On November 30, world leaders gathered for the annual UN climate meeting known as the Conference of the Parties, or COP28. One of the key climate solutions that was discussed was carbon capture, utilization, and storage (CCUS), a technology that could reduce greenhouse gas emissions from hard-to-decarbonize sectors. COP28’s President, Sultan Ahmed Al Jaber, who is both the COP President and CEO of UAE oil giant Abu Dhabi National Oil Company (ADNOC), has been campaigning for carbon capture technologies as a way to reduce emissions. Simultaneously, in October 2023, the US enacted the Inflation Reduction Act of 2022, which increased the federal tax incentives for carbon capture projects. The goal was to stimulate more investment in carbon capture technologies that were previously unprofitable.
CCUS refers to three main technologies including post combustion carbon capture is the most common technology used today which collects smokestack emissions called flue gases, before they can be released into the air, pre-combustion capture which removes carbon dioxide from the fuel source before its fully burned, and oxy-fuel combustion capture when fuel is burned in an atmosphere of nearly pure oxygen producing highly concentrated carbon dioxide that is easier to collect. In sum, these technologies work to capture CO2 generated by burning fossil fuels before these emissions are released to the atmosphere. Capture generally takes place at large stationary sources of CO2, including power plants, or cement/steel or chemical facilities. Simply stated, most current carbon capture projects use a liquid to chemically remove, or separate CO2 from other gases produced. Then the CO2 is compressed and transported via pipelines, road transport or shipped offsite for storage. Finally, the CO2 is injected into rock formations deep underground for permanent storage.
CCUS is touted as an essential technological tool required for a low carbon future. Nearly all the models in the 2022 Intergovernmental Panel on Climate Change report include carbon capture to keep the earth to 1.5 Celsius degrees of warming. Regardless of these models and the political fanfare behind CCUS, there are many critiques that must be considered from both an environmental and investor perspective.
From an environmental perspective, many organizations are skeptical of its use, arguing that while carbon capture can decarbonize hard to abate industries, the actualized carbon capture is limited. According to Global Status of CCS 2022, referenced in Bloomberg’s May 2023 article1, “Despite its 50-year history, all the CCS plants deployed globally capture only about 40 million tons of CO2 each year. That’s less than 0.1% of global greenhouse-gas emissions.”
The IEA reports a similar metric stating that in 2022, 40 commercial capture facilities are in operation globally, and these facilities have an annual capture capacity of approximately 45 MT CO22. According to Brad Page, CEO of Global CCS Institute, “This must increase at least 100-fold by 2050 to meet the scenarios laid out by the IPCC”3.
Returning to the topic of COP28’s President Al Jabaers and his oil company ADNOC, which supports carbon capture technologies, according to Global Witness4, “it would take his oil company over 340 years to remove the CO2 it will produce by 2030.”
The Sustainable Equities Team holds a cautious outlook on the role CCUS will play in lowering emissions from traditional fossil fuel production and generation facilities. This hesitation stems from CCUS’ energy intensiveness, high costs and availability of other low carbon options, such as wind and solar.
Yet we do believe there is an area, the industrial sector, which accounts for one-quarter of CO2 emissions and 40% of global energy demand5, where CCUS can play a valuable role in reducing emissions. The industrial sector is involved in the production of materials such as cement, steel and chemicals, areas that are highly carbon intensive yet do not currently have other decarbonization options available (i.e. wind or solar). According to the IEA, in the Clean Technology Scenario (CTS), more than 28GTCO2 is captured from industrial facilities in the period to 2060. In this scenario, CCUS delivers 38% of the emissions reductions needed in the chemical subsector and 15% in both cement, iron and steel6.
Recognizing this growth opportunity, the Sustainable Equities Team has identified companies, such as Air Liquide, as being highly innovative and fundamentally competitive in this space. Air Liquide’s Cryocap technology involves the use of extremely low temperature to separate gases. For the cement industry, Cryocap FG can achieve CO2 capture rate of 85 to 95%, while Cryocap Steel achieves a CO2 capture rate of 80 to 95%.
In April 2022, Air Liquide and EQIOM (subsidiary of CRH, the leading building materials business in the world) partnered on a project entitled “K6” with the aim to transform EQIOM’s Lumbres cement plant into one of the first carbon-neutral cement plants in Europe.
1Big Money Rushes Into Carbon Capture. Can It Deliver This Time? - Bloomberg
2Carbon Capture, Utilisation and Storage - Energy System - IEA
3Carbon Capture and Storage (CCS) | World Resources Institute (wri.org)
4COP28 President Al Jaber’s oil company ADNOC will take 340 years to capture the carbon it produces by 2030 | Global Witness
5Transforming Industry through CCUS – Analysis - IEA
6Transforming Industry through CCUS – Analysis - IEA
The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations.
This material is distributed for informational purposes only. The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the information mentioned and, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable.