Industry

IPCC Strengthens Investment Case for Carbon Capture

Demand for DACCS to increase as role of carbon removal increases in climate mitigation scenarios, but scalability concerns continue.

Investors should be considering scaling investment in carbon capture and storage (CCS), according to US investment bank Jefferies, highlighting its role in each of the mitigation pathways outlined by the latest report by the Intergovernmental Panel on Climate Change (IPCC).

Bioenergy with carbon capture and storage (BECCS) will play a part in every scenario, it said, with IPCC’s latest report estimating that to keep warming to below 2°C, cumulative negative emissions from BECCS must be between 168-763 GtCO2, scaling by between 0.52 and 9.45 GtCO2 per year by 2050. The costs are estimated between US$15 to US$400 per ton.

“A comprehensive approach to carbon removal and negative emissions technologies will be needed to achieve net zero”, said the Jefferies research note.

The IPCC’s mitigation pathways also incorporate carbon removal via reforestation and afforestation, direct air carbon capture and storage (DACCS), enhanced weathering, and ocean-based CO2 removal.

According to a research note by research firm Verdantix, DACCS and related synthetic CO2 removal technologies are set to experience “dramatic growth” in terms of future levels of investment.

Conor Taylor, analyst at Verdantix, emphasised that demand for solutions that “neutralise” carbon emissions is high, as they offer fewer concerns around “additionality” compared to nature-based carbon credits.

Availability of DACCS-based solutions at scale is currently lacking, he said, with Swiss carbon technology company Climeworks being the sole commercialisation actor of DACCS credits on a large scale, and units of neutralisation remaining small compared to national and corporate targets.

“The appeal for DACCS credits currently comes from climate-conscious, consumer-facing brands,” he said. “For big emitters, they are simply too expensive and the quantities are currently too small. For firms with relatively small direct footprints, investing in neutralisation credits is a viable strategy to deflect greenwashing accusations, and offset otherwise unreducible emissions, such as those from air travel.”

According to Jefferies, the IPCC’s latest report cited the requirement of low-carbon energy and lower costs as the limiting factors to DACCS development, as opposed to the technology itself.

It said DACCS had the potential to remove up to 339 GtCO2 and scale between 0 and 1.74 GtCO2 a year by 2050, with a cost range of between US$82 and US$386 per ton.

Investment case

A number of CSS projects undertaken by large energy firms have run into trouble, prompting doubts about the viability and scalability of carbon capture technologies. But several specialist firms have been successful in raising capital recently, including Climeworks (US$650 million), Carbon Engineering (US$100 million) and Verdox (US$80 million).

The Stripe-backed Frontier Fund, an advanced market commitment to purchase carbon removal credits worth US$925 million, is expected to channel capital to DACC technologies. Launched in April, the fund is also supported by Alphabet, Meta, Shopify and McKinsey.

Verdantix’s Taylor says the growth of DACCS is also dependent on continued financial support from the public sector. “Perhaps the biggest recent move in this space is the US$3.5 billion funding promised by President Biden’s infrastructure bill, for the building of four direct-air carbon capture facilities in the United States.”

Jefferies acknowledges differences of opinion on which types of CSS investment will bear fruit. It notes that the IPCC favours smaller and more modular projects in the short term, while the International Energy Agency has predicted that large incumbents – including fossil fuel companies and utilities – will be better placed overall.

DACCS will “get a tailwind, but there will be a long path to get to a clear winner here”, according to Jefferies. Broader CCS will be needed for the most challenged sectors such as steel and cement.

Partly due to the limited success of carbon capture projects in the energy sector, investors have been sceptical of “unproven” technologies to remove carbon, while also being wary of investee firms relying to heavily on CCS to achieve emissions reductions.

The Science Based Targets initiative has said it will only verify corporate net zero strategies which depend on low levels of carbon removal techniques versus decarbonisation of their products and processes.

According to research commissioned by the Asia Investor Group on Climate Change (AIGCC), projects in China, India, Japan and South Korea have faced various technical challenges around scalability of CSS.

The AIGCC said “significant research” is required to assess the sustainability of storage infrastructure, including how to reduce the risk of carbon leaks. It added that some banks were reluctant to finance CCS-based activities due to a “lack of revenue stream” and high commercial failure rate.

The Wood Mackenzie report commissioned by the AIGCC found that planned large-scale deployment of CCS by corporations and national governments in Asia had so fallen short, noting “societal opposition” to the expansion of industrial sites to accommodate CSS as a further barrier.

 

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