Policy Paramount in Driving DACCS Development

A trio of IPR reports highlight the importance of direct air carbon capture and storage in addressing 1.5°C overshoot, as industry experts underscore key role of policymakers. 

Policy and policymakers will need to play an essential role in ensuring direct air carbon capture and storage (DACCS) is affordable and available at scale in the likely event of a 1.5°C overshoot, according to three reports issued by the Inevitable Policy Response (IPR). 

DACCS is a process whereby carbon is removed from the air and either buried underground or used in chemical processes to create plastics, CO2 feedstock for synfuels, or even building materials such as cement. This could assist in decarbonising hard to abate sectors such as industrials and land. 

IPR, which was commissioned by the Principles for Responsible Investment (PRI) in 2018, stressed that policy is “central to any scale up” in the development of clean energy technologies. 

Speaking at the ‘DACCS – Quantifying the investment Opportunity’ webinar, jointly hosted by the IPR and PRI, IPR Founder Mark Fulton agreed that DACCS must be “driven by policy around reducing carbon emissions”.  

He added that clean and new energy technologies will “require a lot of government input to get going”.  

According to the Intergovernmental Panel on Climate Change, DACCS has the potential to remove up to 339 gigatonnes of carbon dioxide (GtCO2) and scale up to 1.74 GtCO2 a year by 2050. But the current cost of the solution ranges US$700-US$1400 per tonne of CO2 removed and even a full capacity plant would likely allow for a US$600 breakeven price. 

The IPR Financing Direct Air Carbon Capture and Storage (DACCS): Quantifying the investment opportunity report stressed that DACCS will need to reduce costs to “competitive levels” to make scaling of the technology politically and economically viable. It noted this would likely require the costs to reduce to approximately US$120-US$150 per tonne of CO2 removed by 2050. 

IPR previously warned that unless policymakers take “drastic action” there will be temperature overshoot that requires significant carbon removals from solutions such as DACCS to rectify. 

In April, IPR projected that the world will overshoot on 1.5°C in the early 2030s and its quarterly Forecast Policy Scenario (FPS) projecting a policy response having a 50% chance of delivering a 1.8°C outcome by 2100.   

Policy priorities 

In one of the three reports, which focused on the importance of policy support for DACCS, IPR flagged three potential solutions for policymakers to reduce its costs: the use of direct subsidies such as tax credits, direct procurement of DACCS credits, and using carbon markets to “make the cost of DACCS attractive verses emitting”.  

There is already direct funding for DACCS research and development including the EU Innovation fund, while the US Inflation Reduction Act (IRA) offers direct incentives through tax credits or for production including carbon subsidies of up to US$180 per tonne captured and stored. 

There is currently no carbon pricing regime that includes DACCS. However, regions such as the EU and China have carbon markets which could be adapted to include DACCS. IPR highlighted the Paris Agreement’s Article 6, which enables voluntarily cooperation between countries to achieve nationally determined contributions (NDCs) emission reduction targets, as being an “important instrument”. 

IPR also said that public procurement of DACCS credits and through reverse auctions could be used for price discovery. 

Fulton previously told ESG Investor that DACCS could be a “game changer” for addressing climate change with a “significant impact” on carbon removals. 

“Early 2030 is when we start to think that the climate events will start to get more pronounced, we will reach social tipping points and have an impact that make policymakers say we’ve really got to start moving,” Fulton said. 

He stressed it is essential for policymakers to “act quickly“ and suggested that if they are faced with “society potentially disintegrating” they will procure, encourage, and massively subsidise DACCS. 

Speaking at the IPR webinar, Jennifer Anderson, Co-Head of Sustainable Investment and ESG at Lazard Asset Management, said it is “really clear that when we get effective government policy it can really transform the landscape for these technologies”.  

She underscored that if governments can get “effective policymaking” underway post-COP28 that it can “start to encourage much more investment opportunities for DACCS and other negative emissions technologies (NETs)”. 

The EU Council has also adopted its negotiating mandate on an EU carbon removals certification framework – a voluntary framework aiming to facilitate and accelerate deployment of high-quality carbon removal activities – ahead of talks with the European Parliament. The proposed regulation covers different types of carbon removals, including industrial technologies such as DACCS for permanent carbon storage.

Increased attention 

Dr Ben Allen, Director of ESG Issues at the PRI acknowledged that DACCS is currently criticised for being “expensive and unproven at scale” and is still seen as “slightly controversial”. 

But, while IPR noted that voluntary and mandatory carbon markets have been “fraught with issues” over the past two decades, it argued that DACCS does not suffer from the same issues. 

IPR underlined a key advantage of DACCS is the permanent solution is offers for CO2 removal “unlike most nature-based solutions”. 

According to the United Nations Framework Convention on Climate Change’s  new long-term low-emission development strategies synthesis report, 32% of long-term low-emission development strategies mentioned bioenergy with carbon dioxide capture and storage (BECCS) as necessary to limit temperature increase but not immediately deployable, while 22% mentioned DACCS as technology that may be used in the future should its cost be “significantly reduced”. 

However, IPR said that DACCS has a long-term advantage over BECCS with the solution not competing with other land use demands due to its ability to be deployed on non-arable land. 

The IPR DACCS 2050 forecast is roughly consistent with the growth trajectory of solar power between 2002 and 2022 from 2030 onwards. 

Under the IPR’s FPS, NETs – including DACCS and BECCS – could account for over US$600 billion in revenues by 2050. 

“NET is starting to be a part of the conversation,” said Lazard’s Anderson said, noting that investment has previously been focused in lower cost technologies such as solar, wind, electric vehicles and battery storage.”  

“However, with the US IRA and its subsidies for carbon capture and storage for the first time this negative emissions technology is becoming something commercially viable,” she added.  

The International Energy Agency’s recent World Energy Employment 2023 report found that employment in carbon capture utilisation and storage including DACCS is set to steadily increase due to the growing number of projects announced from a number of new incentives for pilot carbon sequestration projects, notably driven by the US IRA. 

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