Manifold Benefits
CCS has been used in different forms for decades (including gas processing) and can be applied within reasonable timeframes (5-7 years), with CO2 permanently stored deep underground in geological formations. However, adoption has been extremely limited. There are 26 CCS/CCUS projects worldwide capturing 36.6 mega tonnes of CO2 per annum (Mtpa)—or just 0.1% of global CO2 emissions of 38,000 megatonnes in 2019. The limited adoption of CCS likely reflects inadequate penalties (low carbon prices) and incentives (low offset credits), an unsuccessful carrot-stick dynamic which has resulted in large emitters electing to vent CO2 emissions directly into the atmosphere.
The US Leads the League Tables
Anchored by its 45Q incentive tax credit structure and enhanced oil recovery schemes, the United States leads the way in operational CCS projects. Canada, Norway, Australia, Saudi Arabia and the UAE trail as distant seconds in terms of numbers. However, they possess some high-profile projects. From a standing start, CCS is also emerging at a rapid clip in the United Kingdom.
Private-Public Partnerships are Critical
In a world of shrinking CO2 emissions over time, large-scale capital investments in CCS will require long-term visibility on carbon prices (tax levies on GHG emissions), transferability of offset credits and durability of government policies. Securing approvals for underground storage (pore space) is also critical. The Private-Public partnership framework is key for carbon capture projects to develop further.
Early Days on Costs & Returns
Finally, capture costs are the biggest component in the CCS equation and tend to fall as CO2 concentration rises. The determination of rates of return on CCS investments—even with carbon price determination—remains opaque, partly due to the early stage of development and scale. More visibility is required.
Greg Pardy and Global Energy Research Team authored RBC ESG Stratify: Carbon Capture & Storage – Dare to Dream Big published October 24, 2021. For more information about the full report, please contact your RBC representative.
Our Commitment to ESG
ESG Stratify™ encompasses all of RBC Capital Markets’ ESG thought leadership and insights, including our monthly ESG Scoop series and industry-specific publications from our research analysts. RBC’s Equity Research Group delivers thorough, comprehensive assessments of companies spanning all major sectors, along with macro insights and stock-specific ideas to help guide portfolio management decisions.
