September 2021
If you want to become the next Elon Musk, success in one infrastructure business will guarantee your untold riches: Carbon Capture. The only catch? Still being alive when it’s time to cash in.
At the rate efforts to stem carbon emissions are going, and observing how changed climate just from GHG emissions to date is affecting hundreds of millions across the globe, many parts of planet earth will become more and more unpleasant to live in. The latest IPCC report sounded its loudest alarm bells to date, and yet there are few political signs that getting gas-guzzling cars and trucks off the road, or shutting any significant fraction of the world’s coal-fired generating plants, is going to happen anytime soon. In the best of political will and consensus cases, we’ll still have way too much carbon in the air for the planet’s climate to be as we would want it – soon, and for centuries.
Enter Carbon Capture.
The idea of sucking some of that excess carbon out of the air — negative emissions — in order to reduce global warming has been around for a couple of decades now. Working prototypes first started appearing around 2015, and the biggest carbon capture plant to date was turned on just this week, in Iceland. It can actually work. At a very small scale, and a very high cost – for now. In today’s post, we’ll have a look at where this business is, and where it might be going.
Carbon capture comes in two basic flavors: point-specific, and general. Publicity and early investment have been more focused on the former, notably carbon capture facilities being tied to coal-fired generation – often referred to as CCS, or Carbon Capture and Storage plants. There are currently some 20 CCS plants in operation worldwide, with a combined capacity of about 40MT of CO2 per annum. The first large-scale facility was installed in 2014 at the Boundary Dam coal plant in Saskatchewan. The track record of these early efforts has been… mixed. While technical performance has generally been in line with expectations (an efficient CCS facility should be able to remove some 90% of an associated plant’s CO2 emissions), the overall economics have been marginal. A highly publicized effort to incorporate CCS onto coal-fired generation by Duke Energy was abandoned, and the PetraNova plant in Texas, the largest in the world when launched in 2017, was shut down earlier this year for losing money.
The International Energy Association (IEA), among others, remains bullish on CCS. While public attention has been primarily on CCS in conjunction with power generation plants, CCS can be applied to many kinds of industrial processes with GHG emissions. Facilities tied to plants which produce more concentrated CO2 streams – such as ethanol or natural gas – require less energy to separate out carbon for subsequent storage, and thus have significantly lower costs than those tied to power generation. The IEA notes that after a time of declining investment pipelines, plans for more than 30 new integrated CCS facilities have been announced in the last three years, with a combined CO2 capture capacity of around 90 Mt per year. That, however, is still less than 0.1% of estimated global CO2 emissions. The IEA stated earlier in 2021 that carbon-neutrality by 2050 would require the capacity to remove 1 billion tons of CO2 from the atmosphere every year. A recently issued report by the National Academies of Science puts that number 10 times higher, at 10 Gigatons per annum.
This week public attention has been on the other “flavor” of carbon capture, non-point-specific carbon capture, often referred to as Direct Air Capture (DAC). Instead of being located alongside a specific source of emissions, DAC facilities can be sited anywhere – often near potential carbon storage sites, and extract carbon from the atmosphere itself. According to Bloomberg New Energy Finance, the current global capacity of DAC is 6,415 tons of annual CO2 capture, to which the September 8th launch of the Orca Climeworks plant in Iceland will add another 4,000 tons: a big jump, yet still a tiny fraction of the capacity of point-specific CCS technologies, which themselves are a tiny fraction of the excess CO2 in the atmosphere.
There are plans for DAC capacity to get bigger, much bigger, and we’d say the force is with DAC. There are three main players as of now – Climeworks, Carbon Engineering, and Global Thermostat. Bloomberg NEF says their capacity will “increase 150-Fold by 2024.” That would be the year in which Carbon Engineering plans to open a 1 million TPA facility. While this would still lag the impact and capacity of point-specific CCS technologies, we think that DAC has a couple of decisive advantages over CCS in the medium to longer term. The first advantage is location: a DAC plant (which essentially looks like a shipping container) can be placed anywhere, and extract CO2 that entered the atmosphere from any number of sources. At the far larger scales on the road to removing 1 billion tons per year, or 10 times that, from the atmosphere, not being tied to power generation or other industrial processes will become a big advantage. The second big advantage will be political attractiveness. In the next 1-2 decades, as political pressure to take action grows in tandem with global warming and its impacts on populations everywhere, and extracting carbon from the atmosphere gets seen more and more as one essential part of the solution, DAC will be a far more attractive place to channel global investment and subsidies. It is not that DAC doesn’t have a moral hazard problem – it’s just that DAC’s moral hazard is and looks far, far smaller than that of point-specific Carbon Capture. Some degree of public subsidy and support has flowed to CCS – the IEA says $2.8 billion in public grants have accompanied the $15 billion in private investment in already commissioned CCS plants, and places like Wyoming and North Dakota are lobbying hard for more. But environmental opposition to such support is already fierce – as it “rewards” large polluters directly, and scaling up such public support is going to be extremely difficult politically, if not impossible. In contrast, DAC doesn’t reward any polluters, and its own scale won’t be significant early enough to really impact the political debates around taxing, decommissioning or prohibiting fossil fuel usage. Yet the political demand for removing carbon from the atmosphere, just to make the problem less bad in the coming decades and beyond, will become huge – and DAC is far more likely to be the beneficiary of tax monies channeled to attacking that problem.
Issues
Several obstacles stand between today’s small-scale DAC and an eventual large-scale flood of public support and investment. Leaving aside the combination of moral hazard and the creation of public subsidies, chief among the obstacles are (i) costs, (ii) energy intensity, and (iii) what to do about the carbon.
DAC costs and business model. DAC is for now the most expensive of carbon capture technologies. According to Christopher Gebald, co-founder of Climeworks, current costs run at $600-800 per ton of CO2 extracted from the atmosphere; CCS costs related to power generation might run at 10-15% of this, between $60-120 per ton, while CCS costs related to more “pure” forms of CO2 emissions such as ethanol production can be as low as $20/ton (still leaving costs related to carbon separation and storage). Revenues are far lower, with the largest source presently from selling to oil companies for enhanced oil recovery – but even that isn’t high enough to keep some CCS plants in operation, and it is hard to envisage the petroleum industry paying much more. Some CO2 is recycled to industrial producers which use it as feedstock. Global Thermostat sells its DAC-derived carbon dioxide to soft-drink producers, but it is also hard to envisage a large-scale business model around this. For now, the economics of decommissioning coal fired plants is more attractive. The business model of DAC, however, may become more positive. Economics of scale will be a big factor: the Orca plant in Iceland was made entirely by hand; as demand and volumes increase by orders of magnitude, it should become far cheaper to build DAC plants, as we’ve seen happen in other technologies such as battery storage. Gebald of Climeworks projects costs at around $200-300/ton by 2030, and $100-150/ton by 2040. Steve Oldham, CEO of Carbon Engineering, claims that his company is already capable of building plants with costs closer to $100/ton. On the revenue side, larger, commercial-scale plants will allow DAC players to sell offsets to firms looking to reduce their emissions. But public sector payments are still likely to be the big revenue source for DAC. The first steps in this direction in the US were taken this Spring, with the passage of the 45Q rule, which provides a tax credit of $50/ton for captured and sequestered CO2.
Energy Intensity. Direct Air Carbon Capture is highly energy intensive – mostly a function of the fact that CO2 is a small fraction of the air DAC absorbs, meaning that energy needs for separation of the carbon are high. How energy intensive? Research firm Carbon Brief claims DAC could account for as much as 25% of global energy consumption by the end of the century (direct CO2 capture machines could use a quarter of global energy in 2020). DAC technology, however, is still far up the learning curve. Liquid solvents for example require a far lower temperature to run separation processes, in which case waste heat – at near-zero marginal cost – could become a replacement energy source.
What to do with the carbon? Storing the extracted carbon presents challenges. The issue is less the existence of potential underground storage with appropriate geology (less prone to re-release of the carbon than, say, forests which might get consumed by fires), and more with the need to get the carbon from where it is extracted to where it is stored. This is especially an issue for CCS, whose location is determined by emission sources such as power or industrial plants. A big part of costs and land issues for CCS, if this should scale up substantially, will be pipeline networks to transport the extracted carbon. Such pipelines exist today (piping carbon to oil fields for enhanced recovery), and studies are underway in several places for this kind of infrastructure at a larger scale. This should be less of an issue for DAC, which can be sited closer to storage areas, requiring far less transport infrastructure and investment. DAC is also less land-intensive than solar or wind farms, and unlikely to compete with other priority land uses, like agriculture.
The impact that carbon capture technology will have on reducing carbon in the atmosphere, over the next two decades, is likely to be… minuscule. Which, paradoxically, may help make it an even bigger business than it would otherwise be… maybe by 2050. By 2050 (and certainly way before), the political pressure to remove large amounts of GHGs from the atmosphere will have become enormous – unlike the tepid interest which the idea now attracts. By then DAC technology should have sufficiently matured to be more economic to operate, and be able to grow faster with fewer subsidies. As heat waves, mega-fires and super-storms occur in more places and more frequently than we’d want to imagine at this point – along with whatever other climate problems may be in store as global temperatures rise – there could literally be no end to the appetite for building more and more carbon capture machines. In the second half of this century this could be, no joke, the largest infrastructure business in the world.
A business that won’t be mature or profitable for maybe 25 years sounds like it’s too early for a good investment. Or maybe not.
Infrastructure Ideas 