Fossil Fuel Smokescreen or Net Zero Salvation?

While some argue banking on a technology in its infancy could undermine the climate transition, policymakers cannot turn their backs on supporting the growth of CCUS.  

Reaching net zero by 2050 means deploying future technologies to store and remove the harder-to-abate emissions we can’t address today. 

One of these technologies is carbon capture, utilisation and storage (CCUS). It appears in other variations – like CCS, BECCS and DACCS – but the concept is ultimately the same: capturing CO2 from the atmosphere and industrial processes and then storing or converting it into energy that can be re-used.  

In theory, experts agree that it’s a sensible, practical idea.  

“A growing number of governments and companies are putting significant stock in CCUS as part of their transition plans,” says Valerie Kwan, Director of Engagements at the Asia Investor Group on Climate Change (AIGCC).  

Earlier this month, the UK government pledged £20 billion to the deployment of CCUS, with more details on the how expected to be unveiled in the country’s much-anticipated Green Finance Strategy. The US Inflation Reduction Act (IRA) outlines tax incentives for companies building out CCUS projects. The EU’s answer to the IRA, the Net Zero Industry Act (NZIA) outlines its support for eight strategic net zero technologies, including CCS, committing to a CO2 injection target of 50 million tonnes per year by 2030 to be stored within the bloc.  

Other countries, like China, are in the process of debating measures to also upscale CCUS projects.

The Intergovernmental Panel on Climate Change (IPCC) also bowed to the will of governments like Saudi Arabia when finalising its Synthesis Report, softening language around the use of CCS.  

“It’s a technology that needs investment,” says Ankita Gangotra, Associate of Industrial Innovation for the US Climate Programme at the World Resources Institute (WRI). “We need to see that it’s viable and has the industrial scale it promises, so I’m not surprised it has government backing.” 

Experts agree that more consistent messaging and support from policymakers on CCUS is important to address ongoing concerns around cost and efficiency, so it can be a viable solution for the sectors that need it most, like steel and cement.  

Nonetheless, AIGCC’s Kwan warns that the “phasing out of high carbon assets should be the priority”, with CCUS only used to address “residual emissions”.  

Others are more sceptical, questioning whether industries that depend on fossil fuels, such as oil and gas, are merely wielding the promise of CCUS to stay in business. 

“The debate has been raging for years,” Mark Fulton, Project Director of the Inevitable Policy Response (IPR), tells ESG Investor. 

“Will it be an excuse to keep producing fossil fuels and using them when in the end CCUS won’t get deployed? Or is it one of the low-carbon technologies that will be required to reach net zero? Many fear the former.” 

Pipe dream 

CCUS has a bumpy track record. Time and again, projects have failed to expand beyond demonstration level. On top of that, CCUS isn’t cost-effective when compared to upscaling renewables, and oil and gas majors are using the technology to extend the shelf life of fossil assets.  

Chevron’s Gorgon project in Australia is a well-known example of a large carbon capture project failing. Instead of becoming a carbon sink, it became one of Australia’s biggest sources of emissions, with Chevron admitting the project failed to capture the promised 80% minimum of emissions generated over the first five years.  

“We have yet to see any oil and gas company successfully ramp up their CCUS capacity at scale,” says Maeve O’Connor, Associate Analyst on Oil, Gas and Mining at think tank Carbon Tracker.  

She notes that companies lack incentives to ensure that CCUS projects work. “Having capacity on paper is enough to at least appear as though they are making progress to reduce emissions,” she said. “There’s a lot of noise about CCUS projects out there, but a lot of it is just that – noise.” 

Oil and gas major ExxonMobil positions itself as an industry leader in CCUS, but it has failed to scale its sequestration capacity over the last few years. Since 2019, Exxon has captured around six million metric tonnes (Mt) of CO2 a year, but O’Connor notes this is down from seven million Mt between 2017-18. 

The International Energy Agency’s (IEA) 2050 roadmap estimated that more than 7.6 billion Mt of CO2 per annum must be captured and stored by 2050 (with the world’s current capacity at around 40 million Mt per year). Exxon’s efforts equate to a little more than a drop in the bucket.  

“CCUS is also only effective for Scope 1 and 2 emissions, but Scope 3 emissions represent the majority of emissions in the oil and gas sector,” says Louis-Maxence Delaporte, Fossil Free Campaigner at French think tank Reclaim Finance. Research by consultancy firm Wood Mackenzie notes that between 80-95% of oil and gas emissions are Scope 3.  

Then there’s the matter of cost.  

A report published by Dutch multinational banking and financial services firm ING said the cost of production with CCS can range from US$70-US$130 per tonne in cement production, an increase from US$30-US$80 per tonne when production is unabated.  

In comparison, the cost of renewables projects has been falling. An International Renewable Energy Agency (IRENA) report noted the global weighted average levelised cost of electricity of new onshore wind projects in 2021 fell by 15% year-on-year and new utility-scale solar PV by 13% year-on-year. 

Additional research highlights that cost reductions in wind and solar reduces the value of CCS by 15-95%, “depending on the energy system sector under consideration”.  

Good on paper  

This doesn’t necessarily mean policymakers should steer clear of CCUS altogether, according to Esin Serin, Policy Analyst at the London School of Economics’ Grantham Research Institute on Climate Change and the Environment (GRI LSE). But it is important governments committing to CCUS recognise the “nuances” around when a project is acceptable or not, she says. 

“CCUS shouldn’t be allowed if it’s opening the door to additional oil and gas production and extraction, but we also have to acknowledge that demand for oil and gas is going to continue for a decade or more, so CCUS can play an important part in decarbonising the supply we need.” 

Sofia Basheer, Analyst at think tank InfluenceMap, agrees, noting that current policies “are yet to reflect that needed nuance”.  

For example, beyond incentivising the upscaling of renewable energy projects, the US IRA’s additional CCUS tax incentives (45Q) also allow oil and gas companies to receive credits of up to US$130 per tonne of CO2 that is stored or used for any enhanced oil recovery (EOR).  

Elsewhere, oil and gas companies in Indonesia are being actively encouraged by the government to install CCUS facilities to cover continued fossil fuel production. 

Faye Holder, Programme Manager at InfluenceMap, says there’s a “big lobbying problem” around CCUS.  

A notable example is Canada, which recently published its draft environmental taxonomy, rather controversially green-lighting CCUS in oil sands production and the usage of blue hydrogen (which depends on CCUS) in steel production.  

An InfluenceMap report analysing the climate-related policy messaging and engagements undertaken by the Canadian oil and gas industry noted that these companies have “repeatedly touted CCS/CCUS as a solution to continue or increase the rate of fossil fuel utilisation”. 

The Pathways Alliance, which is made up of six Canadian companies operating 95% of oil sands production, has additionally asked the government to contribute C$10.9 billion (US$7.98 billion) of the C$16.5 billion (US$12.08 billion) needed for a CCUS hub they have proposed. The government is willing to support these companies in their CCUS endeavours.  

Analysis conducted by the think tank International Institute for Sustainable Development (IISD) found that the five CCUS projects currently operating in Canada’s oil and gas sector only capture 2.7 million Mt of CO2 equivalent a year, which is just 1.3% of the sector’s pre-pandemic emissions. However, the government has committed at least C$9.2 billion (US$6.7 billion) in public support for CCUS in the oil and gas sector, including a 50% CCUS investment tax credit which is expected to cost C$8.6 billion (US$6.2 billion) over the first eight years.  

“The fossil fuel industry is building yet another smokescreen, promising that CO2 emissions can be prevented thanks to CCUS,” says Delaporte from Reclaim Finance.  

“The industry is promising a greener future to the sector based on unproven and immature technologies, while they are effectively locking in more fossil fuel infrastructure and putting us at even greater risk of missing our climate targets.”  

It’s pivotal that investors do their due diligence, says Carbon Tracker’s O’Connor.  

Carbon Tracker’s ‘Absolute Impact 2022’ report outlines questions investors should ask companies engaging in CCUS activities, including whether the company has quantified the emissions they intend to mitigate through CCUS and whether it has outlined its capital expenditure (capex) plans to support this.  

A pragmatic solution  

“Although I’m sceptical of CCUS usage on the oil and gas side, I am cautiously optimistic on the industrials side,” says WRI’s Gangotra.  

“CCUS, once deployed at scale and connected to cement and steel plants around the world, is going to be very important for these sectors,” she adds.  

As noted by the IEA, CCUS is “virtually the only technology solution for deep emissions reductions from cement production”, a process that is responsible for around 7% of global emissions. Further, the IEA said incorporating CCS into steel production increases production costs by less than 10%, compared to approaches based on hydrogen produced from renewables, which could increase costs by between 35-70%.  

But these industries should not assume that CCUS “is the silver bullet” that will ensure they achieve their net zero goals, however, Gangotra says.  

“They should be able to demonstrate that they’re looking at electrification, improving energy efficiency, and fuel switching as other methods of decarbonisation before turning to CCUS,” she notes. 

IPR’s Fulton argues that “it’s past the time of worrying about these removal technologies being an excuse to do nothing and instead focus on rolling them out”. The consortium’s 1.8°C Forecast Policy Scenario (FPR) “assumes some CCS and other carbon removal or negative emissions technologies”, he says.  

Josh Burke, Senior Policy Fellow at GRI LSE, agrees, emphasising the importance of CCUS being looked at by governments as an “enabling and cross-sectoral technology across the whole economy”.  

In the past year, there have been 411 global patent applications for CCS technologies, a 65% increase from 2020-21, according to research by intellectual property law firm Mathys & Squire. Seventy-three percent came from China-based applicants, followed by the US (10%).

Specialist carbon capture firms like Climeworks, Carbon Engineering and Verdox have all logged successful fundraising rounds, and there continues to be innovation in this space.  

Ben Westcott, Head of Enhanced Weathering at UNDO, a CO2 removal project developer, outlines the work of his firm. The company spreads millions of tonnes of finely ground basalt (a silicate rock) from local quarries onto nearby agricultural land to mimic natural rock weathering which can then capture CO2.  

“Overall, this ensures a 95% carbon efficiency,” he claims, noting that UNDO aims to deliver operations that will remove one million tonnes of CO2 by 2025. 

Long-term success in CCUS depends on “policy certainty” and a consistent “long-term regulatory framework”, says GRI LSE’s Burke.  

“We’re not just behind the curve on CCUS, we’re behind the curve on [all aspects of the net zero transition], from energy efficiency to grid infrastructure upgrades and electric vehicle charging ports,” he adds.  

“Policymakers need to be looking at and supporting the whole suite of policies and technologies we need.”   

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