- Scaling up carbon capture and storage (CCS) projects in line with International Energy Agency recommendations requires $655bn–$1.28trn a year.
- As such, by 2030, European projects in the pipeline could face a €10bn revenue gap, leading to a 50% deficit in developed storage capacity.
- Historically, captured carbon has mostly been used to facilitate more fossil fuel extraction. Experts suggest governments should allocate capital towards more climate-friendly solutions.
Carbon capture – the process of capturing carbon dioxide before it enters the atmosphere and transporting it, then either re-utilising it or storing it – is at a juncture.
Without more private investment, the number of carbon capture and storage (CCS) facilities built annually will not match the number the International Energy Agency (IEA) believes will be enough to support net zero by 2050 goals.
The capital required alone is intimidating. According to a 2021 report from the Global CCS Institute, a think tank promoting the deployment of carbon capture and storage, the cost of reaching the IEA’s target of building between 70–100 CCS facilities annually is between $655bn and $1.28trn.
The technology plays an important role in the IEA’s forecasting, accounting for nearly 15% of emissions reductions between 2020 and 2070 in its Sustainable Development Scenario. This is roughly three times the amount expected to be achieved from ‘avoided demand’.
In line with the IEA’s recommendations, an increasing number of countries, including the UK, US, Australia, China, Saudi Arabia and Canada, consider CCS as a strategic piece in reaching net zero.
The US is leading the way on CCS development. During the first nine months of 2021 it was responsible for the 36 out of 71 new facilities, according to the Global CCS Institute’s project database. This is out of a total of 135 facilities reported globally by the end of 2021.
Carbon capture falling short of net zero needs
But it is not enough. The IEA said at the time that while progress on CCS was encouraging, the planned pipeline of projects would fall short of delivering the 1.7 billion tonnes of CO2 capture capacity deployed by 2030 in its net zero scenario. As the chart below shows, planned facilities are being announced faster than the number coming into operation.
To bolster investment, governments are offering incentives to support CCS development. In the US, for example, the Stimulus Bill under the US Energy Act of 2020, has allocated more than $6bn for CCS research and development between 2021–2025.
In Europe, a significant lever for allocating capital to CCS projects is the EU Innovation Fund. This aims to provide around €38bn (depending on the price of carbon) of support to low-carbon technologies between 2020 and 2030, using proceeds from the sale of EU Emissions Trading System. In July, it was announced the fund will invest €1.8bn in seventeen clean tech projects, of which seven include a CCS or carbon capture, utilisation and storage (CCUS) component.
In the UK, the government launched the CCS Infrastructure Fund in 2020 and allocated £1bn towards the development of CCUS, including two industrial CCUS networks, to be used for hydrogen extraction. They are in development and are expected to come online by the mid-2020s, with an additional two being added by 2030. This is the same amount committed to support the electrification of UK vehicles and their supply chains and is a key pillar in its Net Zero Strategy, designed to unlock £90bn of private investment in net zero by 2030.
Government-backed revenue streams are necessary to finance CCS development, given the instability of other policy incentives for CCS investment, says the Clean Air Task Force (CATF), an environmental research and policy organisation. For example, while the principal driver for decarbonisation activity in the EU for power and industrial sectors is the carbon price under the ETS, it is currently “too low and unpredictable for driving investment” in many technologies required to reach net zero.
As such, a CCS funding gap exists, even with projects that have already been announced. The CATF calculates that by 2030, European projects already in the pipeline could face a €10bn revenue gap, leading to a 50% deficit in developed storage capacity.
Along with the Global CCS Institute, CATF, which considers CCF to be of “profound utility to society”, argues policies must establish business models and regulatory frameworks to attract private investors at project level.
One potential mechanism for unlocking private capital for CCS is the issuance of green bonds. According to the Global CCS Institute, green bonds “may play a pivotal role in helping CCS meet its capital requirement for mass deployment”. Policies have already been put in place to support this. Under the EU Taxonomy, CCS projects have qualified as sustainable investments, as long as they help whichever sector they are in meet emissions targets.
Although it is hard to establish how much capital has been raised directly linked to CCS investment, there are specific examples. The UK government announced the sale of its first green sovereign bond in September 2021, which has raised £16bn for a number of projects outlined as eligible in its Green Financing Framework, including its four CCUS clusters. It was 12 times oversubscribed, with HSBC and JP Morgan as the structuring advisors.
Carbon capture's history of underperformance
The extent to which we should rely on CCS has polarised discussions on climate solutions. While some say that developing processes for capturing and storing carbon is necessary for reaching net zero, others warn it is a distraction from other, cheaper, less volatile and more established methods of reducing carbon dioxide, like renewable energy.
Bad experiences make this debate more potent. In August, the city of Copenhagen, whose net zero target for 2025 ranks it among the world’s most ambitious net zero targets for cities, was forced to move back its target by up to three years after its waste management facility the Amager Resource Centre (ARC) failed to meet carbon dioxide capture requirements for state funding. The city is reliant on CCS to hit the target.
Fresh research gives weight to these concerns. A report, published in early September by the Institute of Energy Economics and Financial Analysis (IEEFA), traces the 50 year history of CCS development, providing a detailed assessment of 13 flagship carbon capture projects that together account for 55% of existing global capacity.
Of these 13 projects, seven have underperformed, two have failed, and one was paused indefinitely. “As a solution to tackling catastrophic rising emissions in its current framework however, CCS is not a climate solution,” the report’s authors say.
Does carbon capture have an impact?
Existing data reveals how little CO2 has actually been captured by these projects so far.
According to the Global CCS Institute, only five countries – the US, Canada, Australia, Norway and Brazil – have so far successfully stored carbon using CCS. According to analysis by Ketan Joshi, freelance climate analyst and writer, this only adds up to around 0.036 gigatonnes, compared with roughly 2,000 gigatonnes of CO2 released to date.
Beyond this, is the concern that CCS has been historically deployed by fossil fuel majors to justify further expansion.
Further analysis from Joshi, for example, shows just how small the impact of Exxon’s CCS investments have been in comparison with its Scope 1, 2 and 3 emissions.
As of 2019, 73% of all CO2 captured by carbon capture facilities were used for enhanced oil recovery (EOR), where the pressurised CO2 removed is injected into existing oil and gas reservoirs to squeeze out more hydrocarbons.
According to the Global CCS Institute, the majority of existing carbon capture facilities rely on revenue generated from the sale of CO2 for EOR, due to the absence of policies that price carbon capture highly enough.
Missing Scope 3
Even at its most successful, CCS has a limited impact. Because CCS technologies operate on-site, they can only capture Scope 1 or 2 emissions. As Scope 3 emissions make up roughly 85% of total emissions in the oil and gas sector, and CCS is only capable of removing 90% of CO2, “We’re only talking about trying to capture 90% of 15% of the sector’s emissions,” Bruce Robertson, co-author of the IEEFA report tells Capital Monitor.
It is the IEEFA’s position that CCS should only be deployed in very specific circumstances, for example in hard-to-abate sectors like cement, as long as it does not promote EOR, or any other fossil fuel assets.
While it is too early to tell how CCS projects currently announced or in early development will perform, history suggest it is not wise to be overly bullish. The UK’s CCUS clusters, which focus on industrial application, are already falling behind target, for example.
With reputed sources like the IEA insisting CCS is necessary for reducing emissions in hard-to-abate sectors like cement, it is unlikely governments will drop their commitment to it any time soon. But as the history of CCS applications shows, overreliance on it could prove damaging to hopes of reaching net zero emissions.