The Economics of Carbon Capture and Storage Finally Make Sense
The bill introduced significant modifications to the existing tax credit, boosting the payouts to $85 for each tonne of CO2 sequestered underground and $60 for those used to enhance oil recovery.
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Carbon Capture Stocks to Watch
Linde ($LIN) has made a long-term deal with Exxon Mobil to transport and store carbon dioxide captured at Linde's new hydrogen facility in Beaumont, Texas. The annual 2.2 million tonnes of removed CO2 is equivalent to the emissions from nearly half a million cars.
Occidental Petroleum ($OXY) plans to build five carbon sequestration hubs in Texas and Louisiana and is expanding its pipeline network to gather CO2 from industrial emitters. Occidental is also constructing a plant to remove CO2 from the air, with agreements already in place to sell carbon credits to companies including Airbus, Shopify, and Thermo Fisher Scientific.
Air Products & Chemicals ($APD) is investing $4.5 billion to build the largest blue hydrogen facility in Louisiana and a multibillion-dollar net-zero hydrogen complex in Edmonton, Canada. They are already capturing CO2 for enhanced oil recovery in Port Arthur, Texas. Linde is also investing $1.8 billion to construct a blue hydrogen plant in Texas and sell it to OCI Global's new ammonia plant. They will capture the emitted CO2 and have contracted with Exxon to transport and store the trapped gas underground. The hydrogen can be combined with nitrogen to produce ammonia, an important industrial gas used in fertilizers and the production of plastics.
Denbury ($DEN), a US-based carbon capture and storage firm, has announced several contracts to transport and store 20 million tonnes of CO2 annually, with an expectation to reach 50 to 70 million tonnes by 2030. The firm predicts revenue of $15 to $25 per tonne of CO2 transported and stored. The production of blue ammonia also offers opportunities, as the concentrated CO2 produced at ammonia plants makes capture cost-effective. Denbury has already signed agreements to transport and store the captured CO2 from the ammonia plants of Mitsubishi and Nutrien.
For years, the oil-and-gas industry has been using captured CO2 to enhance their production, while others have sold the gas to industries that need it as feedstock. However, the technology was not economically viable if the additional income couldn't cover the expensive costs and upfront investment.
The Petra Nova project, once the largest U.S. project to capture CO2 from a coal-fired power plant, closed down in 2020 after the pandemic reduced demand for fuel and led to a collapse in oil prices. More than a decade ago, the U.S. government introduced tax incentives that offered businesses up to $50 for each tonne of CO2 permanently stored underground, but that subsidy wasn't enough.
Industries that need to cut their emissions the most tend to emit more diluted CO2 streams, making it more expensive to capture. For example, the cost for cement plants ranges from $60 to $120 per tonne, well beyond the $50 tax credit offered by the government. As of September 2022, there were only 30 operational commercial carbon-capture-and-storage projects worldwide, capturing about 0.1% of the world’s total emissions.
The Inflation Reduction Act (IRA) could change the market dynamic. The bill introduced significant modifications to the existing tax credit, boosting the payouts to $85 for each tonne of CO2 sequestered underground and $60 for those used to enhance oil recovery. For many projects, the economics of carbon capture and storage finally make sense.
A key aspect of the policy is that the gap between the two numbers has widened from $15 to $25, according to Julio Friedmann, chief scientist at carbon management firm Carbon Direct. "That math has reversed, it is now more lucrative to just store CO2 in saline aquifers," he says.
Since the IRA was passed last August, dozens of carbon capture projects have already been announced in the U.S. Collectively, they are expected to reduce CO2 emissions from energy and industrial sectors by 20 million tonnes a year, according to Friedmann. The Inflation Reduction Act would increase the use of carbon capture 13-fold by 2030, according to the REPEAT Project led by Princeton University’s ZERO Lab.
