We've Only Just Begun - Carbon Capture Faces Several Challenges To Wider Commercialization

Given all the recent attention, you’d think the prospects for carbon-capture project development are fantastic. In the U.S., last year’s Inflation Reduction Act (IRA) featured significant increases in the 45Q tax credit for carbon sequestration, improving the economics for a wide range of carbon-capture projects. On a global level, it seems clear that efforts to reduce greenhouse gas (GHG) emissions and reach a net-zero world will continue for a long time to come. Nearly every plan to reach that target includes a significant reliance on carbon capture, with the International Energy Agency (IEA) forecasting that 7,600 million metric tons per annum (MMtpa) of carbon dioxide (CO2) — that’s 7.6 gigatons per year — will need to be captured and sequestered by 2050. We are a long way from those levels, given that most estimates put global carbon-capture capacity at a little more than 40 MMtpa today, or less than 1% of what the EIA thinks we’ll need in less than 27 years. In today’s RBN blog, we look at the main factors holding back the wider commercialization of carbon-capture initiatives in the U.S.

First, let’s start with a look at the bright side. The pace of development in the carbon-capture industry has ticked up significantly in the last couple of years, with 244 MMtpa of capacity under development and 61 facilities added to the worldwide project pipeline in 2022, according to the Global CCS Institute’s latest annual report. But as has been the case elsewhere, the number of CCS projects advancing from concept to financing, construction and commercial operation has been limited. According to the institute’s facilities database, there are just 14 carbon-capture projects in commercial operation globally. (To be considered a commercial facility, the CO2 must be captured and transported for permanent storage as part of an ongoing commercial operation. Among other things, pilot and demonstration facilities may or may not permanently sequester the captured CO2 and are not intended to support a commercial return during their operation.)

So, if there are new incentives in place and the global environment for carbon capture has never been better, why isn’t the industry taking off at a faster pace? As we discussed in our Way Down in the Hole series, the highly variable costs of carbon capture remain an issue with multiple impacts on the wider industry. Generally speaking, facilities emitting CO2 can be lumped into two buckets: high-purity and low-purity. For the most part, high-purity sources include processes with a highly concentrated CO2 stream, generally where CO2 is a byproduct and is much easier (and cheaper) to separate and capture, such as with ethanol production or natural gas processing. Low-purity sources are generally from a process where the CO2 is a product of combustion and commingled with other emissions, making it harder (and more expensive) to capture, such as a coal-fired power plant. Figure 1 below shows the level of tax credits for carbon capture and sequestration (CCS, dark green bars) and carbon capture use and sequestration (CCUS, light green bars), both before the IRA (left side of graphic) and after (right side of graphic).

Key Changes to 45Q Tax Credit Under the Inflation Reduction Act