A giant carbon dump gives glimpse into net-zero future

By Liam Denning

The world’s sleekest dump sits on an island near the picturesque port of Bergen in Norway. Strictly speaking, the gleaming Northern Lights terminal is just the gateway to the actual dump, where carbon dioxide will be offloaded from ships and then pumped down into an aquifer 1.6 miles below the seabed, about 60 miles offshore, keeping it locked away.

Getting to net zero mostly means stopping doing things that emit carbon. A supplement to this is capturing those emissions and storing them, like refuse in a landfill. In theory, carbon capture and storage, or CCS, offers the ultimate climate hedge for fossil fuel producers, albeit at a cost of perhaps $10 trillion through 2050. More likely, it will play a vital role in mopping up the most stubborn emissions, but will be outcompeted by faster-moving alternatives for energy transition.

Moreover, the incentives required to make it work would present, in themselves, a profound risk to fossil fuel producers.

Of the emissions that need to be eliminated to achieve net zero in 2050, Bloomberg NEF projects CCS accounting for 16 per cent of them. The amount being captured annually by 2050, more than 8 gigatons, would be bigger than the total energy-related emissions of the Americas today.

CCS typically involves chemically “scrubbing” carbon dioxide from the smokestack of, say, a power plant, then using heat to release the gas that’s captured before compression, transportation and storage. Another, newer set of technologies under development called direct air capture effectively suck carbon dioxide out of the atmosphere, rather than from chimneys. All of this is quite nascent: Global capture capacity operating today is equivalent to about 0.1 per cent of energy-related emissions.

None of this is cheap. Carbon capture on a US gas-fired power plant boosts the cost of its electricity by 54 per cent, factoring in capital and running costs, according to Bloomberg NEF estimates. The cost for industrial processes such as making steel or cement, including transportation and storage, range above $100 per ton, compared with current European carbon futures prices of around $76. As for direct air capture, that costs about 15 times the futures price.

Northern Lights epitomizes the role of government in making this work. While it is a joint venture between three oil companies— Equinor ASA, Shell Plc and TotalEnergies SE— the prime mover is the state.

Norway funds 80 per cent of the initial investment, up to a cap, plus some of the operating costs (Equinor is also 67 per cent state-owned). In return, the project won’t charge two emitters selected by the government, a cement plant and a waste-to-energy plant near Oslo, to store their carbon dioxide. A second phase will involve commercial customers, with two having signed contracts.

“The intent is to demonstrate the CCS chain can work and break the loop of ‘who’s ever going to invest in this new business?’,” Tim Heijn, Northern Lights’ managing director, said when I visited recently. As if to reinforce the showcase aspect, we met in a comfortable auditorium sized, I was told, to accommodate a busload of visitors plus guides.

Government backing is needed because carbon dioxide is mostly worthless; it is the gas’s absence that has value. Nick Cooper, executive chair of Storegga Ltd., a UK-based CCS developer, draws an analogy with efforts to clean up filthy cities in the 19th century: “Ultimately, there was a sea change and people said we need a sewage system to deal with our waste that we had previously been throwing out for free.”

CCS is a planetary-scale waste management business.Hence, its business model relies on revenue constructed by regulation. This includes subsidies like the generous 45Q tax credit in the US, worth up to $85 per ton, as well as emitters paying for CCS in order to avoid the cost of penalties.

Such inducements aim to encourage scale, reducing costs. Projects like Northern Lights and Storegga’s embody this as logistical hubs to aggregate emissions from plants across Europe. Similarly, US CCS projects are effectively overlaid on the existing oil and gas and industrial centers of the Gulf Coast.

This makes sense but also gets at the challenges of scaling up an industry that is effectively the mirror image of the existing fossil fuel-based industrial system. My first glimpse of Northern Lights’ towering storage tanks and pipes reminded me of an oil refinery. Success requires proximity to the right geological structures and emitting customers— an advantage for areas like the North Sea and the US Gulf of Mexico— plus lots of scrubbers, pipelines, tanks and ships.

The International Energy Agency estimates CCS will need somewhere between 60,000 and 360,000 miles of dedicated pipelines, up from less than 6,000 today, to fulfill net-zero ambitions. As for direct capture, the sheer volume of air it must move presents an implacable, and actual, physical headwind.

Bigger scale will result in some efficiencies, but CCS is competing with alternatives enjoying much faster learning rates, notably manufactured solar and wind power (another big-project technology, nuclear power, can relate).

For example, Bloomberg NEF anticipates the cost of US gas-fired power with carbon capture falling by about 3-6 per cent a year, through 2030 before flattening out. Renewables, meanwhile, have enjoyed annual cost declines in the mid-teens for years and are already the cheapest source of electricity in most of the world. This presents a particular complication for CCS projections because fossil-fuel generators seeking to curb emissions are expected to be the biggest customer base by far.

Yet any power plant developer considering adding CCS must factor in the risk posed by rising renewables. As the latter take more market share, they squeeze down utilization of traditional power plants, thereby raising the cost per ton of captured carbon considerably. There is a more robust economic case for CCS in industrial processes such as manufacturing cement, metals and chemicals.

The high heat requirements and, in some cases, chemical reactions emitting carbon mean electrification can only get so far in addressing these emissions. One of Northern Lights’ two commercial contracts signed so far is with a fertilizer and ammonia producer in the Netherlands.

Such challenges and uncertainties are Northern Lights hopes to “break the loop” of low investment. It has its work cut out: CCS investment lags far behind that of other cleantech, which in turn limits the scope for efficiency gains that might unlock more spending.

The point isn’t that CCS projects won’t get built; they will play a useful role, particularly for industrial sectors. One potentially big driver is the rollout of the European Union’s carbon border adjustment mechanism, externalizing the bloc’s carbon pricing. That may well catalyze similar measures elsewhere, including in the US, thereby creating wider markets for decarbonized commodities.

Such expansion, however, will remain tied to government support to a greater degree than in other cleantech sectors better placed to outgrow subsidies. That’s especially so because, unlike the stench and pests of festering sewage, carbon dioxide is odorless and its hazardous effects accrete over decades. Our desire to get rid of it is a regulatory construct rather than innate— hence the contentious politics.

Therein lies the flaw of seeing CCS as insurance for fossil fuel demand. Having CCS break out of niche applications to become widespread would require societies to internalize the risks of climate change to such a degree that they are willing to incentivize even the most expensive forms of emissions abatement on a sustained basis.

In that world, carbon pricing, either explicit or implicit, is robust, sustained and global— which would ultimately decimate demand for fossil fuels overall. CCS is a useful hedge against the energy transition’s own limitations but not against that transition itself.