Money Is Pouring Into Carbon Capture Tech, But Challenges Remain

Today we also announced a new $1 billion climate innovation fund to accelerate the development of

carbon

reduction and removal

tech

nologies. Carbon

capture

and removal is receiving a lot of attention. From the oil giants. Exxon Mobil and a company called Global Thermostat announced an expanded joint development agreement to advance and bring to scale innovative

tech

nology that removes

carbon

dioxide directly from the atmosphere. To the technology visionaries. Elon Musk is offering a $100 million prize for the best carbon

capture

technology. And airlines. If we are going to solve the carbon problem, we have to use direct capture and sequestration to take carbon out of the atmosphere and store it permanently in the soil.

Government support for the industry is also growing. Last year, Congress authorized nearly $450 million over the next five years to research and demonstrate large-scale carbon removal. You're seeing a lot more action. And I think a lot of that was really driven by some of those reports that said it's not a nice-to-have technology. This is a must-have technology. In a 2018 report, the Intergovernmental Panel on Climate Change said that reducing our carbon emissions is no longer enough. If we want to limit global warming to 1.5 degrees Celsius and avoid the worst effects of climate change, we need to remove between 100 and 1,000 gigatonnes of carbon dioxide from the atmosphere over the 21st century.

We were actually evaluating many different pathways to reach 1.5 degrees C, but none of them could achieve the temperature target without removing CO2 from the atmosphere. Carbon removal can be done naturally by planting trees or by improving soil carbon storage through more sustainable agricultural practices such as crop rotation and better livestock management. But several companies are also working on engineering solutions for carbon removal. The process, known as direct air capture, sucks in CO2 directly from the atmosphere. Today, the cost of direct air capture is more than 50 times the cost per metric ton of most natural climate solutions.

Cost estimates for direct air capture actually range from $300 to $800 per ton of carbon dioxide. Direct air capture creates carbon dioxide as a byproduct and companies sell it for various purposes to offset the costs. But some experts say this can backfire. If you're just removing carbon from the air and spending a lot of

money

and not selling the carbon dioxide for some purpose, there's not really even a business model for that. Then they have to sell the CO2. So what is the best use of CO2 right now? Well, it's actually about pumping the CO2 into an oil well and making the oil less dense so that it floats to the surface and making the oil well more productive.

That's why this is called enhanced oil recovery. Oil companies love this because they can actually take the CO2 and then increase their oil production, which means we'll burn even more CO2, we'll burn more oil for transportation and other uses, and that will result in even more air pollution. and global warming. . The terms carbon capture and direct air capture are often used interchangeably, but they are not the same. Carbon capture refers to capturing carbon dioxide emissions at the source. The same happens in industrial and energy plants. Capturing carbon from industrial plant smokestacks is not a new technology.

Decades ago, oil and gas companies had to figure out how to extract carbon dioxide from the products they were trying to produce. And so they developed technologies to do just that. Now, aside from that, oil and gas companies also discovered that when they were trying to produce oil from depleted fields, if they pumped carbon dioxide into the rock, they could extract more oil from it. And so it was in the '70s when Chevron first combined these two technologies and funneled carbon dioxide from plants, which were gas processing plants, and pumped it into an old oil field.

Unlike carbon capture, which eliminates new carbon emissions, the main attraction of direct air capture is that it removes excess carbon dioxide that has built up in the atmosphere. Direct air capture is not yet widespread. As of June 2020, there are only 15 operational direct air capture plants in the world. But several startups are working to perfect the technology. CNBC spoke with two leaders in the space to see how they plan to attract or capture the mainstream. Canada-based Carbon Engineering has been experimenting with direct air capture since 2015. CNBC visited the company's pilot plant in Squamish, British Columbia, in 2019. At the time, the pilot plant was capable of capturing one ton CO2 metric per day.

Now Carbon Engineering is working on building a commercial facility in the Permian Basin with partner Oxy Low Carbon Ventures, a subsidiary of oil giant Occidental. According to Carbon Engineering, once the plant comes online in 2024, it will be able to capture up to one million metric tons of CO2 per year, which it says is equivalent to the CO2 that would be removed by 40 million trees or by taking 250,000 cars off the road. road. The company's method of capturing CO2 works something like this. Large fans draw air into a machine known as an air contactor. The air then passes through a honeycomb-shaped plastic surface that is covered with a carbon dioxide absorbent solution.

The resulting solution is then processed in a few more chemical steps to create calcium carbonate granules, which are then heated to an extremely high temperature to release CO2 as a pure gas. The solution is recycled and the process is restarted. It is a process that consumes a lot of energy. Carbon Engineering's pilot plant is powered by a combination of natural gas and renewable energy. The company plans to do the same with its commercial facilities, although it hopes to eventually operate them using 100 percent renewable energy. After capturing the CO2, there are several things Carbon Engineering can do with it.

The first is to inject the CO2 deep into salt formations, as well as into old oil and gas fields where it can be stored permanently. This practice is considered carbon negative, as it extracts existing CO2 from the air and retains it forever. Part of Carbon Engineering's business plan for the future is the sale of carbon credits, which companies can buy to offset their own emissions. Shopify has already agreed to be a customer. Virgin is also giving members of its Virgin Red Loyalty program the opportunity to use their points and have Carbon Engineering remove carbon molecules from the air on their behalf.

Another option involves using captured CO2 as a feedstock and combining it with hydrogen to create synthetic fuels. These fuels can be used to power existing gasoline and diesel vehicles, as well as aircraft, which are difficult to electrify. Carbon Engineering maintains that its process results in a carbon-neutral fuel because, although synthetic fuel releases CO2 when burned, the carbon used to create it was first removed from the atmosphere. Carbon Engineering has been experimenting with manufacturing synthetic fuels since 2017, but the company does not sell its fuels because the incentives that would make the fuel competitive are lagging behind. So, in the United States we have a renewable fuel standard, where the federal government incentivizes the production of sustainable fuels.

But air is not included as a raw material. So when I go and compete in the United States, my competitor, which makes fuel from corn or palm oil or renewable municipal waste, has a significant advantage in government subsidies. Finally, some of the CO2 that Carbon Engineering captures is sold to oil companies to improve oil recovery, or EOR. The practice is highly controversial and has led some experts to question the benefit of direct air capture. In the United States, fifty thousand new oil and gas wells are drilled each year, and under direct air capture, those wells would continue.

We would have fifty thousand new wells every year because the fossil fuel industry does not stop. You are actually promoting it by allowing it to continue and supposedly removing carbon from the air, but you are not actually stopping the fossil fuel industry or its extraction, transportation and refining of fuels. But Carbon Engineering says EOR is necessary until stricter carbon policies are implemented. Why does our first plant have an enhanced oil recovery element? It is fundamentally because political support for capturing CO2 today does not match our costs. So doing that with our first plant closes the gap in the economics of the first plant.

In the future, our costs go down. So enhanced oil recovery is an option, but not a necessity. And what we hope to see is a growing market for pure sequestration where you simply remove the CO2 and bury it permanently underground. But it's not there yet. The interesting thing when performing enhanced oil recovery with atmospheric CO2 is that more CO2 is captured from the atmosphere than is contained in the crude oil that comes out. So what that means is that carbon-neutral fossil fuel has effectively been produced. Carbon Engineering says the cost of capturing carbon using its technology ranges from $94 to $232 per metric ton of CO2.

Oldham says the company currently has a lot of startup costs. In addition to Occidental, some of Carbon Engineering's other investors include Bill Gates, along with oil giants BP and Chevron. For a company whose main goal is to absorb carbon from the air, partnering with oil companies seems counterintuitive, but Oldham maintains it has been an advantage. The climate problem is really big and, to solve it, we will need to bring together all the actors who have experience and knowledge. So, for example, with our partnership with Occidental we can capture CO2. That's what we do, Carbon Engineering. But what do you do with the CO2 afterwards?

Essentially, it needs to be stored again underground permanently. And Occidental has the experience to do it. Second is scale. Today we are a small company in British Columbia, Canada, but we want to build these massive plants around the world to have a material impact on climate change. But we need help from companies that can help us with that process. And then the third point, I have to be frank about this: the government policy and support just hasn't been there. So the commercial sector here is moving faster. To address the scale issue, Carbon Engineering is also licensing its technology to other companies.

Climeworks is another company working to solve our carbon problem through direct air capture. The company operates 14 direct air capture plants across Europe and is building its largest plant in Iceland. Currently, Climeworks plants are capable of capturing about 2,000 metric tons of CO2 per year. The Iceland plant, called Orca, will be able to capture 4,000 metric tons of CO2 per year once it is completed in April. Climework's carbon capture process differs from Carbon Engineering in that it uses a solid to absorb carbon rather than a liquid. Does it look like this. CO2 from the atmosphere is sucked in by what is essentially a large fan and captured on the surface of a filter located inside it.

Once the filter material absorbs as much CO2 as possible, the collector is closed and heated to around 100 degrees Celsius, causing pure CO2 to be released and collected. Climeworks says it can power its facilities using renewable electricity or energy from waste. The company's Orca plant will be powered entirely by a nearby geothermal power plant. For the storage part of the process, Climeworks has partnered with carbon storage company Carbfix. Once the CO2 is collected, it is mixed with water to form what is essentially hot mineral water. The mixture is then injected deep into a basalt rock formation. When CO2 is finally mineralized, it is permanently locked underground.

But costs

remain

high. To capture a metric ton of CO2, the company costs between $600 and $800. Climeworks hopes to reduce that cost to between $100 and $200 per metric ton within a decade. Part of the reason the cost is so high is because building a plant is expensive. The expected cost ranges from just six figures for a demonstrator to several million for a plant the size we are currently building. And obviously, if we are trying to build something, alreadyYou know, a scale removal capacity of one million tons per year, we're talking hundreds of millions. We've built a Tesla Roadster and proven it works, but it's still expensive and now we're relying on people to buy it so that one day there can be a Tesla Model 3.

Some people have already responded to the call to action. Climeworks began offering its carbon dioxide removal service in 2019. Anyone can register on their website, pay a subscription fee, and remove carbon dioxide on their behalf. Companies like Stripe, Shopify, and Audi have also partnered with Climeworks to remove carbon from the air. Microsoft has also invested. We purchased fourteen hundred metric tons of CO2 removal. We also invested in a new carbon capture facility they are building in Iceland. Like Carbon Engineering, Climeworks also sells the CO2 it captures. The company's first customer was a greenhouse in Switzerland, which used its CO2 to grow vegetables.

In 2018, Climeworks also partnered with Coca-Cola, Switzerland to provide CO2 for their sparkling water. Climeworks CO2 is also used as a feedstock for synthetic fuels. But one thing the company's CO2 is not used for is improving oil recovery. We don't actually support EOR. It's also something that's limited to the United States as a sort of discussion. So it's something that is not commonly done in Europe and we certainly won't do it. At this point, both Climeworks and Carbon Engineering say they are short of revenue generation and will likely need policy changes to be successful in the long term.

Some policies already exist to address carbon capture. In the United States, one such policy initiative is a tax credit known as 45Q, which was expanded in 2018 to include direct air capture. 45Q provides a tax credit of up to $50 per metric ton for capturing and storing CO2 and up to $35 per metric ton if the captured CO2 is used as a feedstock in things like fuels or for enhanced oil recovery. Between 2010 and 2019, ten companies claimed more than $1 million each in credits. As part of the tax credit rules, companies were supposed to develop monitoring plans for the CO2 they captured and submit them to the EPA.

But a report released last year showed that most did not follow EPA requirements. For the vast majority of credits, nine out of ten awarded, companies simply never submitted their monitoring plans to the EPA and the credits were awarded anyway. Along the way, several oil companies led by Exxon Mobil began pushing to change the regulations, to make them a little more flexible. And so companies now don't have to submit their plans to the EPA. They will have the option of using a third-party contractor to have their own verification process and make sure it stays underground. The IRS will not reveal who has benefited from this tax credit or how much they have received.

But by looking at which plants are eligible to claim the credit, we were able to determine that Exxon Mobil was in a position to claim at least a couple hundred million dollars, which may have been the largest portion of any company under this tax credit. Low-carbon fuel standards, such as those enacted in places like California, Oregon and British Columbia, could drive greater demand for synthetic fuels, such as those made from CO2 captured by Carbon Engineering and Climeworks, as well as demand for credits of the company's carbon. Others have suggested that a carbon tax could help carbon capture technologies take off.

Today, 25 countries around the world have a national carbon tax, but the United States is not one of them. Ultimately, policymakers will decide on the use of direct air capture. When policies incentivize stopping an emission and do not similarly reward eliminating it, the tendency is naturally to look for technologies that can stop an emission if they are cheaper. Our job at Carbon Engineering is to build the tools and be prepared with the tools so that we have the technology when the policies are implemented. Almost everyone agrees that for direct air capture to have a significant impact, government support is needed.

As part of his $2 trillion climate plan, President Biden has said he will double federal investments and improve tax incentives for carbon capture and storage technologies. But Microsoft stresses that large corporations also have a role to play. When we really look at how they can be incentivized through financial vehicles and new markets to develop, there are actually three legs to that stool. As a client. As an investor. And as a donor or philanthropist. And so we're doing the two that we really have the power to act on. And any corporation that can do that should. Another thing that many experts agree on is that while direct air capture and storage is an important tool for achieving our climate goals, we shouldn't put all our eggs in one basket.

If you do the math, you should implement all carbon removal opportunities to their maximum capacity. Only then will we achieve our overall social climate goals. Direct air capture will be an important part of achieving a net-zero carbon economy, but it has many engineering

challenges

ahead, and we need to be clear-eyed about it. Otherwise, there will be many dashed hopes and unfulfilled goals as we move from 2020 to 2030, 2040 and 2050.