We are close to a tipping point in industrial carbon capture
In the cleantech world, carbon capture has recently received a lot of buzz, driven partially by the emergence (and significant fundraising) of “Direct Air Capture” startups: Carbon Engineering, Climeworks, and Global Thermostat. Now, this buzz is fully deserved — DAC is a technology that could save the world, as it pulls CO2 straight from the air and sequesters it underground. But, while I am very glad there are people investing in it, existing DAC plants today are not economical, costing ~$600 / ton of CO2 (estimates from leading DAC startups of costs at scale are in the $100–250 / ton range).
To put that in context, the price that market participants (either well-intentioned businesses trying to be “carbon neutral” or emitters meeting their requirements in regulated markets) are willing to pay to remove a ton of CO2 varies between $0 and $30 today, depending on who and where you are. But, while these DAC companies work to drive down the cost curve, there is another opportunity that could make financial sense in the near term — industrial carbon capture.
Industrial carbon capture refers to two broad types of capture. The first is capture at a fossil fuel plant (coal or natural gas). Burning fossil fuels releases CO2 into the atmosphere, and a carbon capture plant would capture this and put it somewhere (usually sequestered underground). The second is capture at an industrial facility — this could include chemical plants, cement plants, steel plants, etc. This capture could happen at the combustion source (often these facilities burn fossil fuels as part of their processes), or in the “process emissions”, as many of these industrial processes produce CO2 as a byproduct.
So, let’s take a minute to talk about industrial carbon capture — why we may need it, the technology to do it, how much it costs today, the scope of the opportunity, and what the future may hold!
Why is industrial carbon capture important?
Below is a view of historical global emissions and an illustrative forecast of the path to keeping the world below its 2⁰C warming target.
As you can see by the curves leading up to 2020, the world has not yet begun to materially shrink its emissions. The US picture is slightly better (emissions are roughly flat), but still not close to being significantly negative. Yet, we must bend this curve significantly, and soon, to stay within the recommended max warming of 2⁰C.
And, the industrial / power sectors (~50% of emissions) are tough to decarbonize. First, many industrial processes require extreme heat that cannot be produced economically with renewables today. Additionally, as mentioned above, many industrial processes (e.g. the calcination of limestone to make cement) produce emissions regardless of the source of energy. In the power sector, it is likely that natural gas plants will remain as a “baseline” source of power for the grid for many years. Additionally, these plants have long lives (40 years), and are still being built (there are 177 natural gas power plants currently being built or planned in the US alone). So, reducing the emissions of these facilities will be essential to meeting our carbon goals.
So, how does a carbon capture plant work?
There are, at a high level, two things that distinguish different carbon capture technology. First, when in the combustion process am I capturing the CO2? And, second, how am I separating the CO2 from the rest of the gas?
When do I capture the carbon?
There are 3 basic options for when you can capture CO2.
- Pre-Combustion: This happens either in a coal plant (which I am going to largely ignore in this blog — we should not be building new coal plants) or in a natural gas process, known as “sweetening” the natural gas. Basically, some natural gas has significant CO2 content. And, regulations require that CO2 content of natural gas be under 2%. So, the CO2 is removed, before the natural gas is burned (hence “pre-combustion”). Maddeningly, much of this CO2 is then vented into the atmosphere today. This would be a great application for capture and sequestration — you already have done most of the work!
- During-Combustion (aka OxyFuel combustion): In this process, a fuel (coal or natural gas) is burned in pure oxygen, as opposed to air. Then, the waste stream of the combustion has a much higher concentration of CO2 (85%+) making it more efficient to separate and capture.
- Post-Combustion: In a power plant or an industrial plant, waste gas is often vented into the atmosphere. This “flue gas” contains some CO2 (anywhere from 5–50%), as well as oxygen, nitrogen, and hydrogen. So, instead of venting to the atmosphere, you can route to a carbon capture plant, and separate out the CO2. This type of process is the most straightforward to retrofit to existing plants.
So how do I separate out the CO2?
The most mature technology today to separate CO2 from a mixed gas is the use of an amine solvent (often MEA). This is a fairly straightforward process. The flue gas is mixed with the liquid solvent, the solvent absorbs CO2, and then when heated, the solvent releases the pure CO2.
This is proven technology, but it has a few disadvantages, including high energy use. So, there are other approaches that are currently in “pilot stage”. These include the use of physical sorbents (which basically work the same as solvents, but are a physical material, e.g. activated carbon or Zeolites) and the use of membranes. Both of these approaches show promise to reduce capture costs but have not yet been built to commercial scale.
There are other, even more experimental approaches (such as Metal Organic Frameworks, Ionic Liquids, Quinone, etc.) but these are yet to be tested at scale.
So, how much does carbon capture cost today?
I will start by noting that most of the costs stated below, while based on mature, well-understood technology, are still theoretical. Frankly, just not many of these plants have been built at scale. But, with that disclaimer, let’s get to the numbers!
The first thing to realize is that the cost of capture scales with the purity of the CO2 stream. This is why Direct Air Capture is so expensive — the CO2 content of ambient air is ~.04%. However, in industrial processes, the content is quite a bit higher.
So, for applications like iron, steel, cement, hydrogen, and ammonia, the authors of this study estimate that capture costs are <$40 / ton of CO2.
These estimates fit with recent announcements from industry players, like this announcement from Cemex (a major cement producer) and Carbon Clean Solutions (a carbon capture startup) that they are partnering on a project to capture CO2 from a cement plant for <$30 / ton.
Okay, I captured my carbon — now what do I do with it?
However, the story does not stop there. Once you have the CO2, you must compress it, transport it, and inject it underground. And these steps, particularly transport, can add a lot of cost. There are basically two “mature” methods for disposing of CO2 today.
EOR: The first is Enhanced Oil Recovery, or EOR. This is when oil companies pump CO2 into hard-to-reach oil deposits, forcing the oil up and out. The initial reaction to this should be skepticism — I just went to all that effort to capture CO2 and now I am going to use it to get fossil fuel? However, 80% of CO2 used in EOR today is actually “naturally sourced” CO2 (i.e. they got it out of the ground) so any captured CO2 in the near term that is used in EOR should still be reducing emissions overall. Natural CO2 costs ~$15 / ton for oil companies, so let’s assume the willingness to pay for captured CO2 would be the same.
Geologic Sequestration: This is the second mature use, which involves injecting the CO2 underground, where it will then stay for thousands of years. Sequestration can cost anywhere from $3–20 / ton, with an average of ~$11 / ton.
So, to take advantage of these, I must transport my CO2 to a sequestration location. And, unfortunately, this can add a lot of cost. Many industrial facilities (e.g. ethanol in the Midwest, cement in the Midwest and Northeast) are far from injection locations (in Texas, Louisiana, Wyoming, California). So, the CO2 must be transported there, either by pipeline or truck. There are 3,000 miles of CO2 pipeline in the US, mostly used for EOR. This sounds like a lot, but experts estimate we need 10–15,000 miles of CO2 pipeline for a “mature carbon use society”. So, that leaves us with trucking, which adds ~$0.15 / ton / mile. So, let’s say you had to drive 500 miles to sequester the CO2 — this would add $75 / ton to our cost, more than doubling the total cost.
So, in summary, the total cost of carbon capture and storage in an industrial facility is roughly:
That’s a fairly broad range, but one study estimates that there are ~120 industrial facilities in the US that would have total costs of under $75 /ton (these are typically sites that are close to a sequestration location).
As a brief aside, this equation also explains some of the excitement around DAC — you could position your DAC plant close to sequestration, avoiding the transportation cost.
Anyway, back to industrial capture. One potential solution to this transportation issue is finding ways to use CO2 in industrial processes. This would create a double benefit of reduction in transportation costs and potentially increasing the price of CO2 as an input material. There are companies working on this, in using CO2 to create plastics (Newlight) or using CO2 in cement (CarbonCure, Solidia). But, these efforts are still early.
So, given this cost, how do we pay for this?
Well, in the US, there are two regulatory benefits that could make this cost look more reasonable.
45Q
The first is the US 45Q benefit, which offers a tax credit of $35 / ton (for carbon capture and use in EOR) and $50 / ton (for carbon capture and sequestration). Technically, these credits are currently less, and scale to these values by 2026. But, for simplicity, let’s just consider the mature value, since these projects have long lives.
So, given the willingness to pay in EOR of ~$15 (which we discussed earlier), we can conveniently assume the value of captured carbon under 45Q is ~$50, either way you dispose of it.
Although this benefit technically was first enacted over ten years ago, there were some key updates made in 2018 that could accelerate the carbon capture market. First, the “pay out value” is now uncapped. In the original legislation, the benefit only covered the first 75 million tons that were sequestered — so, project planners could not count on the value being there when they finished their project. Second, the value of the payout was increased ($10 -> 35 for EOR, $20 –> 50 for sequestration). Finally, many more projects can now qualify. Originally, the benefit was only for facilities that captured over 500K tons of CO2 per year. Now, if a facility is under 500K in total emissions, it can qualify by capturing at least 25K tons of CO2.
There are ~450 industrial facilities in the US that are at a scale to qualify for this credit, along with ~300 natural gas power plants. Of these, les than 10 have existing carbon capture plants (there are only ~20 large scale CCS plants worldwide) — so, the opportunity is large and unpenetrated.
Low Carbon Fuel Standard
The second regulatory benefit is the California LCFS. This is a law intended to decarbonize fuel in California, and so rewards fuel producers when they remove carbon from their production processes. In 2019, the LCFS added carbon capture as a viable method for earning LCFS credits. And, LCFS credits are very valuable — currently trading at almost $200 / ton of CO2. So, if a refinery or O&G operation sells a significant portion of its fuel into California, it could capture significant value with a carbon capture project.
So, where do we go from here?
So, having laid out the current state of industrial carbon capture, I will make some observations.
First, there will be some opportunities that make economic sense today (in that they are roughly breakeven, with 45Q support). These would be either ethanol, hydrogen, and cement facilities with sequestration opportunities nearby, or refineries that sell into California (that could capture LCFS). I would encourage all of these companies to explore the potential for a capture plant.
Second, as you will recall, earlier we estimated that there were ~120 facilities with “total costs” under $75 / ton of CO2. These plants could qualify for 45Q, which would move the net cost to $25 / ton. So, these projects are really close to breakeven. Is there anyone willing to cover that $25?
Sadly, the answer today appears to be “not really”. As you may recall from my blog on offsets, the market price of voluntary carbon offsets is really cheap today (<$10), and even at these prices there isn’t much demand. To point, you may recall that in that same blog I lauded Lyft for offsetting its entire carbon footprint — however, recently Lyft reversed that decision, because it was “costing them millions of dollars”.
In regulated markets (where companies must reduce carbon below a cap), the price of carbon is around $15 / ton (California) or $35 / ton (Europe). But, it should be noted that in California, carbon capture is not currently included in the cap and trade program.
So, although the cost of industrial capture will continue to drop with new technology, and startups like Carbon Clean Solutions are working hard to make the installation of carbon capture modular (improving speed and certainty to build, which is really important), this market is likely not going to take off quickly without one of the following: additional regulatory support, the investment of rich companies and individuals in buying “offsets”, or the investment of emitters in proactively planning for a world where emissions are much pricier than they are today.
However — we are really close to breakeven on a large number of projects! So, if you are a company in the market for carbon offsets, I recommend exploring a partnership with an industrial capture project! From a $ invested per net CO2 removed impact, these could be high impact, reasonably priced projects.
