Carbon Capture: Should Its Future Be Financed?

Carbon capture: it's a term we have all likely heard bouncing around in the energy and climate space for years. Carbon capture, utilization, and storage (CCUS) technologies have been around for decades; many have touted them as a key solution in reducing carbon dioxide in the atmosphere, and consequently, mitigating climate change. In recent months, we have seen billionaires like Elon Musk and Bill Gates offer funding for carbon extraction endeavors. Commitments like these show growth in private-sector conversations around climate investments. But for all the hype, there is just as much skepticism about both the viability and rigor of carbon capture as a mitigation tool. As these conversations continue, it is worth considering whether CCUS investment would be a smart addition to Leyline's portfolio.

What Is Carbon Capture?

The primary use of CCUS involves three main processes: capture, transport, and storage. Carbon dioxide is first "captured" from industrial processes, such as fossil-fueled power generation. It is then compressed and transported via pipelines, road, and water transport to a storage site. Storage entails either reusing the carbon, or (most commonly) injecting it back into the earth - think oil and gas reservoirs, un-mineable coal seams, and deep saline reservoirs, all of which are natural carbon repositories. There are currently at least 26 commercial-scale carbon capture facilities around the world, with 21 more in early development and 13 in advanced development. The earliest projects, implemented in the 1970s, were initially used to assist oil companies in retrieving more oil from the ground. In the 80s and 90s, the technology was expanded as a potential climate mitigation strategy and received a lot of hype.

Most carbon capture today entails factory capture, reducing the level of emissions released into the air. In terms of reversing climate change, however, we are already over 400 parts per million - a significant threshold for climate disaster and a record for human emissions. When capture technology was first emerging - around the same time that experts were first pushing climate projections to politicians and the public - simply scrubbing carbon from factory pollution may have been a sensible and successful plan. At this point, however, the amount of carbon already in the atmosphere is detrimental to climate goals. Direct air capture technologies, while they exist and may be essential for mitigation, are incredibly expensive and uncertain. So, the question remains - to what extent is carbon capture a useful and sound investment?

An Ongoing Debate

A big point of contention is the economics of capturing carbon versus mitigation at the source. CCUS is very expensive and energy intensive, and faces skepticism that drives further investment hesitation. As things stand, it is much cheaper to simply continue emitting carbon than to install capture technology or to shut down costly fossil-fueled assets. Capturing emissions from a gas-fired power station, for example, requires burning 16 percent more gas than normal, simply to provide the energy for CCUS. This yields 16 percent more emissions - not only of carbon dioxide, but other dangerous particulates and pollutions - and the cost of processing and transporting more gas. Overall, this is a tricky prospect for companies to consider. Deployment has thus been very slow, and CCUS investment has annually accounted for only 0.5 percent of global investment in clean energy and efficiency technologies.

On top of carbon capture's direct downsides, climate experts also argue that investment should go toward direct carbon reduction on the front end - i.e., let's try to remove ONLY what we can't avoid. Removal will play a role in mitigating climate change - but a more urgent objective is to transition away from emitting technologies, rather than making costly and intensive modifications to make them "cleaner." Again, a big issue with industries continuing to use polluting facilities, rather than implement non-emitting tech or carbon capture, is that the status quo is cheaper. If we're sinking money into more climate-friendly strategies, many argue that this is an opportunity to provide financial incentives and rewards for not burning fossil fuels in the first place. What's more, economic and efficiency models demonstrate that the energy return on energy investment in wind, solar, and other renewables far outpaces return on investment for the majority of carbon capture technologies.

Carbon Capture: The Next Move for Leyline?

So, in the world of lending, what is the smart choice regarding carbon capture? Despite the expense and uncertainty, a number of investors and businesses are still moving forward with projects. Oil giants like ExxonMobil are pledging billions toward carbon capture and storage businesses. Venture-capital startups like Carbon Engineering, Carbon Clean, and Blue Planet are attempting direct-air carbon capture at scale. These ventures look at industrial emissions sources like cement factories and steel mills, capturing their significant emissions and repurposing them into useful liquid fuels and limestone for "sustainable" concrete. What's more, a tax credit from the tail end of the Trump Administration allows for a deduction of up to $50 per metric ton of carbon captured and sequestered, although a short timeline (2025 deadline) may not generate significant benefits.

Still, though, there are many reasons to be skeptical. The enormous capital costs, uncertain political landscape, and lengthy time horizons required for projects make CCUS initiatives a tricky venture. As a whole, investors have been hesitant to commit to the industry. Estimates say that "massive [CCUS] deployments" won't even begin to have an impact on drawing down CO2 concentrations until at least 2070. This is a far cry from the significant action imperative climate experts demand within the next decade. Given all of these uncertainties, investing more in front-end reductions (i.e., conversion to renewables) seems the most logical option and is in line with Leyline's current projects. Leyline remains skeptical of CCUS' ability to effectively mitigate climate change and does not plan to invest in such technologies at this time.

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