Europe
In Europe we expect to see CCS facilities operational, which have been under construction for a number of years. The Northern Lights project in Norway is schedule to be the first European commercial CO 2 storage available, receiving CO 2 by ship from the Heidelberg CCS cement plant in Brevik by the end of 2024; the Twence CCU project in the Netherlands is due to start imminently, capturing CO 2 from a waste-to-energy facility and the Climeworks Mammoth Direct Air Capture project in Iceland is also on schedule to start up in 2024. The European Union Emissions Trading System (ETS) price is currently €80.5/tonne, and at this level we have seen a stream of projects move towards FEED stage in 2023, which could take FID in 2024. This is further enhanced by the EU Innovation Fund which is scheduled to host its next funding round in 2024 and rising targets as part of the EU Green Deal. The recent FID on Porthos CO 2 transportation and storage project, award of CO 2 storage permits in the UK and Norway, and Northern Lights Phase 2 sanction also anticipated suggest storage concerns in Europe also appear to be easing somewhat.
UK
In the UK, the first eight CCS projects are in commercial negotiations with the UK government and expected to progress towards final investment decisions in the first half of 2024, with construction anticipated to commence quickly thereafter to meet target timelines. Track 2 and BECCS projects are also expected to move towards FEED studies and negotiations with the government for funding later in the year. These projects are all expected to be financed in part under a CfD system by the UK government’s £20bn funding for CCS over the next 20 years, relative to the UK ETS price, which is currently £51/tonne (~€60/tonne). The UK general election expected later this year could result in delays to these processes.
USA
The enhanced 45Q tax credit provided by the US Inflation Reduction Act in 2022 has resolved concerns around CCS project economics, with $60/85 per ton recovered for CO 2 emissions utilized/permanently stored. Well permitting has been a key topic of discussion for CCS in the US in 2023, and we expect to see some progress in 2024 which could set the tone for growth across the sector. The US EPA, which is responsible for awarding permanent storage well permits (Class VI permits), has approved draft permits in Indiana and California and is currently reviewing final permit approval (expected later this year). As of January there was a backlog of 63 pending permit requests awaiting approval from the EPA creating a bottleneck for the next steps of project development. Late 2023 the EPA signed a final rule giving Louisiana primacy over Class VI injection wells. The ruling transitions regulatory oversight of the CCS industry to the Louisiana Department of Natural Resources (LDNR) from the EPA and is expected to accelerate the approval process and make it more efficient. Texas is also seeking state primacy, which could be awarded in 2024. The Pipelines and Hazardous Materials Safety Administration (PHMSA) is initiating a process to update its CO2 pipeline safety standards with a notice of proposal rulemaking expected in June 2024. For some states, like California, no regulatory approvals can take place for intrastate CO2 pipelines until PHMSA completes its rulemaking and we think CO2 pipeline permits could be rejected or delayed until final rules are made.
Canada
The federal and provincial governments in Canada have been driving forward economic incentive plans in 2023 to accelerate carbon capture investment as part of its ambitious targets for reducing GHG emissions. Recently announced, the province of Alberta will make funding available through the Alberta Carbon Capture Incentive Program (ACCIP) available once the federal government has legislated its CCUS investment tax credit, slated to be introduced in parliament this fall, and related operating supports such as contracts for difference. FIDs on projects are expected to accelerate once companies have greater visibility in the economic framework.
Risks
Risks associated with CCUS could jeopardize the growth outlook we currently anticipate in the industry between now and 2030. Although the dominant technologies are well-established, large-scale use has been limited; shrinking capture rates and increasing energy use can impact longer term project economics and going concern. In addition, continued delays to permitting and negotiations, highlighted above, could slow project progress.
