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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Is Carbon-Capture A Real Solution To Climate Change?

  • Carbon capture is one technology that has been proposed to limit global warming and climate change.
  • McKinsey estimates that annual global investment in CCUS technology of $120 billion to $150 billion by 2035 is required for the world to achieve net zero.
  • High costs of CCUS facilities as well as a lack of economic incentives are largely to blame for the small number of operational CCUS facilities in the world.
Carbon Capture

Climate change is no longer a fiery apocalypse that we expect to happen in the far off future. Rising sea levels, wild-fires, heat waves and extreme weather events are already wreaking havoc everywhere and could cost the global economy hundreds of billions of dollars in crumbling infrastructure, reduced crop yields, health problems, and lost labor.  

While trees and other plants naturally remove carbon dioxide from the atmosphere, most climate change experts now agree that we are just not capable of planting enough, fast enough, to limit the damage.

Carbon capture is one technology that has been proposed to limit global warming and climate change. Both the Intergovernmental Panel on Climate Change (IPCC) and International Energy Agency (IEA) consider carbon capture, utilization and storage (CCUS) an ideal solution for many hard-to-abate sectors such as aviation, hydrogen production and cement from fossil fuels. 

Over the past few years, Big Oil firms have started investing heavily in CCUS: Exxon Mobil (NYSE:XOM) recently signed a long-term contract with industrial gas company Linde Plc. (NYSE:LIN) that involves offtake of carbon dioxide associated with Linde’s planned clean hydrogen project in Beaumont, Texas.  Exxon will transport and permanently store as much as 2.2M metric tons/year of carbon dioxide each year from Linde’s plant.  Related: China’s Sinopec To Take 5% Stake In Qatar’s Giant LNG Project

Back in February, Linde unveiled plans to build a $1.8B complex which will include autothermal reforming with carbon capture and a large air separation plant to supply clean hydrogen and nitrogen. Last week, Exxon CEO Darren Woods told investors that the company’s Low Carbon business has the potential to outperform its legacy oil and gas business within a decade and generate hundreds of billions in revenues

Unfortunately, the world has fallen woefully short when it comes to investing in CCUS: according to the International Energy Agency (IEA) there are only 35 commercial facilities globally that are applying CCUS to industrial processes, fuel transformation and power generation, with a total annual capture capacity of ~45?Mt?CO2. However, McKinsey estimates that global CCUS uptake needs to be 120x higher, rising to at least 4.2 gigatons per annum (GTPA) of CO2 captured, for the world to achieve its net-zero commitments by 2050.

High costs of CCUS facilities as well as a lack of economic incentives are largely to blame for this state of affairs.

Creating CCUS Hubs

To reach this goal, McKinsey has proposed the creation of CCUS hubs, essentially a cluster of facilities that share the same CO2 transportation and storage or utilization infrastructure. Currently, there are only 15 CCUS hubs across the globe; MckInsey estimates that there’s the potential to build as many as 700 CCUS hubs globally, located on, or close to, potential storage locations and Enhanced Oil and Gas Recovery (EOR/EGR) sites.

McKinsey has calculated a total carbon-abatement cost, which includes the cost of capture, compression, transportation, and storage for each potential hub consisting of five nearby emitters or more. 

The global consulting firm notes that capture costs are typically the largest cost in the CCUS value chain, with high concentration streams, such as those from ethanol and ammonia processes, where CO2 is 50 to 90 percent of the emissions being the cheapest to capture while low-concentration sources, such as power generation, cement, and petrochemical production, with CO2 concentrations in emissions streams of between 5 and 15 percent being the costliest to capture. 

Unfortunately, high-concentration streams account for less than 5% of global emissions volumes, meaning the cost of carbon capture for the vast majority of CCUS facilities will fall at the higher end of the cost spectrum.

Luckily, results from McKinsey’s modeling are quite encouraging: if 440 hubs are developed, 9 GTPA to 10 GTPA of existing emissions could be abated at a cost of less than $100 per ton CO2. Even more exciting are findings that the world could reach its 4.2 GTPA net-zero goal by 2050 by building just 160 CCUS hubs at costs of less than $85 per ton CO2.

Here in the U.S., the CCUS sector recently received a big boost from the Inflation Reduction Act, which offers an increased tax credit for captured point source CO2 from $50 to $85 per ton. Many industrial use cases including ethanol plants, ammonia production and natural gas processing facilities are now economically feasible with the increased 45Q tax credit. This subsidy provides $85 per ton for sequestered industrial or power emissions, and $180 per ton for emissions captured directly from the atmosphere and sequestered.

Here are other provisions by 45Q:

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  • 45Q incentives increase from $50 to $85/tonne for storage in saline geologic formations from carbon capture on industrial and power generation facilities.
  • 45Q incentives increase from $35 to $60/tonne for utilization from industrial and power generation carbon capture.
  • 45Q incentives increase from $50 to $180/tonne for storage in saline geologic formations from DAC.
  • 45Q incentives increase from $50 to $130/tonne for utilization from DAC.
  • The credit can be realized for 12 years after the carbon capture equipment is placed in service and will be inflation-adjusted beginning in 2027 and indexed to base year 2025.

McKinsey estimates that annual global investment in CCUS technology of $120 billion to $150 billion by 2035 is required for the world to achieve net zero. To scale the technology effectively, the firm notes that greater coordination across the value chain is necessary.

By Alex Kimani for Oilprice.com

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Leave a comment
  • Mike Furnish on April 14 2023 said:
    Who is going to pay for these carbon capture? I smell a group effort by government and private industries to tax the citizens so that Exxon and government can make some money.

    Hopefully people will realize that they are paying more taxes so that Exxon can increase their profits. No one would be doing this unless they are to be paid.

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