Carbon capture and storage
FINANCE
The challenging costs of CCS Most climate models acknowledge the need for the permanent removal and storage of atmospheric carbon dioxide. But it’s difficult to find organisations willing to fund the development of such technologies. Jennifer Johnson looks at how a combination of innovative finance and policy backing could turn the tide for CCS.
C
ost has long been a barrier to the successful deployment of carbon capture and storage (CCS) technologies. There’s no hiding the fact that it’s expensive to develop any new industrial process, but low carbon prices mean there’s presently little incentive for private companies to lead the way with CCS. From a financial perspective, retrofitting a gas-fired power station or a steel plant with carbon trapping equipment is nothing more than a capital outlay. This is why the fledgling CCS sector is searching for viable business and investment models to help get its technologies off the ground. The International Energy Agency (IEA)’s Sustainable Development Scenario stipulates that almost 15% of all emissions abatements needed to keep global temperature rise below 2°C must come from CCS. The Global CCS Institute (GCCSI), a think tank that aims to accelerate the deployment of carbon capture technologies, has calculated that this will require a
Climeworks, the developer of Orca, has broken funding records for direct air capture firms – showing that the private sector is increasingly interested in carbon capture Photo: Climeworks
nearly 100-fold increase in CCS capacity by 2050. According to a report from the Institute, Unlocking Private Finance to Support CCS Investments, the need for CCS in the Sustainable Development Scenario translates to building some 70–100 facilities each year. The cost of such a rollout will require somewhere between $655bn and nearly $1.3tn. ‘Most existing CCS facilities have been funded primarily on the books of large corporations or state-owned enterprises,’ says Dominic Rassool, Senior Consultant – Policy and Finance at the Global CCS Institute. ‘The magnitude of investment required, and the fact that many companies are constrained by their balance sheets means this model will not support rapid growth in CCS capacity. There are trillions of dollars available in the private sector for investing in CCS but allocating it requires policy incentives which facilitate viable business models for CCS.’
Project finance It’s incumbent on the private sector – rather than governments – to provide this capital because the requisite amount ‘far outstrips what governments are willing to pay in the timeframe required’, the report reads. This means CCS must be funded by capital markets, debt and additional sources, such as sovereign wealth funds, none of which currently support carbon capture at any significant scale. The GCCSI believes that a model known as project finance could encourage potential investors to come forward, as could the use of green bonds applied to CCS projects. Many of the CCS projects that have been funded to date have utilised a traditional corporate financing structure, in which a single entity foots the bill for the full development of a scheme. If the project exceeds (or merely meets) financial expectations, there will be no trouble. But if the project fails to generate the
What are the true costs of storing carbon? According to an analysis published in February by the IEA, there is no single cost for carbon capture projects, as the figures vary greatly depending on the source of CO2. Industrial processes that produce highly concentrated streams of carbon, including fossil gas processing, can cost $15–$25 per tonne of stored gas. Meanwhile, it can cost as little as $40 and as much as $120 per tonne to store CO2 produced by ‘dilute’ processes, including cement production and power generation. DAC is currently the most expensive method of capturing carbon. CCS developers must also factor in the costs of transporting and storing carbon dioxide, which varies according to location and the
36 Energy World | October 2021
availability of infrastructure. However, some sectors will simply have to be prepared to pay for carbon capturing technologies, as there are few other options for decarbonising them. Cement production is one such industry, as is iron and steelmaking, where production routes based on CCS are currently the most advanced and least-cost low-carbon options. IEA analysts have reported that CO2 capture raises the estimated costs of steel manufacturing by less than 10%, while approaches based on electrolytic hydrogen can raise costs by 35–70% compared with conventional production methods.
