December 12, 2023
By Jennifer A Dlouhy and Akshat Rathi
 

Carbon capture isn’t an easy fix
Big Oil's favorite solution

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. 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.

A fire water tank at the Gorgon liquefied natural gas and carbon capture and storage facility, operated by Chevron Corp., on Barrow Island, Australia. Photographer: Lisa Maree Williams/Bloomberg

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.

Bloomberg Originals looks at why carbon capture is Big Oil’s favorite climate solution.

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-only 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, about the tax credits and other incentives the government provides.

The US is only beginning to dabble with 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.

A sign against a proposed carbon dioxide pipeline outside a home in New Liberty, Iowa on June 4. Photographer: Miriam Alarcon Avila/Bloomberg

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.

Click here to continue reading the full story as it appeared on Bloomberg.com.

This might fix things
$100

That’s the cost per ton of CO2 that the carbon-removal industry needs to reach in order to be competitive.

Yet, it's still tricky tech
"Carbon capture technologies are precious, they're incredibly energy intensive, they involve a lot of demand for storage that takes a lot from the communities that host it. We really need to be extremely pointed with where we're talking about deploying this."

Emily Grubert
Professor of sustainable energy policy at Notre Dame

More from Green
It’s a persistent global conundrum: Can policymakers close coal mines and power plants without ruining local economies in the process? If you take a two-hour drive east from Melbourne into the Latrobe Valley, the answer appears to be Yes.

After almost a century as Victoria’s central provider of electricity, most of the area’s mines and coal-fired power stations are scheduled to close between 2028 and 2035, if they haven’t already. Yet Latrobe and the broader Gippsland area have kept decline and diseases of despair at bay, with plans for solar farms, battery storage and the country’s first offshore wind installations. Unemployment is low and the population — currently about 300,000 — is growing, along with household income. Real estate values are rising.

“There is a confidence, in the community, that we’re going to be okay,” said Chris Buckingham, head of the Latrobe Valley Authority, a regional agency created in 2016 to help manage the coming energy transition. “This is not a smiling-while-drowning conversation, right? This is about, if we get this right, if we work together in a harmonious way, we’re far more likely to come out ahead.”

Old coal mining equipment next to solar panels at the PowerWorks Energy Education Centre in Morwell, Australia, on Dec. 1. 
Photographer: James Bugg/Bloomberg

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