The world and its economies face significant challenges and great uncertainty as we work towards limiting global warming to 1.5°C. Achieving this goal will require policy and implementation coherence across governments, companies and investors to drastically reduce greenhouse gas emissions, while ensuring a just and fair transition takes place.
Although essential, the transition to net zero presents major hurdles for certain hard to abate sectors such as energy, cement and other industrials, due to technical challenges and economic limitations. In many instances fuel substitution or complete supply chain electrification is not feasible or cost effective.
One available solution – carbon capture, utilisation and storage (CCUS) – has been long on promises and short on delivery. But with a lack of commercially viable alternatives that can reduce carbon emissions across their operations, these industries are likely to rely more heavily on carbon capture in order to achieve net zero by 2050.
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Current state of play
Besides being labelled the most cost-effective option for reducing CO2 emissions in hard-to-abate industries, supporters also hope the that carbon capture technologies could help reduce other greenhouse gases, such as sulphur oxides and nitrogen oxides. These contribute to climate change due to their impact on the ozone layer. However, realising these benefits has proven challenging over the past 50 years, as a scalable and viable commercial solution for carbon capture has remained hard to find.
The economic viability and business case dependencies have also been called into question. This is due to the low or negative internal rates of return that result without a reliably high prevailing price for carbon emissions. This has made it difficult to incentivise the required funding options, particularly from private capital. Societal concerns about potential health and environmental risks associated with CCUS technologies has also emerged in many jurisdictions.
On a more positive note, government policies have emerged to help mobilise capital to demonstrate and drive carbon capture market uptake. In the US, the Inflation Reduction Act and the Infrastructure Investment and Jobs Act, have spurred interest in CCUS activities, especially in storage and direct air capture.
Carbon capture has also caught the interest of the UK, Australia and Canadian governments who have instituted tax credits and grant programmes to shore up private market interest.
Various industrial hubs are being developed to bring together industry players to share knowledge, with the added benefit of driving down the cost of carbon capture technologies and infrastructure related activities. There are similar public policy regimes taking shape in other jurisdictions, such as the EU, China, and Japan, to identify and support projects.
Investor engagement
Investors can play a key part in scaling up these technologies. Its paramount they push companies to further disclose details around carbon capture projects, including risks and opportunities associated with the development and widespread deployment of the technologies. This will assure investors of the credibility of sector decarbonisation strategies – unlocking required capital.
Therefore, investors should advocate for additional insights. This includes details on CCUS cost competitiveness and how it compares with alternative emerging low-carbon technologies, and the associated financial returns on projects. It’s also important to ensure companies’ disclosures address varying degrees of other socioeconomic and environmental risks that enhance the long-term sustainability of these projects.
Public policy engagements and industry/peer collaborations are also an essential part to scaling up of CCUS technologies to reduce value chain risks and align with company decarbonisation and business strategies.
Bottom line
The ultimate promise of CCUS technologies as a critical component in the transition to net-zero emissions is evident in how we address emissions from existing energy sources, tackle emissions from hard to abate sectors, enable clean hydrogen production, and ultimately balance emissions in the atmosphere via carbon removal.
This almost presents CCUS as a set of can’t-do-without technologies in the energy transition.
However, without the merit of commercial success and widespread deployment, companies overlying on the potential net-benefits of these technologies might face further critique of their decarbonisation strategies. And global efforts to achieve net zero in the second half to remain consistent with 1.5°C might remain challenging.
