Insights and Commentaries

Insights and Commentaries

2024 New York Climate Week Side Event Recap

6th October 2024

On September 24, 2024, the Global CCS Institute, in partnership with the Clean Air Task Force and Clean Energy Ministerial CCUS Initiative, brought together domestic and international stakeholders from finance, industry, think tanks, and governments to review the current market and policy landscape for CCS, share insights, and to discuss the public and private sector roles in accelerating CCS deployment. 

The law firm of Latham & Watkins kindly hosted the event at its Manhattan offices in New York City. 

Carbon capture and storage (CCS) and carbon dioxide removal (CDR) are critical pieces of the portfolio of carbon management solutions needed to achieve net-zero emissions by 2050. Steady growth in global projects has been driven by enabling policies like the Bipartisan Infrastructure Law (BIL) and the Inflation Reduction Act (IRA) in the United States and the Net-Zero Industry Act in Europe and initiatives by industry players. Enabling policies have provided a substantial push for CCS deployment, but more is needed. 

Only a subset of projects in development currently meets economic thresholds required to attract investment from the finance sector. 

Event speakers and participants shared perspectives on the current state of CCS financing and ideas to bridge the finance gap. Takeaway messages from event participants include: 

  • Stackable, strong incentive policies in the US are attracting investment. Industry is currently leaning toward tax equity partnerships compared to direct pay business models. 
  • Tailored adjustments to current policy tools and creative demand-side policy support could help offset high costs in hard-to-abate sectors where CCS is the only or best decarbonization option.  
  • Multilateral Development Banks, such as the International Finance Corporation, can significantly enable developing countries to mature their CO2 storage resources and build foundational projects for CCS markets. 
  • The Carbon Management Challenge (CMC) comprises a diverse coalition of more than 20 countries from developing and major economies committed to advancing carbon management to the gigatonne scale. The CMC will focus on three workstreams led by several countries, including Brazil, Indonesia, Kenya, Saudi Arabia, and the United States. 
  • Demand-side policy support, such as government procurement and a strong carbon removal credit market with clear and consistent rules, can help support the developing CDR industry. 
  • Inflation and high interest rates have eroded the value of US-based incentives, and policy adjustments are needed to restore their intended impact. Additionally, jurisdictional issues (e.g., pore space access/ownership and transboundary CO2 transport) need policy solutions. 

Fireside Chat: CCS Market Developments and Outlook in the US and Globally 

The event opened with a CCS market overview and outlook provided by Latham & Watkins Law Firm Partners.  

  • JP Brisson, Partner and Chair of CCS Working Group, Latham & Watkins 
  • Eli Katz, Partner and Global Vice Chair of Energy & Infrastructure Industry Group, Latham & Watkins
  • Christina Staib, Global Finance Impact Lead, Global CCS Institute, moderated the discussion. 

Panelists provided an overview of today's CCS market and the factors driving domestic deployment. The US has a strong federal and state (e.g., California) incentive structure, which allows projects to stack incentives and provides a stable rate of return, in contrast to other jurisdictions, which may rely on the fluctuating carbon prices of emissions trading systems (ETS). However, a challenging permitting and pore space legal landscape has modulated deployment in the US. The panel noted that they expect to see international project announcements in places such as the Middle East, where permitting is more streamlined. 

Commercial-scale CCS projects in the US are starting to utilize section 45 tax credits. The 45Q tax credit provides transferability, tax equity, and direct pay options for project operators. The direct pay option was a welcome policy modification under the IRA but is only available for a project's first five years. Industry is currently leaning towards tax equity partnerships compared to the direct pay option, given the certainty offered by transactional details, such as firm payment amounts and timing. 

Other panel perspectives included: 

  • Insights on monetization of CCS project environmental attributes in the US. Environmental attributes are stackable and can be demand drivers for low-carbon products. 
  • The need for standardization in carbon intensity (CI) calculations 
  • The impact of national policies, such as carbon border adjustment mechanisms (CBAM) and carbon contracts for difference (CCfD).  

Industrial Decarbonization: Bridging the Cost Gap for CCS 

The second panel considered how policies are shaping CCS deployment and business models that may bridge the cost-revenue gap. 

  • Brad Handler, Program Manager, Payne Institute for Public Policy, Colorado School of Mines 
  • Julia Hilbert, Head of CGM Americas Transition Finance Solutions, Macquarie Group 
  • Roald Brouwer, Group Head Decarbonisation, Holcim 
  • Selim Cevikel, Principal Finance, Global CCS Institute 
  • Stephen Comello, Senior Vice President, Strategic Initiatives, EFI Foundation
  • Sam Bowers, Policy Manager, Carbon Capture Program, Clean Air Task Force, moderated the discussion. 

Industrial decarbonization represents 20% of all emissions, yet the sector faces steep costs and first-of-a-kind headwinds. The panel described how successful project deployment will depend on several factors, including supply chain readiness and continued and expanded policy support that can level the playing field among industrial sectors and low-carbon products with different levels of inherent production inefficiencies.  

Panelists discussed the current economic gap that exists for many industrial CCS projects. Incentives and subsidies, such as the 45Q tax credit in the US, can be insufficient for many carbon capture applications. For example, capture costs for certain hydrogen projects may require $100/tonne to meet economic thresholds and attract investors, who typically seek rates of return of 8-12%. Incentive models from up-front capital expenditure (CAPEX) support (e.g., Canada's CCUS Investment Tax Credit) to back-end offtake agreements (e.g., CCfDs) are needed. The panel described CCS policy as not a simple, “once and done” affair, but rather something requiring sustained and evolving government support. 

The panel also discussed the evolution of the CCS tax equity market, which has accelerated following the US Treasury Department's final guidelines for 45V, 45Q, and other tax credits. Demand for tax equity credits is exceeding supply, and that trend is expected to grow, potentially sustaining higher tax credit prices.  

The panel also discussed: 

  • What is needed to move the industry from first-of-a-kind (FOAK) to "Nth"-of-a-kind (NOAK) projects, such as grants and minimum per tonne prices for captured and stored carbon. 
  • Challenges with business models and considered innovations that could open demand pathways and help grow the CCS market (e.g., growth and evolution of voluntary carbon markets to potentially include credits for emissions reductions). 

Steering CCS Finance in Emerging Economies: Role of Governments and Public Finance 

The third panel, in the form of a conversation, explored the role of multilateral development banks (MDB) in driving energy transformation and carbon management in developing countries. 

  • Ruth Hupart, Carbon Capture, Usage, and Storage Lead, IFC, World Bank Group 
  • Adam Wong, Senior International Advisor in the Office of Fossil Energy and Carbon Management, US Department of Energy

The International Finance Corporation (IFC) is a member of the World Bank Group and focuses on eliminating poverty and boosting shared prosperity by investing capital and working to de-risk projects in developing countries. IFC uses blended finance, loans with favorable interest rates, and other instruments, such as green bonds, to move clean energy projects forward. 

The conversation touched on challenges facing CCS deployment in the regions where the IFC works, including Nigeria, Timor Leste, Vietnam, Indonesia, and more. It was noted that developing countries often do not have the data necessary to characterize a country's CO2 storage resources and have limited treasuries, generally precluding CCS incentives. Recently, the IFC conducted data collection and analysis to build Nigeria's first CO2 storage resource atlas. In Timor Leste, the IFC is advising the country on developing one of its depleted gas fields for CO2 storage. The Timor Leste model of monetizing depleted oil and gas resources for CO2 storage can be a valuable template for other developing nations with royalty-based treasury revenue. 

The conversation concluded by emphasizing: 

  • The need for additional support, perhaps in the form of dedicated CCS funds. 
  • Costs are one of the biggest challenges in developing countries. Yet, there isn't time to wait for technology to come down the cost curve, so developing countries need to  look for additional revenue models, perhaps with CO2 utilization. 

Increasing Ambition: The Carbon Management Challenge (CMC) 

The fourth panel – also in the form of a conversation – shared insights about the Carbon Management Challenge (CMC) – a global call to action to drive the adoption of carbon management technologies, with the goal of reaching 1.2 gigatonnes of CO2 captured and stored by 2030. 

  • Brad Crabtree, Assistant Secretary, Office of Fossil Energy and Carbon Management (FECM), US Department of Energy 
  • Jarad Daniels, CEO, Global CCS Institute 

The conversation began by describing the drivers leading to the CMC’s conception. Carbon management has had internal advocates in the US government as well as external advocates with a shared desire to see it prioritized alongside other emissions reduction pathways on the US and international policy agenda. As the IRA legislation grew momentum, the CMC announcement was made at the Major Economies Forum on Energy and Climate in April 2023. 

The CMC is a unique international platform for collaboration on carbon management technologies as it comprises a voluntary coalition of nations and involves both developed and developing countries in its leadership. For example, Brazil and Indonesia joined the initial effort and will lead some CMC workstreams. Several participating countries, like the US, are investing heavily in their domestic carbon management industry, potentially driving down costs to the benefit of other CMC countries. Countries can also share knowledge by conducting site visits to their commercial-scale, operating CCS projects. 

CMC member countries are economically and geopolitically diverse, comprising leading oil and gas and renewable energy producers alongside developing nations. The panel emphasized that this diversity will strengthen CMC's three workstreams: developing country project finance, project deployment and tracking, and strategic communications and engagement. The panel encouraged audience members to engage and support CMC workstreams to fulfil the CMC's potential. 

The discussion concluded: 

  • Difficulties developing countries face with financing, despite having the necessary geologic storage resources and national ambition to implement carbon management 
  • Ways to support developing nations, such as dedicated CCS trust funds, bilateral and multilateral commitments that would help reduce risk, and progress on Article 6 of the Paris Agreement. 
  • US collaboration with China on carbon management, referencing the 2023 bilateral Sunnylands agreement, which commits both countries to each identify and develop five large-scale CCS projects by 2030. 
  • A call for continued carbon management conversation with contacts regarding the CMC to help the coalition grow ahead of COP29. 

Market and Policy Support for Financing in CDR 

The fifth panel considered market mechanisms, policy frameworks, and business models for CDR projects. 

  • Hanne Rolen, Head of Sustainability & Communication, SLB Capturi 
  • Thomas Guillot, CEO, Global Cement and Concrete Association (GCCA) 
  • Vikrum Aiyer, Head of Global Policy, Heirloom 
  • Selim Cevikel, Principal Finance, Global CCS Institute, moderated the panel. 

Panelists began the conversation by describing an interest shift from nature-based carbon removals to technological removals, partly driven by the market for higher-integrity solutions. The panel noted a role for government procurement in driving DAC/CDR demand. The panel also suggested that US enabling policy to date has been supportive for the direct air capture (DAC) industry, noting that policies have driven project development and private offtake agreements. Panelists noted several outstanding challenges, such as: 

  • High costs (although technology costs are anticipated to come down the cost curve as deployments continue). 
  • Ideas for how to enable the decarbonization – or "green" – premium in critical sectors such as cement. 

The panel emphasized the importance of efficiency and cost reduction to make CDR projects more investable. For example, all pathways, including government procurement of low-carbon concrete, could be enabled. Such early investment could kick-start the ecosystem and work to build demand and grow carbon removal markets. The panel concluded by reiterating the need to establish CDR demand to drive deployment as scale-up of the CDR industry will take time. 

Financing Hard-to-Abate Sectors and the Impact of Enabling Policy 

The day's final panel explored how policy and funding mechanisms can help address economic and financing challenges facing projects in hard-to-abate sectors. 

  • Jessie Stolark, Executive Director, Carbon Capture Coalition 
  • Lee Beck, Senior Director, Europe and Middle East, Clean Air Task Force 
  • Jarad Daniels, CEO, Global CCS Institute, moderated the panel. 

In the wake of the excitement that followed the passage of the BIL and IRA in the US, calls for additional policy mechanisms are growing to move decarbonization projects from first- to "Nth"-of-a-kind. Panelists were hopeful for policy progress due to bipartisan support for CCS and CDR.  

Similar support is emerging in Europe – where projects such as Northern Lights and Porthos have achieved FID, in the Middle East – as demonstrated at COP28, and in the Asia Pacific region – where multiple projects are in construction. 

The panel discussed several challenges facing the industry, sharing that: 

  • Costs are the primary challenge to deployment, especially for hard-to-abate sectors. 
  • 45Q tax credit values (e.g. $85/tonne) were calculated in 2020 when the IRA was conceived, but inflation and high interest rates have eroded those tax credit values since that time. Panelists affirmed the need to adjust the 45Q tax credit to restore its intended impact. 
  • A process-timing mismatch exists in various parts of the CCS value chain – just as learnings emerge from FEED studies, problems such as permitting timelines or lack of standardization for shared infrastructure – are becoming salient. 
  • International policy solutions are needed for transboundary issues, such as access to CO2 storage resources in UK waters following Brexit, and in the US, complex state-by-state permitting processes for CO2 pipelines are slowing infrastructure deployment. 

Deployment of carbon management infrastructure is an emerging challenge in Europe – particularly where infrastructure crosses national borders. Panelists also suggested that Europe needs to broaden its CCS market by shifting its focus from offshore storage to finding ways to utilize its less expensive, onshore CO2 storage resources. 

The panelists suggested that the BIL and IRA alone will not be sufficient to scale carbon management projects. The panel considered opportunities for policy improvement, including layering sector-specific policy with broader carbon management policy. Other policy instruments, such as CCfDs, CBAM, or clean electricity standards, could help support and grow the carbon management industry. The panel closed with a call to audience members to feed ideas to the panelists so they can accelerate the feedback to policymakers.  

 

The Global CCS Institute thanks the Clean Air Task Force and CEM CCUS Initiative for their partnership and we thank all speakers for their valuable insights and the audience for their interest and active participation. 

 

 

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