IEA (2021), Carbon capture in 2021: Off and running or another false start?, IEA, Paris https://www.iea.org/commentaries/carbon-capture-in-2021-off-and-running-or-another-false-start
This year has seen unprecedented advances for carbon capture, utilisation and storage (CCUS) technologies – and there are encouraging signs that this time the momentum will deliver tangible results that can help tackle global emissions.
So far in 2021, more than 100 new CCUS facilities have been announced and the global project pipeline for CO2 capture capacity is on track to quadruple.
The IEA has consistently highlighted the important role of CCUS in achieving net zero emissions, given that without CCUS we would have limited or no solutions for tackling emissions from heavy industry sectors, including cement. CCUS also provides a key option to address emissions from existing energy assets, to support a cost-competitive scaling up of low-carbon hydrogen production, and to remove carbon from the atmosphere.
Yet, previous hopes that CCUS was about to fulfil its potential have petered out. The past decade saw high-profile project cancellations and government funding programmes that failed to deliver. On average, capture capacity of less than 3 million tonnes of CO2 (MtCO2) has been added worldwide each year since 2010, with annual capture capacity now reaching over 40 MtCO2. This needs to increase to 1.6 billion tonnes (GtCO2) in 2030 to align with a pathway to net zero by 2050.
With its track record, why should we expect that CCUS’s current momentum will translate to real progress? While CCUS certainly still faces challenges, the combination of strengthened climate goals, an improved investment environment and new business models have set the stage for greater success in coming years.
The growth in the project pipeline in 2021 represents a major departure from the years 2010 to 2017, when plans for CCUS facilities were being cancelled and the pipeline of potential projects shrank. This trend only started to reverse in 2018, which saw a net increase of six planned projects.
This boost in CCUS project activity is underpinned by three key developments. First, a growing recognition that CCUS is necessary to meet national, regional and even corporate net zero goals. For example, Copenhagen is aiming to be the world’s first carbon-neutral city, and plans to equip its major waste facility with CCUS – removing up to 500 000 tonnes of CO2 a year. Companies such as Microsoft, United Airlines and others are investing in direct air capture technologies to meet their corporate climate targets.
Second, the growing interest in producing low-carbon hydrogen has resulted in almost 50 facilities under development to capture CO2 from hydrogen-related processes. This includes an October 2021 announcement by Air Products that it would build the world’s largest CCUS-equipped hydrogen production facility in Louisiana, capturing and storing more than 5 MtCO2 per year.
Finally, the investment environment for CCUS has substantially improved as a result of new policy incentives. Since the start of 2020, governments and industry have committed more than USD 25 billion in funding specifically for CCUS projects and programmes.
CCUS projects are now operating or under development in 25 countries around the world, with the United States and Europe accounting for three-quarters of the projects in development. The expansion of the 45Q tax credit in the United States in 2018 – providing a credit of USD 50 per tonne of CO2 that is permanently stored – was a major catalyst for new investment plans. This tax credit can be “stacked” with other incentives, including the California Low Carbon Fuel Standard (LCFS), with the value of LCFS credits averaging around USD 200 per tonne of CO2 in 2020. Bipartisan proposals before Congress could see the 45Q tax credit for CO2 storage increased to USD 85 per tonne of CO2 and USD 120 per tonne for direct air capture. An additional USD 12 billion of support for CCUS investment in the United States was included in the Infrastructure Investment and Jobs Act signed by President Biden in November.
In Europe, Norway has committed USD 1.8 billion to the Longship project, which includes the Northern Lights offshore storage hub; the Netherlands has committed up to EUR 2 billion through its sustainable energy and climate fund to the Porthos CCUS hub at the Port of Rotterdam; the United Kingdom has established a GBP 1 billion CCS Infrastructure Fund with a target of building four CCUS hubs by 2030; and four CCUS projects have been selected in the first funding call for the European Commission’s EUR 10 billion Innovation Fund.
Support for CCUS is also growing in Canada, which has announced an investment tax credit for CCUS with the goal of reducing emissions by at least 15Mt/year, and CAD 319 million in funding to support CCUS RD&D. A CCUS strategy for Canada is also under development, which will be complemented by provincial-level actions such as Alberta’s competitive process to allocate underground CO2 storage space to one or more hub operators, who would provide sequestration services to multiple capture facilities. In Australia, AUD 250 million in funding has been announced for CCUS hubs alongside the inclusion of CCUS under the Emissions Reduction Fund (with associated credits valued at around AUD 20 per tonne of CO2).
While the current momentum for CCUS is encouraging, the history of CCUS deployment has largely been one of unmet expectations. CCUS appeared poised for a major expansion following the 2008-2009 global financial crisis, when more than USD 8.5 billion of public support was made available to as many as 27 integrated projects around the world. But ultimately less than 30% of the funding was spent. Today only four projects are operating as a direct result of the earmarked support – all of them in North America and all involving lower-cost industrial applications of CCUS.
So what went wrong? Many CCUS projects simply could not advance fast enough to meet near-term spending milestones required by stimulus programmes. This was the case for the high-profile FutureGen project in the United States, which was awarded up to USD 1 billion in support with a five-year spending deadline. But the project took almost four years just to secure a CO2 injection permit for storage.
Several programmes targeted coal-fired power generation, an important but more expensive and complex application of CCUS. Available support was also limited to one-off capital grants for select projects, rather than establishing a broader framework for CCUS investment. The absence of measures to address long-term liability for stored CO2 as well as the higher operating costs for CCUS-equipped facilities were cited by project developers as a reason for cancelling projects. Multi-year grant funding programmes were also vulnerable to external budget pressures. In many countries, the available funding was progressively scaled back or – in the case of the United Kingdom’s CCS Commercialisation Programme – abruptly withdrawn.
Despite the limited success of these CCUS programmes, there has been some important progress since 2010. The CO2 capture capacity of operating facilities has tripled to more than 40 MtCO2 per year, and commercial experience has expanded to include steel, power generation and hydrogen applications.
New business models have emerged. Commercial approaches to CCUS deployment have shifted from a focus on large, stand-alone facilities to the development of industrial hubs with shared CO2 transport and storage infrastructure. These set-ups enable economies of scale and reduce commercial risks, with new business models focused on transport and storage services. Almost 40 industrial hubs are in development around the world today, half of them in Europe.
The investment environment has improved. More support for CCUS is available today and policies have also evolved from the provision of one-off capital grants to creating durable markets for CCUS investment. The 45Q tax credit in the United States is a prime example. Outside of targeted policies for CCUS, higher carbon prices in Europe are making CCUS an increasingly viable option for some industrial emitters.
Net zero plans makes CCUS a necessity, not an option. Strengthened climate goals are refocusing attention on the value and importance of CCUS within the climate mitigation portfolio. Around 80% of long-term low emission development strategies submitted to the United Nations Framework Convention on Climate Change (UNFCCC) recognise a role for CCUS technologies, including the United Kingdom’s detailed Net Zero Strategy released in October 2021. The IEA Roadmap to Net Zero by 2050 envisages CCUS growing to 7.6 billion tonnes of CO2 per year by 2050.
Of course, there is no guarantee for success. Undoubtedly, not all of the 100 projects announced this year will reach commercial operation. IEA analysis highlights the need for increased policy support together with accelerated efforts to identify and develop CO2 storage resources. Boosting innovation will also be important for faster commercialisation of key CCUS technologies and applications.
Yet the unprecedented momentum in 2021 provides cause for optimism that CCUS may finally be shrugging off an underwhelming track record to emerge as an important contributor to addressing the climate challenge. This is both welcome and necessary. If net zero is to remain within reach, CCUS cannot spend another decade sitting on the side lines of climate mitigation efforts. Governments, industry and investors alike have a collective role and interest in ensuring this is the decade that CCUS delivers.