translated into 12. Conrad-Enzi-Rockefeller bill (S. 3581) just introduced on 45Q Reform Introduced 9/20/2012 Incorporates NEORI 45Q recommendations Improves functionality and transparency of existing program Clarifies eligibility for this existing tax credit Establishes a clear process for projects to reserve credits in advance Incentive valuable in and of itself; certainty of incentive helpful for obtaining private financing Establishes transferability of tax credit along CO2 value chain Clarifies that future regulatory changes do not affect prior crediting Little or no fiscal implications 45Q would incentivize the capture of 75 million tons of CO2 13. NEORI also recommends a newproduction tax credit Bridge the cost gap between what CO2-EOR operators are willing to payand the cost of capture Credit goes to those who capture, but only once the CO2 is used for EOR More than pays for itself because captured CO2 ->incremental oilproduction->profit->tax revenue No change in existing tax treatment for oil Combine federal incentive with CO2 market price 14. Production tax credit provisions 10-year PTC Two design objectives Minimize costs Drive innovation Competitive bidding/reverse auction Divided into tranches and subtranches fordifferent CO2 sources 15. New Production tax credit Tranches and sub-tranches Pioneer (first mover) Power Industrial Power Industrial Low cost industrial High cost industrial 16. More anthropogenic CO2 can become available at higher prices . . . (Illustration with EIA 2011 data, prices differ from previous slide)Power plant CO2supply potentiallylarger 16 17. Incentives are needed: For the largest CO2 supply sources,high oil prices will not be enough . . .CO2 Market PriceRepresentative EOR Core Scenario + (*Starting 2013, Incentive (forTransp. CostsWillingness To Pay) illustration purpose) (A) (B)(A-B)Power Plant Tranche($/tonne) ($/tonne)($/tonne)Pioneer - First of a Kind Projects$70 $33$37Projects #2-#5$60 $33$27 Nth of a Kind (Projects #6-onward) $55 $33$22Industrial - Low Cost Tranche($/tonne) ($/tonne)($/tonne)Pioneer- First of a Kind Projects $38 $33 $5Projects #2-#5$38 $33 $5 Nth of a Kind (Projects #6-onward) $38 $33 $5Industrial - High Cost Tranche ($/tonne) ($/tonne)($/tonne)Pioneer- First of a Kind Projects $65 $33$32Projects #2-#5$55 $33$22 Nth of a Kind (Projects #6-onward) $45 $33$1217 18. Analytical Study Cost gap analysis Determine difference between willingness to pay by EOR operators and cost of carbon capture, storage and transportation Revenue neutrality analysis Compare cost of new CO2-EOR incentives with new federal revenues directly resulting from incremental new CO2-EOR production in the form of royalties on Federal lands plus severance and corporate income taxes. Analysis suggests revenue neutrality within 10-year window and significant net positive revenues over long term 19. Program revenuesgreatly exceed costs over time 20. State-level RecommendationsModel complementary policies to federal incentives Severance tax reduction and/or extension of existingseverance tax reduction for oil produced with CO2 fromanthropogenic sources. Cost recovery approval for regulated entities. Off-take agreements. Tax credits, exemptions, or abatements for CO2 capture State-level bonding of CO2 pipeline projects and/or captureand compression facilities. Inclusion of CCS with EOR in electricity portfolio standards.See full report to see examples from specific states 21. PHASE II ActivitiesAnalysis: Demonstrate benefits; evaluate the implications ofalternative policies Incorporate new dataEducation and Outreach: Expand NEORI and coordinate participant efforts Expand, tailor and disseminate materials Briefings, conferences, webinars, workshops, one-on-onemeetings, earned media, op-eds, website, blogs Promote peer learning among state officials 22. Prognosis 45Q reform possible this year; broader PTCprobably will take longer Many states can act You can help 23. CONTACTS:Judi Greenwald, C2ES (703) 516-4146greenwaldj@c2es.org BRAD CRABTREE, GPI (701) 647-2041bcrabtree@gpisd.net www.neori.org 24. BACK-UP SLIDES 25. Benefits to Increasing CO2-EOR Increase U.S. oil production by accessing domestic reserves with captured CO2; U.S. CO2-EOR potential equals 27 to 62 billion barrels with existing technology, 67 to 137 billionbarrels with next generation techniques; current U.S. proven reserves are around 20 billion barrels Lower trade deficits/Strengthen Americas national security by reducing dangerous dependence onunstable and/or hostile regimes supplying the world oil market; An increase in oil production from EOR has the potential to reduce net crude oil imports by half andprovide up to $210 billion in increased state and federal revenues by 2030. EOR could reduce the U.S. foreign trade deficit by $11-$15 billion dollars in 2020 and $120- $150billion by 2030. Create new, high-paying American jobs and retain and attract private sector investment in the U.S.economy for capturing CO2, transporting it, and boosting U.S. oil production; Cumulatively by 2030, this reduction in oil imports would keep $600 billion here at home, generatingadditional economic activity, high-paying jobs and revenues, rather than flowing out of the U.S.economy to other countries. Enable commercial deployment of CCS industry to the long-term benefit of coal, natural gas, ethanol andother domestic industrial sectors; Facilitate compliance and participation in low-carbon fuels markets by oil, natural gas and ethanolproducers; and Achieve significant net carbon reductions through sequestration in depleted oil fields. 26. Federal Production TaxCredit for CO2 CaptureKey Elements Provided to owners of CO2 capture equipment installed on a broad range of power plants andindustrial processes, with the potential to supply significant volumes of CO2 to the EORindustry; Limited to covering the additional incremental costs of new CO2 capture, compression, andtransport; Allocated through competitive bidding process, by source category Awarded to qualifying projects over a ten-year period based on performance; Designed with transparent registration, credit allocation, certification, and public disclosure; Provided with no limits on project scale or on the aggregation of different CO2 sources into asingle project to enable participation of smaller industrial facilities; Designed to ensure that the program achieves ongoing technology innovation, CO2 emissionreductions, and cost reductions for CO2 capture, compression, and transport; and Designed with explicit safeguards to penalize non-compliant projects, limit taxpayerexpenditure, and modify the program to ensure net positive federal revenues. 27. CO2-EOR production doubles within 20 years 28. NEORI Analysis suggestssignificant oil production andrevenues over timeCumulative Cumulative Incremental CO2-EORCumulative NetTime Phase CO2 StorageOil Production Present Value ($)(tonnes) (Barrels)2013-2022400 million $2 billion2023-2032 2.5 billion $31 billion~4 billion2033-20426 billion$73 billion2043-20529 billion $100 billion 29. Current CO2 Supply for EOR Some CO2 for EOR already comes from industrial sources Today, the U.S. EOR industry uses 72 million tonnes of CO2 per year profitably and without serious reported injuries, accidents orenvironmental harm. CO2 Supply (Mt/year) Source Type (Location) Natural AnthropogenicColorado, New Mexico (Geologic)33-Texas (Gas Processing)- 6.4Wyoming (Gas Processing)- 6.6Mississippi (Geologic) 22-Oklahoma (Fertilizer Plant) - 0.7Michigan (Gas Processing) - 0.3North Dakota (Coal Gasification)-3Total55 17U.S. Department of Energy (2011), Improving Domestic Energy Security and Lowering CO2 Emissions with NextGeneration CO2-Enhanced Oil Recovery (CO2-EOR), DOE/NETL-2011/1504, citing Advanced Resources International(2011).29 30. And the oil production potential is vastIncremental Technically Recoverable Incremental Economically RecoverableProjected CO2-OilOilEOR Resources: (Billion Barrels)(Billion Barrels) Best Practices Next Generation Best PracticesNext GenerationLower 48 Onshore55.7 104.4 24.3 60.3Total 61.5 136.6 29.6 67.2Source: U.S. Department of Energy (2011), Improving Domestic Energy Security and Lowering CO2 Emissions withNext Generation CO2-Enhanced Oil Recovery (CO2-EOR), DOE/NETL-2011/1504. An additional 26-61 billion barrels of oil could economically be recovered withtodays EOR technologies, potentially more than doubling current U.S. provenreserves. Moreover, next generation EOR technology could yield substantially greater gains,potentially increasing recoverable domestic oil from EOR to 67-137 billion barrels,and storing 20-45 billion metric tons of CO2 that would otherwise be released intothe atmosphere in the long term.30 31. Enhancements to 45Q Tax CreditTo avoid stalling important commercial CO2 capture projects underdevelopment, there is an urgent need to improve the functionality andfinancial certainty of the 45Q federal incentive. Key Elements: Designate the owner of the CO2 capture facility as the primarytaxpayer; Establish a registration, credit allocation, and certification process; Change the recapture provision to ensure that any regulations issuedafter the disposal or use of CO2 shall not enable the federalgovernment to recapture credits that were awarded based onregulations that existed at that time; and Authorize limited transferability of the credit within the CO2 chain ofcustody, from the primary taxpayer to the entity responsible fordisposing of the CO2 32. Education and OutreachMaterials for policy-makers, media and public: Address lack of awareness of commercial CO2-EOR andits economic, energy security and environmentalbenefits: Full NEORI report; Two pagers on: overview of CO2-EOR, economicbenefits, environmental benefits, agriculture, andsafety; and Forthcoming: two-pagers on importance and benefits ofCO2-EOR to the coal industry, natural gas industry, andpotentially other sectors.