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Leonard Hyman & William Tilles

Leonard Hyman & William Tilles

Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and…

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Chevron And Occidental Join Bill Gates Backed Tech Company

Chevron and Occidental Petroleum recently announced they will invest in Carbon Engineering Ltd., a Squamish, B.C. clean energy start-up company backed by among other, Bill Gates. Carbon Engineering has developed a process, the Direct Air Capture technology, that removes carbon dioxide directly from the atmosphere. According to the company, the facilities are industrially scalable. For example, a facility capturing one million tons of CO2 per year offsets the annual average carbon emissions of 250,000 automobiles.

The second technology, Air to Fuels, aims to lower the carbon footprint of the transportation sector through the creation of synthetic fuels. This process combines clean hydrogen produced via electrolysis from water with the CO2 captured from the atmosphere to produce hydrocarbon fuels such as gasoline, diesel and Jet-A. (We discussed this process and company in “The Best Solution for Climate Change”, 25 June 2018).

This announcement is important, despite the small size of investment (only part of the $60 million fundraising).  

First, the Air to Fuels technology addresses one of the more problematic aspects of carbon removal— safe storage. In some places, the CO2 could be pumped into oil fields to enhance the oil recovery in the older, less productive fields. But what about elsewhere? Pumping it underground may solve the problem where suitable underground geology permits. But one might want to have a discussion with risk managers and insurers about who pays and what if the CO2 leaks. If natural gas can leak out of storage, as it recently did in California (Aliso Canyon), it is a reasonable public question as to whether CO2 can do so as well. NIMBYist concerns have not gotten started yet on this issue. But just wait.

Second, Carbon Engineering proposes to turn the extracted CO2 into a revenue stream. This could have major implications for the oil and chemicals industry. New markets for hydrocarbon fuels are growing modestly. So new producers, especially those with extremely low carbon and emissions footprints may prove disruptive and eventually crowd out legacy producers. Related: There’s No Sugarcoating Canada’s Oil Crisis

Third, CO2 removal processes at present do not look economical until governments impose carbon taxes. Is this investment by Chevron and Occidental an indication they believe carbon taxes are likely in the near future or that a scaled up project could reduce costs sufficiently to become economic without subsidy? The figures cited by the company claim a carbon reduction cost of between $100-150 per ton. Figures we’ve seen recently cited by economists and politicians talked about a $25-30 per ton range for carbon emission taxes. Maybe the range we’re looking at here is some type of bid-ask spread.

This could also represent an option on a distant, future possibility. And as a bonus this offers energy corporations a relatively low cost opportunity to look “green” and embrace CO2 removal.

Fourth, if Carbon Engineering succeeds in scaling up its carbon capture and synfuels business, will this force governments to deal with the legal issue of taking pollutants like carbon out of a worldwide commons, the atmosphere? Given that the United Nations and other global cooperative endeavors have been unable to effectively limit incremental pollution into the global “commons” such as the earth’s atmosphere and oceans, we doubt that opposition will arise except from fossil fuel producers.

But this is still a long way off and depends on the progress at Carbon Engineering. But we believe this news encourages investment in other firms with similar ideas. And it raises an interesting question. Shouldn’t we “drill” for relatively clean oil in the atmosphere via carbon capture? This ultimately might be cheaper than exploiting some resource plays. Who knows, we might be “mining” the atmosphere sooner than the ocean floor or the moon.

By Leonard Hyman and William Tilles

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