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CCUS – (no) climate saviour?

Where technology can help – and where it can’t

  • Carbon capture and storage reduces the amount of CO2 released into the atmosphere
  • CCUS can be particularly useful in sectors where there are still few alternatives to achieve decarbonisation
  • But CCUS is no excuse to put off the transformation that is urgently needed in many industries

CCUS is not a universal panacea

Carbon prices are increasing. The cost of European emission allowances has risen almost 60 per cent since the start of the year, and has doubled since the end of 2019. This is primarily a reflection of the expectations of industry and investors that the trading system will continue to evolve and allowances will become scarcer. CO2 emissions are currently still far too high. The purchase of allowances does not reduce emissions directly, and there are still more allowances than emissions. However, rising prices provide incentives for the companies concerned to invest in new emissions-reducing technologies. One of these is Carbon Capture Utilisation and Storage (CCUS). But is CCUS really the saviour everyone – especially in a few energy-intensive sectors – has been waiting for?

There is no question that a radical reduction in greenhouse gas emissions is needed to achieve the climate targets. According to a special report by the Intergovernmental Panel on Climate Change (IPCC), CO2 emissions need to be at net zero by 2050 at the latest if we are to meet the 1.5°C target1. But this means that, starting right now, global emissions of harmful gases have to be lowered by 7 per cent a year – a degree of reduction that was not achieved even in 2020 when coronavirus shut down whole factories. And every year that we fail to meet the target inflicts further damage on the climate and puts more pressure on future generations.

This is one reason for the increased focus on negative emission technologies (NETs), which take carbon directly out of the atmosphere and store it indefinitely. NETs are of particular interest for industries where decarbonisation of production is still very technically complex, but whose products are still extremely important for national economies. This includes companies in the steel, cement and chemicals sectors.

The long road to net negative emissions

This is where CCUS – as a generic term for this enabling technology – comes into play. The overarching goal is to reduce harmful carbon emissions. This involves some of the CO2 produced in power plants and other industrial processes, for example, being captured at the time of production, taken away and – ideally – stored in geological formations. This is known as Carbon Capture and Storage (CCS). If the emissions are not stored, the captured CO2 can potentially be reused for applications such as the production of fertilisers and fuels (Carbon Capture and Utilisation, CCU). The problem with CCU is that the CO2 is not permanently removed from circulation as it is released again, for example when the fuel is burned.

The core technology for both processes has been around for decades, but was uneconomical and thus has never achieved its industrial breakthrough. Is this now imminent? Can CCUS be the saviour of the climate?

To answer this question, we first need to explain the basics. In most cases, CCUS only prevents some of the emissions that are produced from being released into the atmosphere. It is a long way from being negative emission technology. There are only two special variants – DACCS and BECCS – that could potentially be developed into an actual NET.

Direct Air Carbon Capture and Storage, DACCS is a relatively recent development in which CO2 is extracted from the air using filters and chemical processes and put into geological storage. The end result is a net reduction in emissions.

Every year, more than 9,000 tonnes of CO2 are currently removed from the air in this way. By way of comparison, that is equal to the annual per capita emissions of around 775 ordinary Germans. And the technology still uses a lot of energy. It will only become a NET if zero-emission electricity is used – and that is in short supply. That is one reason why there are currently only 15 DACCS plants in the world, and they are still regarded as pioneering technology. The first industrial plant, 1PointFive, which will have an annual capacity of 1 million tonnes (one megatonne), is due to go into operation in the US in 2024. Because it is still at a relatively early stage of development, DACCS is the most uncertain NET but potentially the most effective – presuming of course that it is possible to scale up the plants significantly and operate them economically.

A second variant is Bioenergy with Carbon Capture and Storage (BECCS), in which CO2 is captured during the production of biomass. If biomass that has absorbed CO2 is used to generate electricity, for heating or to produce biofuels, and the carbon released during that process is captured, the emissions could in certain cases be net negative. The International Energy Agency (IEA) calculates in its Sustainable Development Scenario that 81 megatonnes of BECCS capacity per year will be required up to 2030 to limit the temperature rise to 1.8°C. By 2050, 955 megatonnes would be required. An ambitious undertaking. The currently available capacity is just over 1.5 megatonnes a year.

Could CCUS be our saviour? Only with lots of money, patience and imagination

The road to net negative emissions using CCUS will clearly be a long one. However, we should not underestimate the potential of this building block of decarbonisation. Plans for more than 30 new CCUS plants have been announced since 2017. Most of them will be built in the US and Europe, but others are planned in Australia, China, South Korea, the Middle East and New Zealand.

To have any effect at all, an expansion of capacity is also urgently required. Every year, energy suppliers and industrial plants capture only around 40 million tonnes of carbon. To put that into context, more than 50 billion tonnes of greenhouse gas emissions are produced globally each year.

If all CCUS projects currently being planned and built actually come into operation (see chart 1), global carbon capture capacity would more than triple to around 130 million tonnes. This equates to around 0.3 per cent of annual greenhouse gas emissions that could then be either utilised or stored. However, that would still only be about the same amount currently emitted by the world’s biggest cement manufacturer LafargeHolcim each year.

Chart 1: Slow growth in CCUS capacity

Pipeline of CCUS plants used in industry from 2010 to 2020

Chart 1: Slow growth in CCUS capacity
Source: Global CCS Institute

In the most optimistic scenario, CCUS could increase decarbonisation by around 15 per cent. The IEA calculates that capacity could increase to 640 million tonnes per year by 2030. By 2040 it would be 3.3 billion tonnes per year.

Ultimately, however, these big leaps forward will only be possible if the development of CCUS technology is accelerated, and this requires the mobilisation of vast amounts of capital. The Bank of America projects that annual investment in the sector would have to rise from its current level of US$ 1 billion to US$ 25 billion by the end of the decade to achieve these ambitious targets. According to this forecast, by 2050 a total of more than US$ 1 trillion could be spent on this technology – taking CCUS to a new level in terms of scalability, efficiency and performance.

Growth has its limits

However, getting there will be challenging, as there are a number of limiting factors:

  • Availability of storage capacity: Studies estimate there is at least 2,000 gigatonnes of global storage capacity for greenhouses gases. Deep saline aquifers are suitable storage sites, as are depleted oil and gas deposits. The potential could be far higher if all saline soils are taken into account. In order to make full use of these possibilities, however, some public outreach work is still needed, especially in addressing the potential dangers. A number of pilot projects have already been abandoned because they lacked the support of the local population.

  • Energy requirement: Carbon capture is an energy-intensive process, as thermal energy is required to separate CO2 from flue gases, and the captured CO2 then has to be compressed in readiness for underground storage. So the carbon footprint can be positive only if there is a sufficient supply of zero- or very low-emission electricity.

  • Longevity: A gradual or accidental escape of CO2 could reverse the initial environmental benefit of the capture and storage of carbon. Although there is some experience with the geological storage of carbon dioxide and natural gas for periods of around 10 to 20 years, we are still lacking any really long-term data.

  • Climate policy: In order to drive forward CCUS projects, public policy instruments are needed to give the carbon an effective value. These instruments can vary in form, but primarily fall into two categories: those that provide positive incentives for low-carbon development, for example tax credits, and those that attach a cost to emissions such as carbon taxes or emissions trading systems. Without a sufficiently high carbon price, CCUS will not generate a return and thus will not achieve any real economic breakthrough.

The reason for this is simple: At present the costs of CCUS and the associated value chain are just too high. Costs vary substantially and depend on the underlying technology, the extent of the system’s use (scalability), the resources required (especially energy) and the operating costs. Although the number of CCUS pilot plants is increasing, it is still not at all clear at what level the costs might eventually settle. If the outcome is positive, CCUS projects could see scaling effects similar to those of solar and wind power plants, which would make their use considerably more economical.

Based on the figures for the 14 CCUS industrial plants currently in operation and assuming an estimated plant lifetime of 25 to 30 years, the total costs for sequestration of a million tonnes of carbon per year would be around US$ 668 million. And there are big differences depending on what method is used for the carbon capture. Including all the steps, i.e. the capture, compression, drying, transport and final storage of the carbon, the costs can be anywhere between US$ 60 and US$ 1,000 per tonne of CO2. The higher limit applies in particular to the DACCS technology where the range is especially large – from US$ 200 to US$ 1,000 per tonne. The main cost levers are:

  • The capture, compression and drying of the CO2, as this is very energy intensive. These stages account for around 50 to 75 per cent of total costs.

  • The transport of the CO2 generates high initial costs, not least because there are so many regulatory hurdles to clear. One solution would be the use of existing gas pipelines, which would only need to be adapted to meet the requirements for transporting carbon. The cost for overland transport via pipelines is between €0.1 and €16 per tonne of carbon, and this rises to between €2 and €29 per tonne for transport under water.

  • The costs of storage also vary considerably depending on the nature and location of the storage site. Most carbon is currently injected into the ground, particularly in old oil fields in order to increase the oil output. The storage thus becomes part of the process of what is known as tertiary oil recovery, making the costs hard to quantify. Cost estimates range from US$ 5 to US$ 10 per tonne of carbon. It is clear that storage on land is cheaper than on the seabed. The use of depleted oil and gas fields is also likely to be cheaper than salt caverns.

Chart 2: Costs rise as the technology becomes more complex

Cost curve for CO2 capture and emission avoidance potential

Chart 2: Costs rise as the technology becomes more complex
Sources: Global CCS Institute, Goldman Sachs

However, the cost of storage should also come down as capacity expands. The think tank Global CCS Institute estimates that a doubling of CCS capacity will reduce the financial cost by 8 to 20 per cent. The establishment of CCS hubs, where all process steps up to the storage of the captured carbon can be carried out on a large scale and without requiring the carbon to be transported long distances, will be important for scaling. One example is the recently announced ExxonMobil CCS hub in Texas. The carbon captured at large industrial complexes with correspondingly high emissions will be taken away via the nearby port of Houston and then stored in geological formations in the Gulf of Mexico.

Which sectors are affected?

After power generation and the transport sector, industry is the third-largest producer of global CO2 emissions. The IEA estimates that by 2060, a cumulative 29 gigatonnes of emissions will have to be saved in the cement, iron, steel and chemicals industries through CCUS alone in order to meet the Paris climate targets. These are sectors and products for which there are currently few or no low-emission alternatives, but for which there is still strong demand.

In cement production, for example, around 50 per cent of the total emissions are produced by the kilns used to produce clinker. However, the relatively high carbon concentration of 14 to 33 per cent means that the flue gases from the cement kilns are particularly suitable for CCUS. Cement manufacturers HeidelbergCement with its Norcem Brevik project and LafargeHolcim with its Westküste100 project are leaders in this field. At Westküste100, in which the French energy supplier EDF and the Danish energy group Ørsted are among the companies involved, wind power will be used to split water into oxygen and hydrogen. The oxygen is to be used in the local cement plant as an emissions-reducing input factor. The carbon dioxide produced will then be captured and processed with the green hydrogen to produce synthetic airline fuel, for example. Although the carbon is released back into the atmosphere when it is burned in the aircraft, at least no additional emissions are produced – compared to the situation without the use of this technology.

The iron and steel industries are making similar efforts to utilise CO2. This sector alone accounts for 7 per cent of global carbon emissions. So retrofitting existing plants with CCS technology could help to capture some of the greenhouse gases emitted. However, the use of CCS and other innovative smelting processes increases production costs by 8 to 9 per cent per tonne. Efficiency gains are thus essential in order to maintain profitability. The construction of plants on an industrial scale will help here. ArcelorMittal is building a CCUS plant in the Belgian city of Ghent that will use biotechnological processes to convert the waste gases from its blast furnaces into bioethanol. According to estimates, 15 per cent of the carbon produced by the blast furnaces can be used to produce around 80 million litres of bioethanol per year. This CO2 would be released back into the atmosphere when the fuel is burned, but at least the emissions would not be doubled. The world’s most advanced CCUS plant and the first to be run on a fully commercial basis is in Abu Dhabi. Here, the CO2 captured during steel production is fed into the nearby oil fields, where it is used for tertiary oil recovery.

In the chemicals sector, CCUS technology is primarily used in plants that produce ethanol, hydrogen, industrial gases and fertilisers. Air Liquide, Solvay and Linde have been using this technology since 2010. These companies, like BASF and Arkema, also have products in their portfolio that are used in CCUS.

Unlike the other industries mentioned, the oil and gas sector does not exclusively supply essential products that cannot be replaced in the short to medium term. There are – at least in the industrialised countries – clear alternatives for energy generation that are associated with significantly lower CO2 emissions than fossil fuels, in the form of renewable energies and sustainably produced hydrogen. Nevertheless, interest in CCUS applications is also growing in this sector, especially in the US, as they offer companies various advantages. Firstly, existing oil deposits can be further exploited with the help of captured carbon (tertiary oil recovery). Secondly, CO2 can be used to produce synthetic fuels. And finally, companies in this sector have the capabilities needed for the storage and transport of carbon due to their geological expertise and the existing infrastructure.

Oil giants Chevron and ExxonMobil, which have not yet diversified their portfolio to include renewable energies, are becoming increasingly open to CCUS. Chevron has already invested more than a billion US dollars in the research, development and construction of CCUS plants. ExxonMobil is currently evaluating more than 20 new CCUS projects worldwide. Occidental Petroleum is investigating additional DACCS concepts for capturing CO2 directly from the atmosphere.

However, it is also true that not even 1 per cent of capital expenditure by the global oil and gas industry in 2019 went into CCUS and renewable energies. Plus, in order to even come close to compensating for its own direct emissions, CCUS activities would have to be increased by a factor of at least 40 (see chart 3).

Chart 3: Wide gulf between ambition and reality

Carbon and direct greenhouse emissions captured by major oil companies in 2017

Chart 3: Wide gulf between ambition and reality
Source: BloombergNEF

Assessment and conclusion

Based on the information presented, it is clear that CCUS is no substitute for a systematic transformation strategy, and never will be – particularly in the oil and gas sector. The technology can certainly help industries on their way to becoming carbon neutral, but a permanent reduction in CO2 emissions will succeed only through efficiency gains and the gradual replacement of fossil fuels with renewable energies. Every tonne of avoidable emissions (and these are predominantly emissions from fossil energy sources) is one too many. This will not change even if CCUS enables some of these emissions to be recaptured and stored or otherwise utilised.

A simple calculation highlights the issue. Currently, more than 50 billion tonnes of greenhouse gases are emitted globally each year. If nothing changes, significantly more than 50,000 industrial DACC plants would have to be built to capture these emissions. Leaving aside the fact that the technology is currently neither scalable nor economical on this scale, the sheer number is in itself completely unrealistic. For comparison, there are fewer than 10,000 coal-fired power plants in the world.

Consequently, decarbonisation for the oil and gas sector should focus primarily on transformation and diversification rather than CCUS. Companies in this sector that tackle the emissions problem exclusively or predominantly with CCUS do not have a credible strategy for the future from an environmental perspective and so do not meet the criteria for a sustainable investment2.

In sectors where it is currently not possible to significantly reduce emissions, the assessment is somewhat different. Here, CCUS can play a part in capturing, utilising or storing emissions that remain unavoidable, thus preventing them from being released into the atmosphere. However, even in sectors such as the cement, iron and steel industry, it is essential that more research is carried out into other methods of reducing emissions in the production process to as close to zero as possible. The focus in decarbonisation must clearly be on measures to increase energy efficiency and on energy generation that is largely emission-free. This is the only way to achieve the climate targets which, although ambitious, are absolutely necessary to limit the damage being caused.

  1. 1 IPCC (2018): Special Report on Global Warming of 1.5°C – SR1.5
  2. 2 See also our Transformation Insight on the oil and gas sector from July 2021.

Authors:

Janis Blaum, Bastian Grudde and Angela Maria Quiroga Manrique

As at: 23 July 2021