There Are Fortunes to Be Made in the Carbon Capture Gold Rush

Source: By Leslie Kaufman and Kevin Crowley, Bloomberg • Posted: Wednesday, January 11, 2023

Tax incentives in the IRA have set oil majors and manufacturers rushing to break ground on new projects.

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Photo illustration: Rui Pu. Photos: Getty images (8)

Past efforts to capture carbon dioxide so it doesn’t worsen climate change have been small-scale and littered with expensive failures. But supporters say the new tax incentives in the US Inflation Reduction Act (IRA) are transformative enough that, combined with the lessons of the past 20 years, the technology is finally ready to take off.

Lehigh Hanson Inc., one of the largest concrete makers in the US, says early this year it will start running a new cement plant in Mitchell, Indiana, that could capture 95% of its carbon dioxide emissions by 2028. If successful, the project would demonstrate that one of the world’s most polluting industries can go almost carbon neutral.

Air Products Inc., in Allentown, Pennsylvania, is starting work on a $4.5 billion facility just south of Baton Rouge, Louisiana, that could become the world’s biggest carbon sequestration operation.

CarbonCapture Inc., in Los Angeles, expects to pull 5 million metric tons of CO2 a year directly from the air by the end of the decade. Similarly, Drax Group, a British-based bioenergy and carbon capture company, is taking investors’ money for plants that would suck 12 million metric tons of CO2 out of the atmosphere.

Carbon capture and storage (CCS) refers to processes that separate CO2 from other gases (such as nitrogen and oxygen) and sequester the CO2 to keep it out of Earth’s atmosphere. Humans have been doing this for decades but not at anywhere near the rate that could help stop the planet from catastrophically overheating. It simply would’ve cost too much.

The IRA, passed by Congress in August, includes major revisions to the 45Q carbon capture and storage tax credit that should change this math. “Show me the money, and we’ll show you the projects,” says John Thompson, a director at the Clean Air Task Force, an environmental research group in Boston. “That’s what’s happening now.”

The new law increases the amount of the credit from $45 a ton to $85, for CO2 removed from a smokestack, and as much as $180 if the gas is taken from the air. It extends the deadline by which construction on a project must begin from 2026 to 2033, and it sets a much lower threshold for the amount of carbon a project must capture annually. For example, a power plant used to need to capture at least half a million metric tons to qualify. Now it needs to grab only 18,750.

Since the 45Q is an uncapped credit, it’s impossible to say how much money will be tapped by entrepreneurs who apply for it. The Congressional Budget Office estimates federal spending on carbon capture will be a relatively modest $3 billion in the new law’s first 10 years. But analysts at Credit Suisse Group AG put out a report in the fall of 2022 predicting the number would be closer to $52 billion.

Energy modelers predict that the amount of carbon captured in the US will rise from the current 12 million to 25 million metric tons a year to 200 million metric tons by 2030. “Where we are now is very much where we were with solar power in 2005,” says Julio Friedmann, a scientist who oversaw carbon capture programs at the Department of Energy during the Obama administration.

The world can’t limit Earth’s warming to 1.5C by 2050, the goal set by the Paris climate accord, without capturing about 6.2 billion metric tons of carbon by then, according to the International Energy Agency.

“Companies have decarbonization targets for themselves, for their investors,” says Tomeka McLeod, vice president for US carbon capture and hydrogen at BP Plc. “Now there’s an incentive in place to help it make sense” economically. BP is considering deploying carbon capture on its own facilities, such as its Whiting refinery in Indiana, and to act as a service provider to industrial emitters by helping them drill wells to inject carbon into the ground, McLeod says.

Many environmentalists oppose the CCS incentives, which they argue will only dangerously extend our use of fossil fuels. And they’re infuriated that the oil industry—which is arguably most responsible for global warming—is set to benefit from this response to it.

Each of the major oil companies, including Exxon Mobil, Shell and Occidental Petroleum, has its own plans for moving forward with carbon capture. Well before the IRA, Occidental pledged to build what could be the world’s largest single direct-air carbon capture facility, in Texas, by 2024.

The Texas project could claim as much as $90 million a year once it’s operational, and double that if it scales up to 1 million metric tons annually and buries it all underground. Occidental envisions building 70 such plants by 2035, each with the capacity to store 1 million tons a year. Even if the company were to build half that number, the potential tax credits could be worth more than $4 billion a year. A carbon capture hub with a capacity of 100 million tons a year, proposed by Exxon Mobil Corp., could also see annual credits running into the billions, though the oil giant has said it will likely need additional fiscal incentives to get it off the ground.

Still, the long-term profit potential is clear. Exxon and Chevron Corp. should both achieve a 15% average return on the capital they invest in low-carbon initiatives, which include carbon capture and hydrogen, spurring $4.1 billion and $2.3 billion in earnings by 2030, respectively, according to Morgan Stanley.

Calpine Corp., the country’s largest operator of gas-fired power plants, has earmarked 11 plants for carbon capture and is working on engineering plans to retrofit four more. Caleb Stephenson, executive vice president for commercial operations, calls the IRA’s tax credits a “game changer,” even though he says it will allow the company to break even at best only in the short term. “We can either leave those plants operating and emitting carbon, or we can spend the capital to retrofit them and reduce the emissions—that’s the choice,” he says. The IRA “gets us very close to being able to move on some of these things.”