When energy and utilities companies tie capital allocation decisions to their greenhouse gas (GHG) emissions reduction targets, they’re taking the first step on the path to carbon neutrality. Indeed, investing in clean technologies is fast becoming a front-and-center priority for both sectors. In particular, those companies with a wide carbon footprint can expect to benefit from aggressively deploying existing and emerging technologies for capturing and storing carbon.
Carbon capture likely will only become more important to achieving increasingly high climate change aspirations. President Joe Biden announced in April the ambitious goal of cutting US GHG emissions in half by 2030 (against 2005 levels), with an emphasis on green-energy job creation. In addition, Biden’s $2 trillion infrastructure proposal allocates $35 billion for investment in GHG-reducing technologies such as carbon sequestration. While the proposal has yet to make its way through Congress, these targets signal a political climate that could support innovative public-private initiatives to help reduce carbon emissions. In fact, we have already seen a trend of increased capital investments in the development and construction of carbon capture facilities over the past few years.
To reduce its carbon footprint to zero, a company must find ways to prevent the release of GHG emissions—particularly carbon dioxide (CO2)—into the atmosphere. This process is often referred to as CCS, for carbon capture (or control) and sequestration (or storage). CCS is not a new concept, but multiple CCS technologies, both physical and digital, have made significant progress in recent years. That’s good news. These technologies fall into three broad categories:
The CO2 isolated with any of these methods is transported, typically via pipeline, to a storage facility. Current storage technologies rely on geological formations that allow for deep underground storage of CO2, such as oil and gas reservoirs or deep saline rock formations.
Investors have tended to be somewhat skeptical of CCS; however, with the heightened awareness of activist investors and the growing focus on environmental, social and corporate governance (ESG), advancing (and betting on) CCS is now front and center. This has led to an increase in CCS activity in all industries, including energy and utilities players that are looking past CCS to explore options for putting CO2 to use.
Beyond CCS lies CCUS: the same strategies plus utilization. Going forward, the EUM sector likely will not only seek to store carbon but also consider the array of cutting-edge technologies that aim to use captured carbon—and even transform it into an income stream. Carbon recovery and upcycling technologies such as the following may offer the greatest promise for achieving a net-zero emissions economy:
Carbon is, increasingly, a valuable commodity. Energy giants and many central banks now project the market price of carbon to rise to $100 per tonne by 2030, setting a key threshold toward rapid acceleration of the deployment of these technologies.
But there is no need to wait a decade to benefit from such approaches. Dynamic market forces unleashed by the global effort to reduce carbon emissions will likely affect energy and utilities businesses in both the near and long terms. Some companies may be only in the nascent stages of enhancing the capital investment systems, tools and processes they will need to meet their climate action goals. But many are making rapid advances, too.
A growing number of startups around the world are seeking to help enterprises in carbon-emissions-heavy industries—particularly energy and utilities companies—to meet their net-zero goals. The idea is to develop not only technological innovations but also a new funding model. Instead of relying on government subsidies, as many have before, some companies are discovering ways to convert captured carbon into cash. And recent data suggests that such initiatives are beginning to attract more venture capital.
Despite the COVID-19 recession, VC-backed carbon capture startups set an investment record in 2020.1 And while nontraditional investors (including governments) still dominate in CCUS, traditional investor interest is growing.
1: Source: PitchBook: “Carbon Capture Is All the Rage. Can These Startups Make It Profitable?”
The International Energy Agency sees CCUS today as a story of growing momentum: Technologies like the ones described above, says the IEA, are seeing a “rapid scaling-up of investment, wider deployment and accelerated innovation,” all encouraged by “strengthened national climate targets and new policy incentives.” Convergently, declining costs, new business models and advancing technologies are attracting investor interest, too. The time to invest in carbon capture technology has come.
Sequestering and upcycling carbon will probably remain at the core of EUM companies’ programs to achieve carbon neutrality indefinitely. Yet, in one sense, the most important consequence of adopting a holistic CCUS strategy is how that supports another critical pathway to carbon neutrality: reducing how much carbon is emitted in the first place—all the way down to zero.