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Climate Ambition: Timely Reset of Carbon Capture Debate

14th May 2019

International institutions, scientists, and activists are calling for more aggressive action on climate change. With lawmakers putting forward principles and ideas to inspire comprehensive climate and clean energy policy, solutions-oriented debates to address global warming have emerged in Congress.

As part of these new developments, carbon capture and storage (CCS) has reentered the climate conversation as an essential climate technology. This reset is timely.

The technologies that capture carbon from power plants and other industrial facilities and safely store them deep underground in geologic formations has been in use since the 1970s. But large-scale commercialization has been slow, leading some to dismiss CCS as unproven. Its association with coal has overshadowed its versatile applications. Doubters decry it as a fig leaf and an excuse to delay real emissions reductions. Therefore, this time the spotlight must result in projects delivering meaningful carbon reductions.

With carbon dioxide emissions still rising after a quarter century of climate treaties, the world can no longer afford to leave any decarbonization options off the table. Emissions must be at net-zero by mid-century, according to the Intergovernmental Panel on Climate Change (IPCC). The International Energy Agency reckons that for the world to meet the Paris Agreement and all energy-related sustainable development goals, roughly 2,000 CCS facilities need to be operating by 2040, delivering 7% of cumulative emissions reductions. The IPCC puts the price of a scenario without carbon capture at more than double the cost.

As climate ambition increases, so does the importance of carbon capture. Its application is particularly important in hard-to-abate sectors, such as cement and steel, for which it is also regarded as the only option. It can also provide dispatchable—or on-demand—clean backup power for variable renewables.

Carbon capture has the potential to decarbonize large-scale hydrogen production, help with the abatement of existing infrastructure too new to retire, lock in emissions through 2040, and, of course, lead to negative emissions by sucking carbon out of the air.

As such, CCS should not be seen as taking away from other clean energy sources, but rather as an additional tool to help us across the finish line to net-zero emissions by mid-century.

Spurred by this realization, CCS also has experienced a revamp globally: the U.K. is recommitted, the EU includes it in its climate-neutral 2050 strategy, and environmental groups, such as the Environmental Defense Fund, have announced their support.

California, arguably one of the most climate ambitious jurisdictions in the world, has already amended its Low Carbon Fuel Standard, which aims to reduce emissions from the transportation sector, with a protocol on CCS. The move comes amid the state’s effort to achieve carbon neutrality by 2045—a monumental task, and arguably barely achievable without carbon capture.

A new report focusing on options to achieve California’s 2030 goals points to the carbon capture and storage in power and industry as the third largest source of potential emissions reductions, right after efficiency and fuel switching.

In the U.S., carbon capture has led to the formation of extraordinary alliances. In 2018, a tax credit known as 45Q—so named for the relevant provision in the law—was revised to provide higher incentives for CCS with support from congressional lawmakers of both parties, big oil and gas, industry, and environmentalists. Over time, it will ramp up to $50 per metric ton of carbon stored geologically and $35 per metric ton of carbon stored through enhanced oil recovery, provided projects commence construction by the end of 2023.

With a value on carbon reflecting the externalities of pollution being an imperative for CCS deployment, the 45Q tax credit will be one of the highest globally. In the current Congress, multiple bills providing further mechanisms and incentives for carbon capture deployment have been introduced.

Currently, 43 large-scale facilities globally are in operation, under construction, or in various stages of development. The 18 projects in operation capture 33 million metric tons of carbon dioxide per annum (mtpa). Sixteen are in the industrial sector, while two are in the power sector. The U.S. has 10 projects, with more expected once the Internal Revenue Service has finished its guidance on how to claim the reformed 45Q credits.

Experts estimate that the tax credit can drive the capture of about 50 to 100 mtpa, particularly from facilities that produce ethanol and ammonia, as well as those that process natural gas.

In these sectors, which already produce a pure stream of carbon dioxide, the costs are estimated as low as $20 per metric ton of carbon dioxide stored—low enough to potentially reap profits from the tax credit. The Clean Air Task Force, a nonprofit, estimates that the tax credit can lead to the capture of 49 mtpa by 2030 in the power sector alone.

While these numbers sound encouraging, the private sector is unlikely to accomplish commercialization on its own. Instead, large-scale deployment needs a more comprehensive policy framework. A review of 23 CCS facilities in operation and under construction demonstrates that government support is needed to reduce risk for these capital-intensive projects.

First, they are most definitely charged with risk premiums. Instruments like concessional loans and loan guarantees can enable risk reduction and access to traditional and affordable debt.

Second, the government is also a facilitator of essential infrastructure, and can take on liability for stored carbon dioxide.

There is overwhelming consensus that carbon capture is needed to solve the climate puzzle. A reset of the CCS debate is only then successful when both the private sector and the government follow through and deliver the policies and projects needed on the road to commercialization and net-zero emissions by 2050.

This insight was first published in Bloomberg Environment by Brad Page, CEO, Global CCS Institute.

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