When Microsoft announced plans to go carbon negative by 2035 and to remove as much CO2 from the atmosphere as it had emitted since 1975, it sent waves of excitement across communities of carbon capture enthusiasts. But there was one problem – viable technologies for high quality removal are yet to become widespread. Of the 189 proposals received, only about 5 percent met the company’s criteria for high quality removal.
Although removal is only one aspect of carbon capture, Microsoft’s experience shows that the technologies in this domain of climate mitigation need greater policy attention. From Bioenergy with Carbon Capture and Storage (BECCS) to Direct Air Capture (DAC), carbon capture technologies hold the key to a multi-billion-dollar opportunity. They have a major role to play in helping the world reach Paris targets. Yet today, mainstreaming the technologies remains a challenge.
The question for policymakers is often about which technology options to prioritise and to what extent to provide needed support. One approach is to focus on the here and now, dealing only with mature technologies like point-source industrial capture which have been in use for over 40 years in the oil and gas industry. This approach however comes with the risk of perpetuating business-as-usual high-carbon economy.
The alternative is to go all out for less mature options like Direct Air Capture. But the waiting time for such technologies is longer and it comes with great uncertainties. Waiting can also become an excuse for inaction in tackling industrial emissions urgently. A more pragmatic way forward is for policymakers in advanced economies to develop holistic strategies for both categories of carbon capture technologies – mature and less mature – prioritising options with minimum viable costs and making trade-offs that balance economic priorities with ambitious emission targets.
Boost catalyst funds for less mature tech
Given the higher capture costs and wider cost variability of less mature technologies like DAC (figure 1), more large-scale demonstrations need to happen sooner than later. The largest DAC plant in operation – the Orca – has only an annual capacity of four thousand tonnes of CO2 which pales in comparison to the industrial carbon capture facilities like the Century plant with a capacity of 8.4 million tonnes. However there are promising projects, like the Permian Basin’s 1 million tonne plant which is expected to achieve capture cost in the range of 95 to $230/tonne-CO2
Levelised cost of CO2 capture by sector and initial CO2 concentration, 2019, USD per tonne
Source: IEA
Large-scale deployment of catalyst funds is needed to accelerate demonstration and achieve DAC costs below $100 per tonne. On one hand funds like Microsoft’s $1b climate innovation fund which seeks to ramp up carbon reduction, capture and removal technologies should be supported. On the other hand, public funding like the UK’s £1b Net Zero Innovation Portfolio (NZIP) which focuses on carbon capture technologies including Direct Air Capture alongside industrial capture should be scaled up. Focus should be on options which can scale fast in the long-term while achieving minimum viable capture costs within the next 5-10 years of demonstration.
Offset markets have a potential to kick-start long-term investment in less mature carbon capture providing the capital needed for early-stage demonstration. High-quality offset credit buyers can serve as early-adopters helping to generate enough momentum to overcome market inertia while providing proof-points for less mature capture technologies. Few technology companies and professional services firms with high margin, low emission intensity and high brand standards, are already taking the lead. Such level of corporate leadership should be incentivised to unlock the needed catalyst funds.
Stimulate industrial clusters to invest in mature tech
There are over 200 industrial clusters with potential capacity to become low-cost carbon capture networks providing less than $100 per tonne or less using mature carbon capture technologies. But there is a huge gap between the potential capacity and the existing one. Large industrial carbon capture plants in operation still provide only about 40 million tonnes of capture capacity whereas existing industrial plants could still emit eight billion tonnes of CO2 in 2050. Estimates suggest 70 to 100 industrial carbon capture plants must be added annually to meet the IEA’s sustainable development scenario, costing between $665bn and $1280bn annually.
Governments have a leading role to play in addressing the investment gap, particularly in carbon transport and storage infrastructure. Project finance instruments, like green bonds provide some of the biggest opportunities for financial support. Governments can work with specialist finance institutions, including multilateral finance and credit export institutions to support the scale up of industrial carbon capture linking climate finance, carbon credits and voluntary carbon markets to key projects. There are also opportunities for sustainability-linked loans and other forms of green finance.
Industrial clusters and private investors have a key role as well. Most large-scale carbon capture projects have been financed on state account or by large corporates, but this is unsustainable given the large gaps in installed capacity. Addressing the capacity deficit of carbon capture will therefore require forging new partnerships with the private sector working with industrial clusters to create long-term demand, diversify financing mechanisms, and allocate risks efficiently.
Leave no stones
A core area for risk mitigation is the excessive dependence on Enhanced Oil Recovery (EOR). EOR remains the dominant application of captured carbon, currently offering one of the most compelling business cases. The most ambitious Direct Air Capture till date which is a partnership between Carbon Engineering and Occidental Petroleum will also rely on EOR for economic viability. EOR however perpetuates the production, use and dependence on fossil fuels, which is antithetical to the goal of a low carbon economy.
Technical potential of carbon capture in 2030, million tonnes of CO2 per year*
*Excludes small amounts of CO2 used for other applications such as decaffeination, dry ice, food and beverages, fire extinguishers, and greenhouses.
Source: McKinsey
Enhancing non-EOR business cases should become a major policy agenda in the new decade. Viable opportunities for CO2 in applications ranging from electro-fuels and cement production, to hydrogen production, are already emerging from the multi-trillion-dollar world of carbon-tech. These applications promise greater potential demand than EOR (figure 2). While the economics of each application requires evaluation on a case-by-case basis, promoting non-EOR should become the direction of travel for progressive policy in this decade.
Finally, the concepts of ‘net zero’, ‘carbon neutrality’, ‘negative emission’ and similar terms should be better standardised to achieve real progress on carbon capture. One tonne of carbon reduction based on a coal plant retrofit, a tonne from a tree-planting offset project in south-eastern Malawi and a tonne removed through direct air capture, are fundamentally different in terms of preventability, investments, verifiability and so on. This difference should be more tightly defined through carbon accounting standards. The absence of a strong defining framework helps corporate greenwashing thrive.
Capture, store, use, repeat
Carbon capture technologies are not the panacea to all emission problems and extra care must be taken to prevent them from becoming a distraction. However, while the need for renewables, energy efficiency, and other mitigation measures cannot be overemphasised, carbon capture should get adequate attention as well. These technologies offer a capacity to tackle emissions in hard-to-decarbonise sectors like steel and cement while holding out the promise to remove legacy emissions.
Countries with high industrial emissions like the US and China, need to get bolder and more ambitious with policy to accelerate carbon capture technologies. These countries should lead by example by combining aggressive emission cuts with carbon capture, storage, and use. Addressing shortfalls in carbon capture is one of the sure ways to beat climate change while unlocking new multi-billion-dollar opportunities.