Carbon technology comes with big questions--and costs

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New rules proposed by the Environmental Protection Agency to limit carbon emissions on new coal-fired plants hinge on promising—yet ultimately unproven—technology that may come with a hefty price tag.

While not without its benefits, the shift to carbon capture and sequestration (CCS) technology comes with major question marks. Given its limited track record and the lack of a developed infrastructure, CCS hardware may prove costly to both consumers and companies—and at a minimum requires a major boost of public investment, experts say.

CCS technology has been part of the climate change debate for years. Designed to limit the CO2 output of power plants that generate power, the system has failed to gain wide acceptance among big power generators for several reasons—most of them associated with its proposed costs. One proposed project in Kemper County, Miss., was originally slated to cost $2.4 billion, but is now estimated to cost nearly $5 billion.

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EPA vs. King coal?
EPA vs. King coal?

CCS essentially involves capturing emissions from power plants and injecting them underground. Although the technology is widely used, it hasn't been integrated in a way that makes it suitable for large-scale power generation, said Howard Herzog, a senior research engineer at MIT's Energy Initiative. "It's not a mature industry," he said.

Herzog, who runs the university's program on carbon capture and storage technologies, said the technology is viable. However, it will take large sums of money to disperse CCS on a large scale. Currently, there are only seven CCS projects in existence, with several pilot programs underway, according to MIT data.

"It costs money, and if there are markets out there, people will invest money to get the market mature," Herzog said. He added that market-based investments were preferable to "expensive command and control" regulation by the federal government. Still, "low-carbon energy will cost more than high-carbon energy" as technology shifts to CCS, he said.

That would spell higher retail energy costs, as well as steep investment costs for companies building such plants. An analysis by Robert Bryce, a fellow at the Manhattan Institute, puts the cost of electricity generated by CCS-equipped coal plants at more than $6 million per megawatt, eclipsing the costs of plants that utilize natural gas.

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"If you build it, they will come'

Some observers take an "if you build it, they will come" approach to CCS, and the EPA, which issued its latest regulations last week, is bullish on the technology. Yet a 2012 Congressional Budget Office report raised doubts about how cost-effective CCS will be in the near-term -- even after Congress allocated almost $7 billion to it in 2005 -- even if it is immediately viable.

The World Coal Association calls CCS "the only currently available technology that allows very deep cuts to be made in CO2 emissions. … Failure to widely deploy CCS will seriously hamper international efforts to address climate change," the organization says.

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In 2008, the Group of Eight committed to building 20 CCS plants, which coal association data estimated would cost $30 billion to $50 billion over several decades. Investment in CCS infrastructure is currently about $630 million, according to a study by market research firm SBI Energy, and is expected to top $2.4 billion by 2020.

In other words, current spending on CCS is insufficient to spark a large-scale migration toward the climate-friendly technology. Most observers say public funding is needed to trigger more private sector interest in the sector.

"Operationally, there are going to be hangups because there are very few examples of power plants running that scale today," said Emil Salazar, market analyst at SBI. "There's not a market right now where electricity can be competitively generated using carbon capture."

Meanwhile, only a few coal plants are CCS-compliant. Retrofitting them could be pricey, Salazar said.

"Could plants today use carbon capture to meet these requirements?" he asked. "Yes, but I think it's more feasible and likely for the majority of producers to shutter a coal plant and look to replace the generation."

—By CNBC's Javier David.