COP28: carbon capture is grabbing investors’ attention

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UN climate summits have turned into sprawling, complex affairs. This year’s host city Dubai is braced for 70,000 attendees.

Amid the circus-like atmosphere, countries including Spain, France and Ireland want a clear outcome: a timeline to ditch “unabated” fossil fuels.

Unabated means emissions are not stemmed by capturing and permanently storing carbon dioxide. Countries such as Saudi Arabia want CO₂ reduction technologies such as carbon capture and storage (CCS) to feature heavily in talks. That would boost an industry that has long promised much but delivered little.

CCS technology has existed for decades but there are just 41 projects operating worldwide. Some 70 per cent of these are used for enhanced oil recovery — a technique unpopular with climate campaigners where CO₂ is pumped underground to access fossil fuels that could not be recovered otherwise. 

Investors have in the past been put off by the high capital costs involved in pure CO₂ storage projects. Lead times are often long. Setbacks at schemes such as Chevron’s Gorgon CCS project in Australia have not helped. The tide is turning. More than 350 projects are in development, according to the Global CCS Institute. But high costs will probably remain a drag in many geographies.

The recent uptick has largely been driven by incentives in North America, including the Inflation Reduction Act. The IRA includes tax credits of $85/t for CCS projects that reduce emissions from things like fossil fuel plants. Direct air capture (DAC), where emissions are removed from the atmosphere, can also access tax credits of $180/t. These are helping to close the gap on costs for simpler projects. Financing regimes elsewhere have been slower to materialise, though.

Costs can vary but range from $92-$130/t of CO₂ including transport and storage, according to BloombergNEF. DAC, a nascent technology, costs more than $1,000/t today but is forecast to fall to $300-$400/t by 2030. 

So far oil majors have mostly financed projects from their balance sheets. Project debt finance will be needed if the industry is to scale up further. Banks have been examining it, according to industry executives, but are yet to commit. Positive COP talks could help confidence.

The greatest limitation on CCS, though, is comparison with other technologies. In sectors such as electricity generation, cheaper alternatives already exist. A long hoped-for surge in CCS will more likely be a steady trickle.