How Vital Will Carbon Capture Technology Really Be for Reaching Net Zero?

Carbon Capture, Utilization, and Storage (CCUS) is a combination of technologies used to remove Carbon Dioxide (CO2) from the atmosphere. CO2 is captured at point-source industrial and power facilities, concentrated, and purified through a range of technologies. Capture CO2 is compressed and transported via underground pipeline, truck, rail, or ship to be stored in underground formations or reused for other industrial processes. CCUS is considered by many to be essential for reaching the Net Zero Emissions (NZE) by the 2050 Scenario outlined in the Paris Agreement due to its ability to remove hard-to-abate emissions, particularly from heavy industries like steel, cement, and oil & gas.

CCUS is expected to play four key roles in the net-zero transition: reducing emissions in heavy industries; clean hydrogen production; tackling emission from existing energy assets; and removing carbon directly from the atmosphere. However, the actual role carbon capture will play in contributing to the emissions reduction necessary to reach net zero is widely disputed, as CCUS technology comes at a significant cost and is logistically complex to implement. Some also contend carbon capture investment is merely an excuse to extend the consumption of fossil fuels with lesser environmental impact.

The carbon capture market has shown signs of good growth, with increasing investment from organizations and governments around the world. In 2023, the United States announced funding of around US$3 billion for carbon demonstration projects, while the European Union (EU) announced funding of US$1.5 billion. According to the International Energy Agency (IEA), there are around 45 carbon capture projects in operation globally, with a total annual capture capacity of around 50 Million Tons (Mt) of CO2. Around 700 projects are in different stages of development across the CCUS value chain, with expected capture capacity in 2030 increasing by 35% last year.

The application of carbon capture also continues to grow across industry applications as the necessity for sector-wide decarbonization targets grows. Currently, around 65% of all projects in operation are at natural gas processing plants, the lowest cost application of carbon capture. Investment in CCUS projects is diversifying to industries such as power, hydrogen, iron and steel, and Direct Air Capture (DAC). As technology develops and costs fall across industry applications, the contribution of CCUS to emission reductions will continue to grow.

A combination of the use of renewables and improvements in energy/material efficiency in the industrial and energy sectors would enable a significant contribution to overall emission reduction; however, these are not enough to fully decarbonize industries. Organizations like the IEA and International Renewable Energy Agency (IRENA) recommend countries define net-zero strategies where CCUS plays a role to ensure all emissions are targeted. Despite this, the current economic viability of carbon capture remains a significant challenge to global implementation and progress is well off the pace outlined in the NZE. According to the IEA, around 1 billion metric tons of CO2 needs to be captured annually around the world by 2030, around 20X more than the 50 million metric tons captured in 2023. The current expected level of carbon capture capacity by 2030 (based on existing, planned, and under construction projects) is just 40% of NZE requirements.

This lack of development is due to high costs, lack of investment incentive, and regulatory uncertainty, rather than technological immaturity. There is immense cost associated with building carbon capture infrastructure, and retrofitting the technology in industrial plants can also cost hundreds of millions of dollars. According to Rystad Energy, global spending on CCUS projects is expected to reach US$241 billion by 2030, assuming all project applications are granted. However, only 5% of planned projects, to date, have materialized, and CCUS captures only 0.1% of CO2 emissions globally, according to BloombergNEF.

In addition to the economic inhibitors, there are question marks about the performance of CCUS in industries where it was previously deemed to be a vital decarbonization tool. CCUS in the steel industry, for example, is being overlooked as steelmakers turn to Direct Reduced Iron (DRI) and electrolyzer technology to decarbonize the industry, creating green steel. Capture rates at the few CCUS plants for steel production are very low and there are no more commercial-scale projects in the pipeline. Steelmakers are advised to review decarbonization strategies where carbon capture plays a major role.

The broader industrial sector needs to prove that CCUS is economically viable at scale given its history of sluggish growth in deployment. Industry leaders like Shell, BASF, and Exxon Mobil continue to invest in the technology and demonstrate its potential for reducing emissions. However, the rapid acceleration in deployment required to meet the NZE scenario will need government support in the form of capital grants, tax incentives, and regulation. With a significant increase in capacity, CCUS technologies can undoubtedly play a prominent role in industrial decarbonization.