CO2, the next “WANTED” commodity

Why Carbon Capture Use Sequestration (CCUS) and Carbon Dioxide Removal (CDR) will attract massive capital flows in the coming decade

Every year, around 40GigaTonnes (GT) of Greenhouse Gases (GHG) are added to the atmosphere by human activities, making its concentration rise by 2.6ppm (parts per million) each year. With a current concentration around 417ppm, the threshold of 350ppm corresponding to a 1,5°C increase in average global temperatures (compared to pre-industrial era) is now behind us. Hence reducing GHG emissions will not be sufficient, and removing a portion of the 1.6Trillions tons of GHG sitting above our head is part of the plan.

On its pathway to Net Zero by 2050, the International Energy Agency (IEA) estimates that around 5GT, corresponding to 15% of current emissions, might need to be removed every year to reach 1.5°C… and to be clear, this comes on top of the reduction efforts that need to happen. Carbon Dioxide Removal (CDR) will not be a substitute to the development of renewables, biofuels, low-carbon hydrogen, efficiencies… and energy sobriety.

Unfortunately, while we expect carbon removal to account for 15% of the work, investments in carbon capture projects have been less than 1% of what has been invested in clean energy over the last 15 years. Over the same period, roughly 300Bn$ have been invested in wind and solar to bring them where they are today. No need to say that a huge funding gap of carbon capture and storage solutions will have to be bridged in the coming decades... 

... And this momentum of investments already started as almost 30Bn$ of CCUS projects are currently at advanced stages of planning mainly in Europe and the US; a doubling of what has been spent in CCUS since 2010(*).

What make CCUS so attractive for investors?

First of all, capturing GHG is becoming a necessity for countries, institutions and corporations to meet their claimed Climate objectives, and their stakeholders are asking for more and more transparent and science-based paths to decarbonization. As a result, some regions are defining the legal, financial and incentive framework in which CCUS and CDR businesses can be operated.

In Europe, CCUS is now an integral part of the European Commission Strategic Energy Technology plan (SET) and a CCS Directive defines the legal framework under which carbon should be geologically safely stored. Any CO2 molecule that is captured and permanently stored or chemically bound in a product will qualify as an emission reduction under the Emission Trading Scheme (ETS).

Also, some policy makers have put in place ambitious incentive schemes or pricing mechanism to allow a growing portion of capture projects to fly economically. EU ETS Carbon price is now well established above 60$/ton and the US Inflation Reduction Act has increased its 45Q tax credit to 85$/ton for permanent geological sequestration of CO2 (or 60$/ton for utilization of CO2, including for enhanced oil recovery). These incentives are now close to the the social cost of CO2 and provide investors guaranteed future cash-flows over a long period of time.

Second, because this climate imperative creates many opportunities for “new businesses” to grow fast and create value for its shareholders:

1. CCUS can be retrofitted to existing power and industrial plants, which would otherwise continue to emit 8GT of CO2 every year in 2050. At current ETS Carbon price, this is almost a 0.5Trillion$ yearly market. And these retrofits can happen now! For example, the average age of coal power plants globally is 25 years, for a total lifetime of 40 years. This gives an investor 15 years to return its capital, assuming its OPEX could now be covered by the proper incentive mechanism,
2. CCUS can tackle emissions in sectors where alternative technology options for decarbonization are limited, like chemistry or sustainable fuels for long-distance transportation (incl. aviation)
3. CCUS will be a critical enabler to the production of least-cost low-carbon hydrogen, unleashing all the decarbonization applications of this molecule, in particular for hard-to-abate sectors (cement, steel, refining, heavy-duty mobility)... and guess what? the so-called blue hydrogen (i.e. fossil fuel reforming + carbon capture) could be as cheap to produce as the cheapest source of its alternative, the green hydrogen (i.e. water electrolysis from renewable power)(**).
4. CCUS can provide Carbon Dioxide Removal solutions when combined with bioenergy or Direct Air Capture (DAC). These solutions are worth being considered by those with incompressible emissions and nevertheless a path to Net Zero. 

Finally, these new CCUS and CDR value chains are becoming attractive for various types of investors, with various risk profiles. Whereas infrastructure-like returns can be expected from mature technologies, there is a promising spectrum to be explored for less risk averse investors, willing to bear the innovation and industrialization risk of still immature technologies or nascent markets. Massive capital will have to flow towards those innovations aiming at bringing to commercial scale and at a competitive price solutions to capture, transport, use, store and sequestrate this molecule that will inevitably become a commodity. Also, Venture Capital and Growth Equity investors are already at work in deploying solutions that not only help manage the physical flows of CO2, but also provide Carbon Management solutions (measuring, monitoring, reporting, accounting, certifying and trading emissions).  

(*) Today, 27 CCUS facilities are in operation globally, capturing a total 40MillionsTons per year of CO2

(**) Comparing active projects; the US Gulf Coast blue hydrogen plants (auto-thermal reforming + capture unit) are expected to produce low-carbon hydrogen (with 95% capture) at less than 2$/kg (assuming NG price at 4$/mmbtu); similar to what the most competitive green hydrogen projects (e.g. Neom KSA, Chile) can offer