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<\/figure><\/div>\n\n\n\nCCUS is recognized as a necessary and relatively low-risk piece of the decarbonization puzzle, but the technology is not moving fast enough to achieve a 1.5\u00b0 or even 2.0\u00b0 pathway. This article explains what the CCUS industry can do to overcome historical challenges and reach the scale required for net-zero emissions. Specifically, we map how the industry can generate revenues and move beyond a subsidy-only business model, and we discuss what governments, investors, and industry players can do to help scale the technology. Future articles will discuss other scaling requirements, such as lowering the costs of implementing CCUS and developing hubs and clusters.<\/p>\n\n\n\n
An overview of CCUS: Will it finally arrive?<\/h3>\n\n\n\n
There are three main types of technological carbon capture today (with many more in development): industrial-point-source CCUS, direct air capture (DAC), and bioenergy with carbon capture and storage (BECCS). Industrial-point-source capture is most important for short- and midterm decarbonization because the technology is ready today and has the potential to capture large volumes of CO\u2082 emissions from hard-to-abate industries that have few other decarbonization options. Predicated on achieving significant cost reductions, DAC has the potential to unleash decentralized carbon removals at scale in combination with a multitude of revenue-producing technologies from sustainable aviation fuel (SAF) to hydrogen production. BECCS will be critical as the net-zero transition progresses, particularly as attention further shifts to scaling carbon removal from the atmosphere and nature-based solutions reach their capacity.<\/p>\n\n\n\n
That said, several challenges must be overcome before industrial-point-source CCUS can reach scale, especially around policy and regulatory support, cost, and public acceptance. Based on the current CCUS project pipeline, approximately 110 million tons per annum (MTPA) of CO\u2082 are expected to be captured annually by 2030. To achieve the net-zero commitments pledged by 64 governments at COP26, approximately 715 MTPA are required by 2030 and 4,200 MTPA by 2050. 5<\/sup><\/a><\/p>\n\n\n\n Our research shows that more than 25,000 global industrial CO\u2082 emitters across 11 industrial sectors could be decarbonized through CCUS. These facilities are distributed all over the world, with China, Europe, India, and the United States accounting for more than 60 percent of industrial-point-source emissions. The highly distributed nature of emissions means that these challenges will be solved not through the formation of a small number of decarbonization hubs but by deploying capital at scale across a large number of projects around the world.<\/p>\n\n\n\n Doing so, however, requires tackling the following underlying challenges:<\/p>\n\n\n\n Despite these historical challenges, there is good reason to believe that the current push will be different. The NDC commitments made late last year at COP26 in Glasgow, which brought net-zero coverage of global emissions to more than 90 percent, provide a clear basis for governments to get serious about regulatory enablement of the industry. 8<\/sup> <\/a>And some early clusters in Canada, Europe, and the United States are showing how to overcome the complexity of projects.<\/p>\n\n\n\n Although CCUS is currently seeing significant innovation, especially in the capture stage, it is unlikely in the short to medium term that costs will come down across the value chain as they did with technologies such as electrolyzers for hydrogen. Many CCUS technologies, such as compression and pipelines, are already mature, while others rely on bespoke brownfield projects that can be difficult to standardize. This means revenues will need to balance out business cases. Such revenues fall into four categories, and each will likely need to grow significantly to make the CCUS industry viable.<\/p>\n\n\n\n Tax credits, direct subsidies, and price support mechanisms are already beginning to encourage investment in CCUS. For example, the 45Q tax credit in the United States provides a fixed payment per ton of captured carbon dioxide sequestered or used. 9<\/sup> <\/a>The IRA has provided a significant boost to 45Q by increasing the amount of the credit from $50 to $85 a ton for sequestered industrial or power emissions, and from $50 to $180 a ton for emissions captured from the atmosphere and sequestered. The IRA also makes the credit easier to claim by lowering capture volume requirements, implementing direct pay for a period of five years, and enabling the credit to be transferred to other parties. 10<\/sup> <\/a>However, tax credits such as 45Q largely benefit established revenue-generating companies with significant tax burdens to reduce, but pre-revenue start-ups and innovators with limited tax burdens benefit less. Although the previous 45Q credit spurred development of projects with a low cost to capture such as in ethanol, the enhanced 45Q is expected to support development in higher-cost sectors, such as cement and steel. The IRA has often been compared to the solar incentive from ten years ago, but the capital expenditure requirements and build time are an order of magnitude larger for CCUS, limiting speed and economies of scale that solar manufacturing, for example, could rely on to bring down costs.<\/p>\n\n\n\n In the European Union, the EU Emissions Trading System (ETS) is the world\u2019s largest greenhouse-gas (GHG) emissions trading scheme, covering emissions from around 10,000 manufacturing facilities and installations in the power sector. Overall, the EU ETS covers approximately 40 percent of the European Union\u2019s GHG emissions. 11<\/sup> <\/a>Low-carbon fuel standards (LCFS) such as those in California create a market-priced incentive for approved pathways that lower the carbon intensity of fuels. In many developed countries, including Canada, the European Union, the United Kingdom, and the United States, direct grants are being awarded to support carbon prices between emitters and transportation and storage, a move that should enable at-scale deployment of CCUS by the end of the decade.<\/p>\n\n\n\n But these direct-pricing, price-support, and market-making strategies are not the only ways regulators can stimulate the industry. Equally important are tools such as product standards\u2014for example, mandating certain volumes of green commodities, including steel or cement, in public or private construction projects or structuring markets to protect more expensive, CCUS-enabled products. On this point, the European Union\u2019s carbon border tax will also go into effect in 2026, effectively charging importers and non-EU manufacturers for the carbon emissions that stem from their goods or materials sold in the European Union. 12<\/sup> <\/a>This is designed to level the playing field between decarbonized products produced in the European Union and higher-carbon (and potentially lower-cost) imports.<\/p>\n\n\n\n Regulatory backstops are also important tools in stimulating the CCUS industry. For example, the decision in the United Kingdom to phase out unabated gas power by 2035 effectively forces gas providers to switch to hydrogen or install CCUS to continue to deploy flexible power to balance renewables. Canada has also committed to a cap on emissions from the oil and gas sector, without capping production.<\/p>\n\n\n\n Importantly, these regulatory measures can have effects far beyond the internal markets they are set to cover. For example, steel offtakers for plants outside the European Union will have incentives to invest in CCUS and other decarbonization technologies if it results in better market access or lower tariff barriers, meaning plants could invest in the technology without local regulatory regimes. This is likely to be observed in products such as steel and hydrogen (particularly lower-carbon \u201cblue\u201d hydrogen from the Middle East).<\/p>\n\n\n\n Many companies believe businesses and consumers are willing to pay premium prices for green products, whether a car that has a net-zero bill of materials, a cleaning product packaged in net-zero plastic, or houses or apartments constructed with zero-carbon cement. In fact, a recent survey shows UK consumers could be willing to pay up to 100 percent more for zero-carbon plastic bottles. 13<\/sup> <\/a>This willingness to cover extra costs is translating into real prices. Today, recycled polyethylene terephthalate (rPET) trades at a 10 to 20 percent price premium, and similar stories hold true for other sectors. For example, several automakers have signed deals with steelmakers to procure green steel. 14<\/sup><\/a><\/p>\n\n\n\n Many companies believe businesses and consumers are willing to pay premium prices for green products.<\/p><\/blockquote>\n\n\n\n Green premiums are likely to be highest for zero- or near-zero-carbon products, making CCUS-enabled premiums particularly promising in sectors such as cement, where CCUS is the leading option for deep decarbonization. The key user of cement, the construction industry, is under significant pressure to go green in response to new policies, such as France\u2019s RE2020. 15<\/sup> <\/a>In addition, market studies show substantial willingness to pay for various types of green homes, including energy efficient, low-carbon energy, and zero energy. One recent study found that LEED-certified Class A urban office sales generated a 25.3 percent price premium over noncertified buildings. Some of this premium can be attributed to energy efficiency, but it can likely cover the additional cost of green cement in the overall construction costs, which is typically around 3 percent. 16<\/sup><\/a><\/p>\n\n\n\n However, this consumer willingness to pay will not be universal across industries or geographies. To create maximum value from green premiums, commodity producers should understand customer preferences, identify market segments with higher willingness to pay, and identify segments undersupplied by green products. Initial demand centers could include downstream businesses with ambitious decarbonization targets or niche or intermediary refined-product value chains. Luxury consumer segments could also be a good entry point because materials make up a smaller percentage of costs in luxury goods, so substantial green premiums on materials will have modest impacts on the final prices of products. 17<\/sup> <\/a>However, this high-end market segmentation also limits the decarbonization potential from lower-carbon-intensity premiums. This will require a much deeper understanding of end markets by commodity producers to create the \u201cgolden thread\u201d of consumer green premiums back into the supply chain.<\/p>\n\n\n\n Most CCUS business cases assume that captured CO\u2082 will be transported to a local site and sequestered, meaning the CCUS industry is effectively a waste-disposal business. This is an expensive process that involves complex infrastructure and ongoing measuring, monitoring, and management. The utilization of CO\u2082 and its sale as a product offer a revenue source to offset the cost of capture. Although sequestration will be part of the equation when and if CCUS scales, incumbent players and entrepreneurial start-ups alike are increasingly seeking productive uses of CO\u2082.Sidebar<\/p>\n\n\n\n One of the primary uses of CO\u2082 today is enhanced oil recovery, for which the CO\u2082 is employed as a working fluid to extract additional oil from reservoirs while storing some CO\u2082 underground. Other uses are also gaining momentum. For example, there are several commercial offerings of CO\u2082-based polymers, particularly polyurethane foams and polycarbonates, although the overall volume of polymers produced is small compared with the required volumes of CO\u2082. Cement and aggregates could potentially permanently store a high volume of CO\u2082 by forming a reaction between the CO\u2082 and minerals in the mix of cement and aggregates, and many start-ups have demonstrations in the works to gain the confidence of a conservative construction industry.\u00a018<\/sup>\u00a0<\/a>In addition, CO\u2082 can be combined with hydrogen to create synthetic gasoline, jet fuel, and diesel (see sidebar, \u201cMaking green products with captured CO\u2082\u201d).<\/p>\n\n\n\n <\/p>\n\n\n\n![\"\"](\"https:\/\/renewable-carbon.eu\/news\/media\/2022\/11\/Bildschirmfoto-2022-11-04-um-11.57.06.png\")
<\/figure><\/div>\n\n\n\nNew investments will depend on four future revenue streams<\/h3>\n\n\n\n
Subsidies and regulatory interventions<\/h3>\n\n\n\n
Willingness to pay for lower-carbon-intensity products<\/h3>\n\n\n\n
Valuation of CO\u2082 as a feedstock<\/h3>\n\n\n\n
Making green products with captured CO\u2082<\/a><\/h3>\n\n\n\n