Industrial decarbonization: Capturing carbon emitted by heavy industry and removing carbon from the atmosphere

Even if the world makes a rapid shift to renewable energy production and electrifies the economy, there will still be enough lingering greenhouse gas (GHG) emissions to keep our net-zero emissions goals out of reach. Cement and steel production, which together contribute 13.5% of global GHG emissions, are among a small number of critical industries that are particularly hard to decarbonize. Two key alternative approaches will be needed to take the final steps to net zero: carbon capture and sequestration (CCS) and carbon removal.

Carbon capture technologies are most useful for capturing “point-source” pollution and are installed on site at industrial facilities to prevent carbon from being released into the atmosphere.¹ Estimates vary, but some net-zero scenarios suggest that CCS will need to capture 715 million metric tons (MMT) of CO2 annually by 2030 and 4,200 MMT annually by 2050.² For reference, in 2020 U.S. GHG emissions totaled 5,981 MMT of CO2.³ Industrial point-source carbon capture is generally more energy efficient than carbon removal technologies, but retrofitting industrial plants with CCS requires significant up-front capital expenditures.

While reducing greenhouse gas emissions must take priority in the effort to fight climate change, the consensus is that previously emitted carbon must also be removed from the atmosphere to meet climate goals. Direct air capture (DAC) uses heat and electricity to filter and remove CO2 from ambient air. DAC takes up relatively little space and can be sited flexibly, situated on marginal land or near geological storage sites. The current scale of deployed DAC is relatively limited, with the main companies in the space collectively removing roughly 8,000 tons of CO2 per year.⁴ When renewable energy is used to power DAC, it results in net negative carbon emissions.

Realizing the benefits of DAC and CCS requires that, once captured, the carbon is either permanently sequestered in deep geological formations or repurposed for commercial uses, an approach called “carbon-to-value” or carbon capture utilization and storage (CCUS). Sequestering carbon can generate value in compliance and voluntary carbon markets as well as via tax credits. The commercial uses of carbon range from creating food and beverage products to fortifying cement.^5,6

Carbon Capture and Storage and Direct Air Capture Rely on Carbon Markets and Have Significant Capital Costs

The potential market for industrial CCS and DAC is massive. There are over 25,000 global industrial CO2 emitters across 11 industrial sectors, each of which could be a candidate for CCUS.⁷ There is also growing interest in decentralized DAC facilities, which can be built in any area with access to renewable energy. Current estimates suggest that scaling these two solutions will require as much as $130 billion dollars in annual investment through 2050.⁸ That investment may be justified, in part, by the large potential for carbon-to-value end markets, which will likely be dominated by fuels, chemicals, and building materials. Some analysts believe the total addressable market of carbon-to-value companies could reach $1 trillion annually in the U.S. and $5.9 trillion globally.⁹

However, realizing the market’s potential will depend heavily on the implementation of public policies that put a price on carbon. Currently, the only profitable, large-scale use of captured CO2 is for enhanced oil recovery, in which the gas is pumped into oil reservoirs to help push out more oil. Carbon markets offer an alternative, climate-friendly source of revenue for carbon captured through CCS or DAC. Examples include the “cap-and-trade” programs in California, the EU, and China.

Governments have also indirectly put a price on carbon through regulatory mandates, such as the California Low Carbon Fuel Standard and the U.S. federal government’s 45Q tax credit. California’s Low Carbon Fuel Standard awards credits to those who employ CCS and meet the program’s standards.¹⁰ The 45Q tax credit provides significant value to companies engaging in both CCUS and DAC.

In anticipation of growing demand for carbon credits and increasing government action, public and private companies are investing heavily in the research and development of more efficient and cost-effective carbon capture, utilization, and sequestration technologies. The use of industrial point-source CCUS is growing, and while DAC technologies are too energy intensive to be cost competitive in today’s carbon markets, DAC facilities are becoming more efficient as they grow larger.^11,12 The largest DAC facilities are being built in places such as Iceland where there is abundant access to geo-thermal energy. As other sustainable energy sources such as solar and wind come to maturity, there will be greater opportunities for DAC to be used more widely.¹³

However, the industry’s dependence on policy is one of its key risks. As government regimes change, policies can shift and negatively affect business plans. Investors are less likely to commit capital to these solutions if the policy environment is uncertain. CCS and DAC have also been the subject of criticism from some climate activists who worry the technologies will be used to enable the continuation of the fossil-fuel industry. In their view, investment dollars should go towards reducing emissions, rather than efforts to remove carbon that has already been emitted. In light of these policy risks, an increasing number of companies are looking for ways to make commercial use of carbon, building a variety of products including construction materials; industrial gas and fluids; fuel; polymers; chemicals; and agriculture and food products.¹⁴

While the misuse of CCS and DAC are real risks, nearly all credible climate projections require the use of DAC or CCS to reach net zero.¹⁵ Reaching a meaningful adoption of carbon capture will require the coordinated efforts of businesses, policymakers, investors and the scientific community.

We believe investing in the carbon capture space, which is still in its early stages of development, should only be considered by risk-tolerant investors with an early-adopter mindset. Challenges ranging from policy and governmental risk to technology risk make the business cases for many of these private companies fairly difficult. It’s worth keeping a close eye on the carbon capture market as the associated infrastructure is built out and the technologies become more efficient, because there may be compelling opportunities in the future.

Despite the excitement surrounding carbon capture and removal, CCS and DAC remain niche technologies in which small, early-stage companies dominate the landscape. According to the Circular Carbon Network, of the 403 carbon capture companies located in 38 different countries, 44% are pre-revenue, 42% classify themselves as early-stage, and 52% were established in 2015 or later.¹⁶ Together, they have raised roughly $3.1 billion of capital.¹⁷ But in 2020 and 2021, investment in CCS accounted for less than 0.3% of the total invested in global energy transition opportunities. The bulk of that capital has come from large corporations and early-stage investors—a sign of the substantial risk appetite required to participate in this growing, but still-nascent sector.

Within the CCS market, some of the largest investors in CCUS have been from the oil and gas industry. They often invest through the Oil and Gas Climate Initiative, an investment fund with more than $1 billion of capital backed by thirteen of the largest oil and gas companies.¹⁸ Outside of the Oil and Gas Climate Initiative fund, other oil and gas companies have made significant investments in a variety of private companies or in their own research and development subsidiaries.¹⁹

Large technology companies, including software, e-commerce, and digital transaction firms, have been the primary backers of DAC solutions. Despite their high cost, these companies have been willing to pay a premium for carbon credits associated with the more certain removal of carbon guaranteed by the DAC platforms.²⁰ The sector received a major boost when a large publicly traded software company pledged to go carbon negative by 2030, and remove all the emissions it has produced since 1975 by 2050. DAC will play a significant role in helping the company achieve its objectives.²¹ For the DAC industry to grow, however, significant investment will also be needed in the broader energy transition. DAC relies on access to cheap sustainable energy to both maximize the net efficiency of carbon removal and be cost effective.

Creating a Carbon Market Out of Thin Air

The challenge posed by hard-to-decarbonize industries ensures that carbon capture technologies will serve an essential role in achieving net-zero emissions. Whether CO2 is being captured on site at industrial plants or via far-flung direct air capture installations, carbon capture technologies are still in their early stages of development and rely on the growth of carbon markets to help industrial emitters decarbonize.

 

This article is part of the Plugging into the Energy Transition series. Click here to download the complete report.

 

 

1 Sara Budinis, “Direct Air Capture: Technology deep dive,” International Energy Ageny (IEA), September 2022, https://www.iea.org/reports/direct-air-capture

2 Krysta Biniek et al., “Scaling the CCUS industry to achieve net-zero emissions,” McKinsey & Company, October 2022, https://www.mckinsey.com/industries/oil-and-gas/our-insights/scaling-the-ccus-industry-to-achieve-net-zero-emissions

3 US Environmental Protection Agency, “Climate Change Indicators: US Greenhouse Gas Emissions”, Accessed May 2022, https://www.epa.gov/climate-indicators/climate-change-indicators-us-greenhouse-gas-emissions

4 Katie Lebling, et al,. “6 Things to Know about Direct Air Capture,” May 2022, https://www.wri.org/insights/direct-air-capture-resource-considerations-and-costs-carbon-removal

5 Madison Freeman et al., “Carbon to value: Not your mother’s carbon capture,” Climate Tech VC, November 2020, https://www.ctvc.co/carbon-to-value/

6 Benoit Morenne, “Vodka Made from CO2? Entrepreneurs Find Surprising Uses for Captured Carbon,” Wall Street Journal, Modified March 2022, https://www.wsj.com/articles/enjoy-a-carbon-and-tonic-the-new-and-unusual-ways-to-use-captured-co2-11646315724

7 Krysta Biniek et al., “Scaling the CCUS industry to achieve net-zero emissions,” McKinsey & Company, October 2022, https://www.mckinsey.com/industries/oil-and-gas/our-insights/scaling-the-ccus-industry-to-achieve-net-zero-emissions

8 Ibid.

9 Madison Freeman et al., “Carbon to value: Not your mother’s carbon capture,” Climate Tech VC, November 2020, https://www.ctvc.co/carbon-to-value/

10 IEA, “California Low Carbon Fuel Standard,” last modified October 2021, https://www.iea.org/policies/11671-california-low-carbon-fuel-standard

11 Olamide Oguntoye, “Scaling Carbon Capture,” Tony Blair Institute for Global Change, November 2021, https://www.institute.global/insights/climate-and-energy/scaling-carbon-capture

12 IEA, “A Policy Strategy for Carbon Capture and Storage,” January 2012, https://iea.blob.core.windows.net/assets/4a83ef2f-b395-4ee6-8b55-0f40c5e2872a/APolicyStrategyforCarbonCaptureandStorage.pdf

13 Amrith Ramkumar, “Climate Startup Removes Carbon From Open Air in Industry First,” WSJ, last modified January 2023, https://www.wsj.com/articles/climate-startup-removes-carbon-from-open-air-in-industry-first-11673492767

14 Madison Freeman et al., “Carbon to value: Not your mother’s carbon capture,” Climate Tech VC, November 2020, https://www.ctvc.co/carbon-to-value/

15 Pavel Tcvetkov, et al.,“Public perception of carbon capture and storage: A state-of-the-art overview,” December 2019, https://pubmed.ncbi.nlm.nih.gov/31867452/

16 Circular Carbon Network, “Circular Carbon Market Report: 2021 Research Results,” accessed May 2023, https://circularcarbon.org/market-report/?ref=ctvc.co

17 Ibid

18 Carly Anderson, PhD, “Carbon Capture,” Prime Movers Lab, July 2020, https://www.primemoverslab.com/resources/ideas/carbon-capture.pdf

19 Ibid

20 Amrith Ramkumar, “Climate Startup Removes Carbon From Open Air in Industry First,” WSJ, last modified January 2023, https://www.wsj.com/articles/climate-startup-removes-carbon-from-open-air-in-industry-first-11673492767

21 United Nations Framework Convention on Climate Change (UNFCCC), “Microsoft: Carbon Negative Goal,” accessed May 2023, https://unfccc.int/climate-action/un-global-climate-action-awards/climate-neutral-now/microsoft-carbon-negative-goal