1. STATUS OF CCS DEMONSTRATION PROJECTS- NORTH AMERICAGLOBAL CCS INSTITUTE MEMBERS MEETING ROTTERDAM, NETHERLANDSMAY 9, 2011 VICTOR K. DER Former CSLF Policy Chair Former USDOE Assistant Secretary for Fossil Energy (actg)

2. HOW CCS FIT INTO U.S. CLEAN ENERGY STANDARDS U.S. Administration Advocating a Clean Energy Standard for Electricity of 80 % (GHG - Carbon emission-equivalent free) by 2035 Big finds in Shale Gas =>Push for Natural Gas Combined Cycle as part of the portfolio. The most NGCC can contribute is 40% since it’s value is taken as 0.5 GHG content per unit energy. That means, absent coal and/or gas with CCS, nuclear and renewables will have to shoulder 60%--a tall order by 2035 That is why CCS is considered a necessary part of the portfolio, whether it be CCS on coal or natural gas generation.

3. CURRENT CCS SITUATION IN U.S. NO LEGISLATIVE CO2 MANDATE = TOUGH TO RATE BASE CCS EPA Underground Injection Code – Clean Water Act – Regional Class 2 Injection for EOR vs Class 6 Storage requirements EPA AIR EMISSIONS FOR GHG – issued in January 2011; working out details –perhaps in place by 2012; State of Texas law suit pending against EPA PROPOSED BILL IN SENATE FOR CLEAN ENERGY STANDARD ALIGNED WITH ADMINISTRATION PUSH FOR 80% CES BY 2035 Projects that go forward will need to make it on the market demand for CO2 and other factors Absent a national mandate on carbon, some States may end up taking a lead role for CCS (e.g., California, Texas, etc.) , but for EOR--– CO2 demand creating a driver for capture.

6. Groundbreaking CCS legislation:

7. Assumption of long-term liability

8. Establishment of long-term stewardship fund

10. Advancement of several other large-scale CCS projects

12. DEPLOYMENT INCENTIVES LIMITATIONS EVEN WITH TAX INCENTIVES, GOV’T DEMO FUNDING, AND LOAN GUARANTEES WHERE THEY EXIST, PROJECT MUST BE ECONOMICALLY VIABLE ON ITS OWN HURDLES: LACK OF CARBON VALUATION LIMITS THESE TYPES OF PROJECTS STATE REGULATORY RELUCTANT TO ALLOW R&D (ELECTRICITY COST PREMIUM FOR DEMOS) INTO RATE BASE LONG –TERM LIABILITY NOT ADDRESSED AT THE FEDERAL LEVEL– SOME STATES MAY BE WILLING TO ACCEPT LIABIILITY WITH TERMS TO BE DETERMINED– TEXAS SEEMS TO BE A LEADER (SEES A BUSINESS IN CO2 STORAGE ALONG WITH EOR ) MAJORITY OF THE CCS PROJECT MAKE USE OF CO2 FOR EOR APPLICATIONS.

13. STORAGE LIABILITY SITUATION IN U.S. CURRENT FOCUS ON LONG TERM LIABIILTY ON NATIONAL LEVEL HAS COOLED - ABSENT A NATIONAL CARBON MANDATE PAST PROPOSALS ON LONG-TERM LIABILITY /INDEMNIFICATION INCLUDED: An Industry proposal on capped pay-in fee with subsequent hand-off of liability to government Congressional draft legislation for indemnification of long-term liability after post-closure stabilization for first 10 large scale CCS demos ( >1 MMT/YR) with a pay-in for risk coverage– monetizing storage risk INSURANCE INDUSTRY MAY COVER A LIMITED POST-OPERATIONAL PERIOD– BUT NEED TO COLLECT PREMIUMS DURING OPERATIONS EPA UIC REGS MANDATE NOMINAL 50-YEAR MONITORING IN POST OPERATIONS UNLESS CAN SHOW OTHERWISE A STABLE CO2 “PLUME” STATES (E.G., TEXAS) MAY WANT TO ASSUME LIABILITY – FOR REVENUES

14. Nine Major U.S. CCS Demonstration ProjectsLocation & Cost Share Total Cost: $10.7B DOE – $3.4 B Non-Federal – $7.3 B Archer Daniels Midland Industrial Power & Ethanol $208M – Total $141M – DOE Future Gen 2.0 Oxy-combustion/Regional Repository $1.24B – Total $1B – DOE Summit TX Clean Energy Commercial Demo of Advanced IGCC w/ Full Carbon Capture $1.727B – Total $450M – DOE NRG Post Combustion CO2 Capture $334M – Total $167M – DOE AEP Post Combustion CO2 Capture $668M – Total $334M – DOE HECA Commercial Demo of Advanced IGCC w/ Full Carbon Capture $2.840B – Total $404M – DOE Southern Company IGCC-Transport Gasifier w/Carbon Capture $2.880B – Total $293M – DOE Air Products H2 Production $431M – Total $284M – DOE Leucadia Energy Methanol $436M – Total $261M – DOE These projects collectively will capture up 16 million TPY of CO2 Source: U.S. DOE Office of Fossil Energy

15. STATUS AND DESCRIPTION OF CCS DEMOS SIX OF NINE U.S. AND ALL CANADIAN PROJECTS = EOR; ALL AT >1MM CO2 TONNES/YR EXCEPT ONE SIX POWER CCS DEMOS IN U.S.: FUTUREGEN 2.0 –OXYCOMBUSTION IN SALINE; KEMPER- AIR-BLOWN IGCC WITH EOR; AEP POST-COMBUSTION- SALINE; HECA- OXYGEN-BLOWN IGCC - EOR; TCEP- OXYGEN- BLOWN POLYGEN GASIFICATION-EOR; NRG- POST-COMBUSTION-(400,000 TNS CO2/YR) -EOR THREE INDUSTRIAL CCS IN U.S. ADM- ETHANOL POST-CAPTURE-SALINE; LEUCADIA – METHANOL -POST CAPTURE - EOR; AIR PRODUCTS- H2- SEPARATION - EOR

16. Canada’s CCS Projects

17. FUNDING SOURCES FOR CCS DEMOS BALANCE VS OFF BALANCE SHEET PROJECT – DEPENDS ON PROJECT ECONOMICS, RISK EXPOSURE, RATE BASING AND OPERATING REVENUE SOURCES; AND IF RECEIVE DOE GRANT FOR DEMO => TAXABILITY OF GRANT (US TAX CODE 118) IF NOT A CORPORATION VS LIMITED LIABILITY CORPORATION (LLC) DOE COST SHARE AND PARTNER EQUITY – DOE’S CONTRIBUTION DOESN’T DILUTE PROJECT EQUITY AND INCREASES LEVERAGING FINANCING FOR OFF-BALANCE SHEET – THOROUGH FINANCIAL DUE DILIGENCE, EQUITY CONTRIBUTION (“SKIN IN THE GAME”), ACCURATE COST ESTIMATION, RISK SHARING, OFF-TAKE AGREEMENTS STRUCTURE ARE A MUST FOR FINANCEABILITY EVEN WITH GOV’T LOAN GUARANTEES; TAX INCENTIVES CAN HELP EARLY-MOVERS IN A MERCHANT MARKET ABSENT A REGULATED RATE BASE ALLOWANCE

18. SOME U.S. EXPERIENCES AND LESSONS LEARNED Absent Carbon mandate, must base CCS projects on project economics that meet risk and return with value products slate including CO2 and off-take agreements Engage the State early to solicit support on: Long –term liability; Site unitization plans and subsurface rights; Work with state commissions, regulators, legislators, public interest groups, and affected public Enlist support of environmental groups by showing the project advantages vs. the alternatives over the long term Locate CCS projects in communities willing to accept by offering economic, social and environmental benefits – DON’T GO WHERE YOU’RE NOT WANTED.

19. SOME U.S. EXPERIENCES AND LESSONS LEARNED (continued) Lock in feedstock supply agreements, off-takes agreements for CO2 or other co-produced products (Gasification advantage), and rate-basing or Power Purchase Agreement in States with low-carbon or clean coal electricity portfolio (e.g., Calif., Illinois) Tightened, detailed cost-estimates , contingency management, and incentivize holding to schedule; go with reputation via use of world-class contractors (EPCs and A&Es, vendors) Allocate and manage risks among equity holders, suppliers, and financiers with proven technology components, securing warrantees and performance guarantees, and design for optimal availability for revenue and return. Engage stakeholders, and local community to answer the question: “What’s in it for me?” if you locate in my area.

20. SOME FINAL THOUGHTS ON FIRST WAVE OF CCS DEMOS IN NORTH AMERICA DIFFICULT SITUATION ABSENT FEDERAL CARBON MANDATE STATES AND PROVINCES ARE KEY TO HELPING FIRST CCS DEMOS PROJECTS THAT MOVE FORWARD HAVE A VALUE PROPOSITION VIA CO2- EOR APPLICATIONS (6 OF THE 9 US DEMOS AND ALL CANADIAN DEMOS INVOLVE EOR) – A KEY TO EARLY ADOPTION OF CCS AND CCUS LESSONS LEARNED FROM PROJECTS ARE IMPORTANT TO IMPART (E.G., SECURIING RIGHTS/PERMITS; COMMUNITY, STATE REGULATORY SUPPORT) IN U.S. , CCS CAPACITY BUILDING IS OCCURRING AT THE STATE AND REGIONAL LEVELS, IE, CAPACITY BUILDING IS NOT JUST FOR DEVELOPING ECONOMIES ANYMORE! CCUS- A WAY TO VALUE CARBON AS A FEEDSTOCK FOR PRODUCTS FINDING FUNDING FOR NEXT GENERATION OF DEMOS WILL BE DIFFICULT