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The emergence of CCUS hubs is making it easier for industrial companies in sectors like cement, steel, chemicals, fertilizers and waste-to-energy to consider CCUS as part of their pathway to net zero.
Industrial companies in hard-to-abate sectors like cement, steel, chemicals, fertilizers and waste-to-energy are increasingly looking at CCUS as part of their pathway to net zero. BloombergNEF’s net zero scenario suggests that CCUS could make up 29% of industrial emission abatement by 2050, alongside clean hydrogen, electrification, bioenergy and recycling.
Finding the right business model to finance carbon capture is still tough, but that is changing in a growing number of countries as carbon prices rise, new low carbon product standards are introduced, and funding is directed to companies in hard-to-abate sectors to speed up decarbonization.
Depending on their location, emitters may be able to secure income from multiple revenue streams, including compliance (carbon) markets such as the EU ETS, tax credits, voluntary carbon markets, carbon dioxide as a commodity and low carbon product markets.
The emergence of CCUS hubs is making it easier to embrace CCUS, without having to take responsibility for building pipelines and drilling storage wells – and without long-term liability for the stored carbon dioxide. First movers in each sector face the challenges of managing first-of-a-kind capture projects, but they have the advantage of locking in future storage space to implement their net zero transition plans.
Direct carbon dioxide emissions from chemicals production totalled nearly 1 Gt in 2021 and the IEA singles out CCUS as the most important lever for the sector’s decarbonization, with electrification of refinery furnaces unlikely to be possible until after 2040.
In order to reach a net-zero pathway consistent with the Paris Agreement, the chemicals sector must triple the volume of carbon dioxide captured annually across the industry, reaching nearly 0.5 Gt per year by 2060 – with most of that stored permanently.
Some of the world’s largest chemicals companies are aggressively pursuing CCUS as part of their net-zero strategies.
As of 2019, the fertilizer sector was the single largest industrial user of carbon dioxide, consuming nearly half of the 220 Mt in commercial circulation each year. This carbon dioxide, in combination with ammonia, is used to create urea, the basis for synthetic fertilizer. Ammonia production itself generates huge quantities of carbon dioxide, largely due to the energy and processes needed to isolate its components – hydrogen and nitrogen – from various sources and then combine them to create ammonia. Experts estimate this accounts for roughly 1.4% of all global carbon dioxide emissions, with nearly twice the emissions intensity of steel and four times that of cement.
The carbon dioxide released when isolating hydrogen from coal or natural gas can be captured and itself used as feedstock further downstream in fertilizer production. The sector’s pre-existing use of capture technology makes CCUS an attractive pathway for it to achieve net zero; the IEA says 100 million tonnes of storage by 2050 will be needed.
Major fertilizer makers are undertaking and proposing several CCUS projects, predominantly as part of the ammonia production cycle.
Concrete comprises 7% of global greenhouse gas emissions, most of which emerge when limestone is converted into cement, concrete’s main ingredient. Although many players are looking for lower-emitting substitutes to limestone and other inputs, the IEA still sees a major role for CCUS in the sector’s decarbonization, contributing 18% of the total between 2017 and 2060.
The Global Cement and Concrete Association lists 34 CCUS projects around the world involving its member companies, and aims to have 10 cement plants around the world outfitted with CCUS by 2030.
CCUS is also growing as a decarbonization lever among other top cement makers.
Processing iron and making steel are highly emissions-intensive, accounting for 11% of global carbon dioxide emissions, according to one estimate. The industry typically uses coal both to generate the high temperatures needed to turn iron into steel and as a feedstock for the process itself. CCUS could abate emissions at various points in the steel value chain; the IEA estimates it will account for 15% of the reductions needed for the industry to meet net-zero targets, reaching 10 Gt in total by 2060.
Major steelmakers are recognizing the potential of CCS.
Waste from households, businesses and other sources is typically collected and sent to landfill, where it breaks down and releases methane, a potent greenhouse gas – as much as 11% of the worldwide total, according to estimates. Burning waste to generate electricity instead is not a new idea – by 2027, the global capacity of such waste-to-energy plants could total 530 Mt, avoiding as much as 6.27 Gt of greenhouse gas emissions by 2050. Yet this process releases carbon dioxide – between 0.7 and 1.7 tonnes per tonne of waste as a result of the gas burned to fire the plants.
Several facilities are capturing and using the carbon dioxide emitted in this process. One plant in Japan has been capturing carbon dioxide released from waste incineration to grow algae to make skin lotion since 2016. A plant in the Netherlands will utilize captured carbon dioxide to help crops grow when it becomes operational at the end of 2023.
But many cities are looking to capture and sequester carbon dioxide from their waste-to-energy plants, taking advantage of the negative emissions that come from the organic waste, which typically makes up 50% of municipal waste (see bioenergy below).
Oslo opted to use CCUS for its Hafslund Oslo Celsio plant. It will capture 400,000 tonnes of carbon dioxide per year and store it in Northern Lights once operational. It aims to be the first full-scale facility to divert carbon dioxide from waste-to-energy into permanent storage. Waste incinerators in Zurich and London (Cory) are also working on CCUS projects.
Burning organic material – from crops, food waste, algae and other sources –currently comprises 55% of all renewable energy as defined by the IEA. Attitudes differ as to the climate benefits of bioenergy production, since the carbon dioxide released in biomass combustion could be reabsorbed by plants, theoretically constituting a “climate-neutral” pathway. In practice, however, the additionality of this approach is difficult to prove and some assert that biomass generates more emissions than fossil fuels.
Bioenergy with CCS (BECCS), on the other hand, is an unmitigated climate win. The IEA’s net-zero scenario sees BECCS projects removing net 250 Mt of carbon dioxide from the atmosphere annually by 2050. Rapid scale-up will be necessary from the current annual amount of only 2 Mt.
Several players are entering this space. Britain’s Drax is sketching out blueprints to build the world’s largest carbon capture facility at a bioenergy plant, which could remove 8 Mt carbon dioxide per year once operational, storing the carbon dioxide in the East Coast Cluster hub. It has plans to build BECCS plants in the US to store a further 4 Mt. In the US, a network of ethanol plants in the Midwest could form what its developer says is the largest carbon capture and storage project in the world, with capacity to store 12 Mt every year.
Japan plans to open what it bills as the world’s first negative emission biomass power plant as an extension of a pre-existing CCU pilot at a waste incineration plant (see waste incineration), which will capture more than 182,000 t annually.
The exact cost of carbon capture depends to a great extent on the mixture of gases captured. If there is a high proportion of carbon dioxide, at high pressure and on a large scale, it is relatively easy to capture, making costs much lower than for dilute or low-pressure exhaust gases.
Emitters need certainty on the specifications (around purity and pressure) of carbon dioxide to be delivered to the transport and storage operator. The tighter the specifications, the higher the costs for the emitter. Impurities such as water, nitrogen, SOx, NOx, carbon monoxide, hydrocarbons and mercury can have major implications, such as corrosion, for carbon dioxide transportation and storage infrastructure and on how the carbon dioxide behaves once it is injected into the target reservoir deep underground.
Compression costs will vary depending on the capture and associated industrial process but can be high to meet pressure specifications.
Depending on their location, emitters may be able to secure income from multiple revenue streams, including compliance (carbon) markets such as the EU ETS, tax credits, voluntary carbon markets, carbon dioxide as a commodity and low carbon product markets.
Government support to emitters typically takes the form of capital grants and operational cost funding, through a contract for difference on a carbon price, as in the UK and Netherlands, or a storage tax credit combined with a low carbon fuel standard, as in the US.
Emitters are likely to recover their capex on investments in carbon capture over a longer period of time than is normal for other investments. Returns will effectively be regulated as opposed to market driven.
A CCUS hub takes carbon dioxide from several emitting sources, such as heavy industries and power, and then transports and stores it using common infrastructure. Emitters can sit on one physical location, close to the main storage infrastructure or feed into the infrastructure through a broader transport network that links to it. For emitters, the hub offering opens up CCUS as a decarbonization option without them having to take responsibility for building pipelines, drilling storage wells and monitoring carbon dioxide storage.
The downside is that developing a CCUS hub is complex. The value chain typically consists of a hub developer who initiates and manages the value chain; multiple emitters who guarantee to capture and supply carbon dioxide; a single transportation and storage company (that could serve several hubs) and a growing number of service providers.
Many industrial emitters with different industrial processes and specific regulatory constraints need to be pulled together in a big infrastructure project. It is, therefore, important to communicate clearly to the hub developer and/or transport and storage operator what it will take to optimize your production operations – while capturing carbon dioxide.
Multiple parties need to take their Final Investment Decision at the same time for the CCUS hub development to proceed, representing a major project development risk. Possible solutions to the timing risk faced by emitters include creating a contractual structure where the transport and storage operator guarantees to take carbon dioxide or taking a direct ownership share in the transport and storage company.
Lining up the value chain, allocating risks and liabilities along it and negotiating fees and terms are difficult – but first-mover emitters are locking in scarce storage space to implement their decarbonization plans.
CCUS involves three phases: capture, transport and storage. In a CCUS hub, emitters are responsible for capturing a near-pure stream of carbon dioxide, compressing it and getting it to a pick-up point. In some regions, service providers are emerging to take care of compression and temporary storage.
In this early phase, most emitters are adapting capture technology to their specific processes. This testing phase would require additional expenditure in the feasibility (pre-FEED) phase.
Before committing to expensive FEED studies, the emitter needs to get a clear understanding from the transport and storage operator that the proposed reservoir has sufficient permanent storage capacity and that the injection wells will work.
A key part of the commercial negotiations between the emitter and transport and storage operator focuses on the allocation of risks. Emitters face project risks around technology, construction, price and operations, which are common to any infrastructure investment. For hubs, the specific project risks are around volume, leakage and multi-stakeholder project development.
Emitters’ hard-to-reduce risks include revenue risk, relating to an insufficiently high carbon price, cross-chain risks arising from the interdependency of the CCUS value chain, and long-term storage liability risk.
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