Five years ago, a handful of oil majors launched what they called the Oil and Gas Climate Initiative with the stated aim of accelerating the energy industry's response to climate change. One of the ways to do that was carbon capture, storage, and potential reuse. Now, five years later, Big Oil has little to show for it. Yet it is starting to take carbon capture seriously.
In December last year, BP said it had acquired a majority stake in the largest carbon offset project developer, Finite Carbon. The company, according to the supermajor, "develops projects that enable landowners to generate revenue from the protection, restoration, and sustainable management of forests." The acquisition will help Finite Carbon expand internationally, targeting landowner revenues of $1 billion by 2030.
In August last year, BP's fellow supermajor Shell said it would acquire an Australian carbon offset project developer, Select Carbon. The Anglo-Dutch company noted this was the first acquisition in its Nature-Based Solutions division: a business unit that invests in natural carbon sinks as a means of offsetting carbon dioxide emissions.
Welcome to the new face of carbon emissions control.
There has been a lot of media attention given to carbon capture and sequestration over the past few years as one of the few ways we can compensate for our carbon footprint as a species. Yet the technology of capturing carbon dioxide and storing it or reusing it remains prohibitively expensive, stumping efforts to make it a mainstream method of controlling those emissions.
The reason the technology is expensive is that carbon capture facilities are quite complex affairs. Also, they take a long time to construct. A recent Bloomberg article noted the extension of the 45Q tax credit that offers breaks for companies active in carbon capture but also said this may not amount to a great incentive for new projects judging by the effect the credit has had on new projects in the last two years. There have been none.
In a further example of the questionable viability of carbon capture technology, Exxon last year shelved the LaBarge carbon sequestration project in Wyoming. Originally believed to have the potential to become one of the biggest carbon capture and storage projects globally, the LaBarge development instead became a victim of Covid-19. And it would have cost just 1 percent of Exxon's 2020 budget, the Dallas Morning News noted at the time, with a price tag of $260 million. Related: The Next 5 Days Could See A Buying Spree In Oil Futures
Given the challenges of carbon capture technology and growing pressure from investors and regulators, it is no surprise Big Oil is turning to alternatives of carbon emission control. Especially if their new activities in this respect become new revenue streams in the future, as Reuters' Shadia Nasralla wrote in a recent in-depth analysis of the topic.
Projects like those developed by Finite Carbon and Select Carbon generate revenues not just for landowners and farmers but for the project developers, too. Finite Carbon, Nasralla reports, takes between 20 and 40 percent of landowners' carbon credit proceeds. Other organizations take a 10-percent cut. It's a nascent market, but it is a market no less.
"Investing in carbon sequestration, at a time when the world is increasingly carbon constrained, over time will prove to make good commercial, business sense," the head of Shell's Nature-Based Solutions unit told Nasralla.
The European Union already has a lively carbon credit market. Elsewhere, it's a question of voluntary carbon emission reduction that can earn you credits you could then sell to a big polluter that wants to cut its carbon footprint.
This is not to say that carbon capture technology is dead, far from it. The extension of the 45Q tax credit was accompanied by $2 billion in funding for six carbon capture projects, Bloomberg's Leslie Kaufman wrote. The aim of the projects: to prove real-world operability to spur corporate investment in carbon capture and sequestration.
"The whole point of the credit is to prove the technology works and costs can be lowered so a virtuous circle of investing and building can begin," Brad Crabtree, director of the Carbon Capture Coalition, told Bloomberg's Kaufman. "We can then ramp up in 2035.
Big Oil is in no position to make ambitious spending plans right now. Yet it is in a position to invest in the likes of Finite Carbon and Select Carbon—the technological challenges—and financial risks—in investing in the preservation of forests and grasslands are much fewer if any.
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Not everyone is happy with Big Oil saving forests and grasslands. Some find it unpalatable that oil companies are set to profit from projects seeking to alleviate the effects of their own business activity, Reuters' Nasralla writes. However, others prefer to focus on the big picture: if the end result of this new business is lower carbon dioxide emissions, then it doesn't matter too much who is achieving this end result.
By Irina Slav for Oilprice.com
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