Bloomberg
Skyrocketing
carbon prices and a “code red” warning about the threat posed by climate change
are giving fresh momentum to a technology that captures and removes greenhouse
gas emissions so they can be buried. The
market for these tools could reach $2 trillion if used to cut pollution from
heavy industry, according to Credit Suisse Group AG. With carbon more than
doubling in the past year and prices set to reach 100 euros ($118) as soon as
the middle of this decade, capture technology finally is going mainstream as
governments push to reach net zero. The
cost to release carbon has never been higher in Europe and it’s poised to keep
increasing, creating a tipping point where preventing the emissions becomes a
viable economic alternative. Capture technology already is used in North
America and Australia, and large projects are being developed in the U.K.,
Netherlands and Norway.
Going
Underground
“Carbon pricing is driving
industries to push to adopt the technology sooner,” said Samantha McCulloch,
head of carbon capture usage and storage at the International Energy Agency.
“The growing portfolio of CCUS projects around the world is important to refine
these technologies, reduce costs and support the scale-up.” Carbon-capture technology has been around for decades
and is used in some industries, but it’s still expensive – costing as much as
$120 a ton in cement production and power generation, according to the IEA.
Costs depend on the location of the project and the technology used. That
compares to the current cost of pollution permits of about 55 euros a ton. The process siphons off carbon dioxide from fossil
fuels, compresses it, transports it and then stores it in depleted undersea oil
reservoirs. The number of projects planned around the world has risen six-fold
since 2019 to 300, according to Wood Mackenzie Ltd. Carbon prices could reach 100 euros as soon as 2025,
according to Bank of America Corp. At that level, it’s more economical
long-term for some sectors using natural gas to capture their emissions rather
than paying for permits to release them. A
carbon price of 100 euros obviously changes the game,” said Simon Virley, vice
chairman and head of energy at KPMG LLP and a former U.K. government official
responsible for carbon capture.
Norway and the Netherlands are leading the way in Europe,
with the U.K. in hot pursuit. This year, the Dutch government announced it will
spend $2.5 billion for the first large-scale CCS project on the continent.
Norway is investing $1.9 billion, and the U.K. has pledged $1.4 billion over
the next decade to create four carbon capture hubs.These three nations, spread
around the North Sea, have a history of fossil-fuel exploration and production.
Spending by U.K. oil and gas companies in the North Sea last year fell to the
lowest level since 2004. Carbon-capture technology could be key to keeping
those industries -- and the sectors they supply -- alive as climate targets
tighten.
“We need to see higher carbon
prices to make those projects profitable,” said Anders Opedal, chief executive
officer of Equinor ASA, which is developing CCS in the U.K., Norway, Germany
and the Netherlands. “It actually needs to be more expensive to pollute than
actually capture and store.” Britain
has the most ambitious climate goals of the G-20 nations, targeting a 78%
reduction in emissions by 2035. The nation has committed to helping fund two
industrial hubs, where heavy industry and power generation can use carbon
capture and storage by 2025, with another two by the end of the decade. The aim is to scrub as much as 10 million tons of carbon
dioxide from the atmosphere every year. Details on how the funding will be
allocated are due before December. At
today’s power prices, the U.K.’s largest planned project at Drax Group Plc’s
biomass station in north England already would be profitable using
carbon-capture technology, according to Credit Suisse.
“We need to be sure we could get
those prices over a long time period, but we’re getting pretty close,” CEO Will
Gardiner said in an interview on Bloomberg Radio. Drax’s project will start in 2027, and by 2030 it will
capture and store 8 million tons of carbon dioxide a year. In 2019, the world emitted about 33 gigatons of carbon.
Operational projects are capturing just a fraction of that, about 40 million
tons, according to Wood Mackenzie. There
are 19 large-scale CCS facilities in operation today and another 32 in
development, according to Credit Suisse. If these all come online, they could
store 100 million tons – a slightly bigger fraction. There’s also a chance the technology might not be as
effective as promised. The world’s biggest project, at Chevron Corp.’s $54
billion liquefied natural gas plant in Australia, has fallen short of its
target to capture 80% of emissions from the plant, burying just 30% over five
years.
“The tech isn’t there yet for
large-scale adoption, but our industry has to start changing how we operate,”
said Andrew Gardner, chairman of Ineos Grangemouth Ltd., which is working with
Royal Dutch Shell Plc on the Acorn project in Scotland that’s scheduled to
start in 2027. The
system developed by Oslo-based Aker Carbon Capture ASA costs between 60 euros
and 120 euros per ton, CEO Valborg Lundegaard said. That means CCS could be
nearing a crossover point. Prices
in Europe’s carbon market, the world’s biggest until trading began last month
in China, are set to rise as the EU tightens the screws on industry in order to
cut pollution by at least 55% by 2030 from 1990 levels. But because of the
upfront cost of the technology, there is no consensus on what price will prompt
companies to stop releasing greenhouse gases into the atmosphere. Carbon capture probably needs to be cost-competitive by
the end of the decade to achieve the rate of deployment needed to help nations
reach net zero, according to BNEF. It potentially could reduce industrial
emissions by as much as 46% in 2050.
“It’s a question of when, not if,
for CCS becoming economic and coming to the fore,” said Mhairidh Evans, an
analyst at Wood Mackenzie. “The 2020s are about that market development.”