Carbon Capture & Storage: Dare to Dream Big

Published December 16, 2021 | 14 min listen

The global urgency to combat climate change by cutting greenhouse gas (GHG) emissions—foremost amongst which is carbon dioxide (CO2)—has only intensified throughout the COVID-19 pandemic. Fundamentally, we believe the energy transition to a low carbon state over the coming decades will require multiple pathways to get there. Carbon Capture & Storage—or CCS for short—could be a major highway in that equation. This speaks to the fact that the technology has been around in various forms for decades (technology risk is relatively low), and it can be implemented within reasonable timeframes—say 5-7 years—from paper to practice.

Disclosures and Disclaimers

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How Does CCS Work?

CO2 is formed during the combustion of any fuel containing carbon - coal, gas, biomass and waste; it is also produced when natural gas is processed and fertilizer/chemicals/cement are produced. CCS can be thought of in three simplified parts 1) capture, 2) transport and 3) permanent storage. The first piece—capture—is the most complex and costly and involves removing COfrom the hydrocarbon stream. That COis then cooled and compressed into a fluid state (to reduce volume) for transport to a storage site, generally via pipeline, but like natural gas, could also involve ships + other forms of transport. The final piece of the equation is the most important—permanent underground storage involving depleted oil and gas reservoirs or saline aquifers.

Global Scope, but Limited Adoption To Date

We count 26 CCS projects worldwide capturing almost 37 mega tonnes of COper annum (Mtpa) — or less than 0.5% of global COemissions of 38,000 megatonnes in 2019. We believe this dynamic boils down, in large part, to economics—and reflects inadequate penalties in the form of low carbon prices and incentives (low offset credits). Anchored by tax credits and enhanced oil recovery (EOR) schemes, the United States leads the way in operational CCS. Canada, Norway, Australia, Saudi Arabia and the UAE trail as distant seconds numbers wise, but possess some high profile projects. From a standing start, CCS is emerging at a rapid clip in the United Kingdom.

Carrot & Stick Approach Needed for Further Adoption

In the absence of revenue drivers involving the secondary use of captured CO2, CCS on its own is a capital intensive investment with fragile returns that depend almost entirely on carbon prices and government policies. Thus, evolution of the private-public partnership model is essential for CCS adoption to blossom. In our minds, both carrots—in the form of incentives—and sticks—in the form of sufficiently high carbon prices—need to be in place. The requirement for large emitters to make large, multi-year investments in CO2 reduction will require long-term visibility on carbon levies and durability of government policies as elected leaders come and go.

Early Days on Costs & Returns

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 in part given the early stage of development and scale.

André-Philippe HardyCanadaCarbonCarbon CaptureEnergyIndustries in Motion