Scaling up facilities to capture, store and utilize carbon. A net zero 'bridging effort'
With an acceleration in the number of countries moving towards net zero 2050 objectives, the main existing technologies for carbon capture storage and utilization offer an important component in a suite of initiatives to limit global warming. For very carbon intensive industries, where new technologies to minimize or avoid carbon emissions may take decades to develop, capital flows to scale up carbon capture facilities can accelerate the pace of reducing carbon emissions in support of achieving climate change targets.
The urgency of carbon reduction efforts
Achieving the net zero goals with economic and population growth requires global per capita energy consumption to decline in a meaningful fashion. The carbon intensity of energy needs to decline by ~50% by 2040, along with energy efficiency gains needing to double to achieve these goals. However an increasing pace of focus of carbon reductions is required to meet a meaningful curtailment to limit global warming efforts. An acceleration of carbon capture utilization and storage (CCUS*) initiatives is pertinent to this view. CCUS is well positioned as part of a practical ‘bridging effort’ towards an accelerated path towards net zero emissions reductions.
A multi-trillion dollar market
To put the scale of what is required into perspective, the Global Carbon Capture and Storage (CCS) institute estimate that over 2,000 CCS facilities will be needed by 2040 to achieve capture levels required under the International Energy Agency's (IEA) Sustainable Development Scenario. This implies capturing and permanently storing a total of 5.6 gigatons of CO2 per annum in 2050. Certain industries are likely to face considerable difficulty to go completely carbon free, and thus, in order to achieve a projected 9% contribution to emissions reductions, ExxonMobil has estimated a CCS Total Addressable Market of ~US$2tn by 2040. The market size of CCS is greater than estimates for hydrogen and biofuels combined (a TAM of ~US$1.4tn).
Carbon prices as a key part of the puzzle
To incent capital towards de-carbonization, carbon pricing and tax incentives are critical for economic returns, and are mechanisms that some of the high concentration industries in the petrochemical ecosystem look very well positioned to use to reduce emissions. The IEA World Energy Outlook 2020 anticipates USD per ton prices for electricity, industrial and energy production, in the Net Zero Emissions (NZE) scenario, will rise in advanced economies, selected developing economies and other emerging markets.
CCS as the next practical step
Very carbon intensive industries will be difficult to transition without significant cost pressures. As a result, CCS plays a clear role for power generation (coal and natural gas as two examples) in certain markets; cement, steel, and various aspects of the petrochemical industry. Major limiting factors are the costs of retrofitting existing plants and the lack of appropriate geological conditions to support storage efforts. In the IEA’s Emissions Goals, CCS is a key component. By 2050, CCS will contribute an anticipated 9% of the overall reduction in CO2, complementing other stated policy scenarios, including 37% achieved from efficiency gains and 32% achieved from a transition to renewables. CCS is a viable way of selected operations being able to continue into the future and likely the best available mechanism to reach net zero goals.
CCUS as cost competitive
Carbon capture, transportation, storage and utilization technologies are at various stages of development by industry. In terms of costs, according to Intergovernmental Panel on Climate Change (IPCC), meeting the 2-degree goal could be twice as expensive without CCUS. And in the energy industry, using CCS not only reduces emissions, but enhances production, a major example being enhanced oil recovery. In the broader energy transition, emerging technologies are still able to make progress in operational performance and within regulatory frameworks. With rising carbon prices, and benefits from improvements in technology not factored in, CCS presents as increasingly cost competitive (i.e. returns enhancing).
Key consideration points on CCUS
- A reduction of 5.6 gigatons of CO2 is needed to keep global temperature increase below 1.5 °C by 2050
- More and more countries are signing up to net zero targets, but initiatives need to be more numerous and technological advancements in certain industries are unlikely to keep pace.
- CCUS may be combined with halving carbon intensity, and doubling energy efficiency and is a viable way of selected operations being able to continue into the future.
- Existing carbon capture technology is a key component in the green transition, forming an important 'acceleration' segment in mitigation strategies to net zero targets.
- To contribute 9% to the overall stated policy emissions drop, the number of facilities to collect and store carbon will need to scale up from a current 50, to 2000 in the coming decades.
- Reaching the potential for CCUS requires an estimated $2tn.
- The predicted carbon price increase may be seen as an opportunity for industry, specifically, steel blast furnaces, oil and gas, hydrogen, biofuels and chemicals, including cement plants.
- Construction of the required carbon capture facilities tends to have an attractive budget and planning cycle for investment.