Carbon capture projects and carbon removal credits have received new impetus with major government support over the past year as part of the solutions to cut greenhouse gas emissions and put the world on track to reach the Paris Agreement targets.
In the U.K., the Spring Budget in March made up to $25 billion (£20 billion) available for Carbon Capture, Utilization and Storage (CCUS), while the U.S. Inflation Reduction Act has significantly raised the incentives for carbon capture projects, including direct air capture (DAC).
As governments move to back carbon capture projects and corporations look to reduce their carbon footprint, the market for carbon removal projects and carbon removal credits is expected to thrive in the coming years.
The schemes face criticism from environmental advocates who say that carbon removal credits do not address the problem of emissions reduction and could lead to more greenwashing from the big polluters.
Government Support Accelerates Carbon Capture Projects
The U.K. government pledged to provide up to £20 billion in funding for early deployment of Carbon Capture, Usage and Storage (CCUS) to help meet the government’s climate commitments.
The government recognized the Viking CCS project as one of two leading transport and storage system contenders for the next phase of projects. This has incentivized supermajor B.P. to enter into an agreement with Harbour Energy, the biggest oil producer in the U.K. North Sea, to develop the Viking CCS project.
In the United States, the IRA increased credit values across the board, with the tax credit for carbon storage from carbon capture on industrial and power generation facilities rising from $50 to $85 per ton, and the tax incentives for storage from DAC jumping from $50 to $180 per ton. The provisions also extend the construction window by seven years to January 1, 2033. This means that projects must begin physical work by then to qualify for the credit. Related: WTI Crude Falls 4% As Economic Fears Trigger Selloff
The significantly higher incentives in the IRA are giving impetus to projects.
“The CCS market has just taken off,” Nick Cooper, CEO at carbon capture and storage developer Storegga, told the Financial Times.
“This feels a bit like the U.S. shale boom 15 years ago”.
The historic legislation “builds the foundation for a budding direct air capture industry in the U.S.,” says Aaron Benjamin, UK and Europe Lead at Direct Air Capture Coalition.
“Above all, the IRA sends a strong signal to the rest of the world that the U.S. is backing the reality of a carbon capture and removal industry,” Benjamin added.
New Life For Carbon Capture Projects
The IRA and the growing commitment of companies – from banks to the fashion industry – to become carbon neutral within a decade or two are spurring construction projects in the U.S. and the U.K.
Occidental, for example, via its subsidiary 1PointFive, held last week a groundbreaking ceremony for its first Direct Air Capture facility in the Permian basin in West Texas. The facility, STRATOS, will be the world’s largest direct air capture facility, expected to capture up to 500,000 tons of CO2 per year. It will be the first of many such plants Oxy and 1PointFive plan to build, the oil giant says.
DAC is the most expensive application of carbon capture, the International Energy Agency (IEA) says. Capture cost estimates for DAC are estimated at between $125 and $335 per ton of CO2 for a large-scale plant built today.
But the incentives in the IRA could bridge the gap in costs, analysts say.
Carbon Removal Deals Abound
Companies are signing long-term carbon credit agreements with developers of carbon capture technologies, which supports the investment case of CCS projects, according to experts.
Just last month, major deals for carbon removal and credits were signed.
NextGen, a joint venture of climate project developer South Pole and Mitsubishi Corporation, announced the advance purchase of 193,125 tons of carbon dioxide removals (CDRs) from carbon removal projects, including from 1PointFive’s DAC project in Texas.
Partners Group, a global private markets firm, signed last month a 13-year agreement with Climeworks, a Swiss provider of carbon dioxide removal via direct air capture. Partners Group announced last year that it would develop a decarbonization program to achieve net-zero corporate greenhouse gas emissions by 2030.
“While a priority of the program will be to reduce the firm’s overall emissions, removing residual emissions via capture and storage of atmospheric CO2 will also play a role in achieving the net zero goal,” Partners Group said.
“High-quality carbon removal must be scaled to gigaton level by 2050, and multi-year agreements like this one are a crucial lever,” said Christoph Gebald, co-founder and co-CEO of Climeworks.
“Partners Group’s commitment to high-quality carbon removals underlines the leading role of the financial services industry in this scale-up.”
Climate groups, however, are not convinced that carbon removal deals would accelerate global emissions reduction.
For example, the European Commission’s proposed Carbon Removal Certification Framework (CRCF) “leaves many important questions unanswered and vital issues unaddressed, and could usher in an era of greenwashed and money-wasting carbon removals,” non-profit think tank Carbon Market Watch says.
In the EC’s draft regulation, “there is a risk for the framework to be turned into a greenwashing exercise and provide another excuse for big polluters to avoid cutting their emissions,” according to WWF.
By Tsvetana Paraskova for Oilprice.com
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