Could Carbon Capture be Mission Impossible?

Analysts at McKinsey & Co. paint a grim picture for carbon capture, utilization and sequestration (CCUS) technology development in a recent report. 

In fact, the world needs not only new business models, but a 120-fold increase in investment to reach net zero by 2050. Without that, it will not even be possible at the present rate to reach the 2 C upper limit for global warming set by the U.N. intergovernmental panel on climate change, according to the McKinsey report Scaling the CCUS industry to achieve net-zero emissions published in late October.

Although CCUS technology is capable of decarbonizing 45% of remaining emissions from carbon-intensive industries ranging from cement to steel production, the report cautions that the pace at which technology adoption is taking place is an impediment to progress.

In its Global Energy Perspective 2022, McKinsey reported that the CCUS projects being developed now and those that are planned for development in the next few years will remove approximately 110 million tons per annum (mpta) of CO₂ by 2030. To achieve the net-zero commitments pledged by 64 governments at COP26, 715 mpta must be removed by 2030, and 4,200 mpta will need to be removed by 2050.

The lay of the land

Although there are many carbon capture technologies in development, McKinsey analysts categorize those technologies currently in place into three groups: industrial-point-source CCUS, direct air capture (DAC), and bioenergy with carbon capture and storage (BECCS).

All carbon capture technologies are contributing in some measure to decarbonization around the world, the report says. However, the one that is most important for short- and midterm decarbonization is industrial-point-source capture because of the volume of CO₂ emissions that can be removed from the environment. 

McKinsey’s research shows that more than 25,000 global industrial CO₂ emitters across 11 industrial sectors could be decarbonized through CCUS.

The potential for CCUS in reducing emissions from essential industries like iron, steel, cement, chemical and petrochemicals is considerable, but there are serious impediments to applying CCUS technologies to significantly reduce greenhouse-gas (GHG) emissions.

Identifying the obstacles to progress

One of the biggest obstacles to achieving net-zero goals is that policies governing CCUS projects are uncertain and inconsistent—in part because, in many cases, they are still being developed. 

“For decades, the widespread adoption of CCUS has been predicted to be just around the corner.”—Krysta Biniek, McKinsey & Co.

According to the report, policy requires, “a blend of direct incentives, such as support for shared infrastructure, indirect incentives, such as carbon prices or voluntary markets, regulatory enablement, such as permitting, and risk management, such as monopoly, offtaker or subsurface risk assumption.” Without these essential building blocks, it will be extremely challenging to develop clear guidelines that enable sustainable growth.

Another impediment to progress is the fact that revenue streams are not well established. Many companies have developed plans but have not yet funded them. Large-scale investment is a prerequisite for getting a large number of these projects off the ground. Analysts believe that money will come from four future revenue streams:

• Subsidies and regulatory interventions;
• A willingness on the part of consumers to pay for lower-carbon-intensity products;
• Valuation of CO₂ as a feedstock. Instead of limiting the focus to CCUS as a sort of waste-disposal business, companies developing solutions need to investigate ways CO2 could be sold as a product to generate a revenue source that offsets the cost of capture; and
• Voluntary carbon market. McKinsey gives examples of what this could look like. “First, some CCUS pathways, such as BECCS, DAC, and hydrogen or cement based on biofuels, have the potential to deliver negative emissions. In turn, negative-emissions credits can be monetized in voluntary carbon markets and will likely make up significant future value pools as the demand for high-quality negative-emissions offsets grows in the coming years. This means CCUS projects capable of delivering negative emissions could have a significant additional revenue source.”

Another critical challenge, McKinsey analysts say, is that many projects are “first-of-a-kind” and are large, unproven and “commercially fragile.” But even proven solutions that are theoretically scalable will be very difficult to coordinate. 

“Carbon capture through CCUS-anchored industrial hubs is only effective at scale if all components of the value chain are developed in a synchronized way. When compounding different business models—as well as the desire to build real options and phases of projects that come online at different times—making decisions on shared infrastructure buildout options can be quite challenging,” the report says.

Finally, public opinion—founded on the view that CCUS is simply an extension of the fossil-fuel industry—makes advancing developments harder.

Achieving economies of scale 

McKinsey analysts warn that to attract the funds required for development, CCUS business cases need to be stronger, which means they have to have merit without undue reliance on subsidies. So, more work needs to go into lowering capture costs.

According to the report, solutions also need to be scalable to have widescale impact, but scalability is hindered by a lack of collaboration and coordination among companies developing solutions. The authors suggest that collectively advocating for carbon taxes, higher emissions trading system (ETS) levels, and the removal of tariff barriers would help level the playing field to allow low-carbon products delivered using CCUS to be competitive. 

Regulators also have an important role to play. They must recognize that, as with any developing industry, CCUS needs support, which means frameworks that build up the industry are essential, and subsidies will be needed. Regulators must decide if CCUS can be a major feature of industrial policy and must establish regulatory, tax and reporting frameworks that will allow the industry to scale.

Investors are another integral part of the solution, the report says, explaining that in addition to pushing for bold ESG commitments on the part of CCUS technology providers, they should work to define, “the structures, vehicles and value chains that can make the technology investable.” 

According to Krysta Biniek, senior expert at McKinsey and co-author of the report, “For decades, the widespread adoption of CCUS has been predicted to be just around the corner.” 

If the world is to reach net zero by 2050, it is time to prioritize CCUS technology development, increase investment and turn the corner.