The world’s leader in carbon capture shows why it’s a long shot

Nearly 200 countries are in the home stretch of tough negotiations at COP28 over what the world should do to combat climate change. A central debate is about whether to quickly phase out fossil fuels or continue to burn them while banking on technologies that have the potential to mitigate their emissions.

The bet rests on carbon capture and storage (CCS), a process that traps carbon dioxide from factories or power plants and buries it away. In the draft deal released at COP28 on Monday evening, “carbon capture” is mentioned alongside nuclear, hydrogen and renewables as one of the many options to substitute “unabated” fossil fuel use. There is no reference to specific capacity or timing.

Oil companies have been employing the technology for decades but mostly pumped the trapped CO2 back into the ground to extract more fossil fuel. Today, there’s increasing interest in using CCS to reduce the carbon intensity of products, such as cement and steel, and even suck CO2 directly out of the air.

Deploying CCS is so energy intensive and expensive, said Emily Grubert, a professor at the University of Notre Dame. “If you’re not required to do it, you’re not going to do it.”

That’s where governments think they can make a difference. At the United Nations summit in Dubai, many of the world’s largest economies are pledging to redouble efforts to back CCS through subsidies. Carbon capture projects have now been announced on every inhabited continent. But the big question remains: Will that be enough to arrest the dangerous climb in global temperatures?

One country provides an instructive example. For decades, the US has dedicated billions of dollars in federal government spending - both grants and tax credits - to propel carbon capture ventures at power plants and industrial facilities, but it has little to show for that largesse. Just 14 projects are operating today, with half of them tied to the very cheapest applications - gas processing and ethanol production - according to a database by the non-governmental organization Clean Air Task Force.

Bigger tax credits expanded by the Inflation Reduction Act have supercharged interest in the sector, says Jessie Stolark, executive director of the US group Carbon Capture Coalition. But while more than 150 projects have been announced, those ventures may take five to seven years to build and some may never result in steel in the ground.

For years, anyone trying to sell a carbon capture project in the US had to navigate a complicated and expensive path to monetize the tax credits. To lure in project financing from the tax equity market, for instance, developers often found themselves forfeiting 30% of the value of the credit right from the start - essentially shedding some $15 off the max $50-per-ton credit in late 2018.

The IRA boosted that credit to $85 per ton while also allowing some credits to be paid out in cash. Raising capital is still tough, but the financial case has become clearer for both investors and developers.

A major problem is that the US has undermined its generosity for CCS with an incentive-focused approach, says Ben Longstreth, global director for carbon capture at the CATF. “The carrots have been too small for most carbon capture applications,” he said, referring to the tax credits and other government support.

The US started pushing more carbon capture in 2015 - in the form of a regulation that required newly built coal-fired plants to use the technology. Yet, the high costs of carbon capture meant that rule also discouraged new coal plant construction - and didn’t drive a wave of CCS.

The US is dabbling with more mandates for carbon capture in the form of a proposed Environmental Protection Agency requirement for some natural gas power plants to adopt the technology toward the end of the next decade. But the requirement would only apply to a sliver of gas plants, and some owners may shutter facilities - or simply curtail their operation - to avoid the regulation.

Developers also face enormous logistical and permitting hurdles - with big, project-killing fights over new proposed pipelines to carry carbon dioxide as well as the injection wells to store the gas underground. It took six years before the federal government approved the first wells. The EPA now has a list of nearly 200-and-growing awaiting review.

Some states, including Louisiana, are hoping to take the lead role vetting potential carbon storage wells within their borders, which would help ease the backlog. But those plans pit state authorities against residents who’ve spent their lives living next to petrochemical facilities and are leery of local oversight as well as the risks of residing near CO2 dumping grounds.

A lack of pipelines is an even bigger problem, particularly for ethanol factories in the rural Midwest, which can trap gas at a relatively cheap price but don’t have many underground storage opportunities. Those facilities will depend on pipelines to take the gas to far-off repositories along the Gulf Coast or further north.

Proposed CO2 pipelines in the region have met fierce resistance from local landowners, with opposition prompting one group of developers to cancel the $3.5 billion Navigator Heartland Greenway project in October. The outlook is bearish for the other pipelines waiting in the wings, said James Lucier, managing director at research group Capital Alpha Partners.

“Not even tens of billions of dollars in carbon sequestration tax credits will make the pipelines move any faster,” Lucier told clients in a research note that soberly predicted no new CO2 pipelines will be built in the US before 2026.

For opponents, the massive web of infrastructure needed to support CCS is reason enough not to pursue it at all. “We’re talking about decadal infrastructure - things that have expected economic lives that are quite long and payback periods and financing that stretches from years to decades,” said Steven Feit, senior attorney with the Center for International Environmental Law.

The US already has one of the most favorable setups for CCS. There’s no shortage of facilities where CO2 can be captured and the country has some existing CO2 pipelines. It also has onshore sites where CO2 can be sunk deep underground and many skilled workers for these projects.

That’s not the case for other regions. One of the largest investments in CCS is being made in Norway. The Northern Lights project-a joint venture between Equinor, Shell and TotalEnergies-is set to capture emissions from industrial facilities or power plants. If all goes well, the liquefied CO2 will be loaded onto ships and sent to the country’s north, where a pipeline will take it offshore to put deep underground.

And Northern Lights is keen to find customers beyond Norway to help cover the project’s cost. It plans to open up the storage facility to anyone looking for a place to store their trapped CO2. The level of coordination required to make that work - between countries and companies across a vast geographical region - is going to be much more complicated than any project in the US.

Many big projects have also had a spotty track record. The Chevron Corp.-led Gorgon project in Australia, which captures CO2 while processing natural gas, has never been able to operate at more than 70% of its capacity since it began operation in 2019. The world’s largest CCS project, a facilty named Century, is attached to a natural-gas processing facility in Texas. Once owned by Occidental Petroleum Corp., it had few if any technical problems, but the project’s economics were pegged to natural gas prices that cratered soon after it began operation in 2010.

Out of the five main levers for cutting energy emissions - solar, wind, batteries, hydrogen and carbon capture - the first three are profitable and where the world needs to make quick progress, says Maurice Berns, chair of Boston Consulting Group’s Center for Energy Impact. “We do need to look at carbon capture and hydrogen,” he said. “But [too much focus on it] risks being a distraction.”