What we're reading about, 3/29/24

Climate, energy, and sustainability coverage we've been following around the web

(1) Carbon capture and storage (“CCS”) and especially direct air capture (“DAC”) is a major source of uncertainty in long-term energy and climate forecasting. As of 2022, only about 42 million metric tons (MT) of CO2 is captured each year. That’s just 0.1% of global emissions, and out of that 42 MT, and only a tiny fraction of that is carbon dioxide removal - CO2 that’s been drawn down from the atmosphere, rather than captured at a point source of emissions, like a coal-fired power plant. There is a huge difference in projections for CCS across the three scenarios in the IEA’s World Energy Outlook, from about 400 MT a year in 2050 in the realistic “Stated Policies Scenario,” all the way to about 6,000 MT a year in a net zero pathway.

(International Energy Agency)

Yale Environment 360 recently published a thoughtful deep dive on carbon capture, mainly focused on DAC, a much newer and more speculative set of technologies. Some 20 DAC plants are operating across Western countries, and over 100 are being developed globally. That may sound like a lot, but the largest plant in operation today (the “Orca” project in Iceland) captures just 10,000 tonnes of CO2 a year. The Y360 piece quotes an analyst from the World Resources Institute saying that scaling DAC is “technologically feasible,” and that the biggest unknowns are the level of policy support and private sector investment for the technology.

Aside from DAC, there are a handful of other ways to remove carbon once it’s escaped from a smokestack or blast furnace and been dispersed into the atmosphere. “Nature-based solutions” like planting forests that sequester carbon are currently cheaper and more scalable, but present huge problems around measurement (often, the climate benefits are measured against a counterfactual - how much better off are we than in a world where we did cut down this forest?), and permanence (see, wildfires destroying almost all of the forest offsets in California’s emissions trading scheme).

One simple but powerful point for me is that outside of nature-based solutions (where the benefits are debatable), DAC is very resource-intensive. Today, there are two main strategies for DAC, both of which depend on large fans to suck air into a processing area, where, per Y360:

“The first strategy absorbs CO2 onto a solid filter; then a combination of low pressure and moderate temperatures (around 90 degrees C) pulls the concentrated CO2 back out.”

This has high energy requirements, and although it could theoretically be powered by renewable energy (Orca leverages geothermal), it is unclear whether current future demand estimates for renewable energy factor in just how much energy would be needed for DAC at scale, or if long-term outlooks assume a massive improvement in the energy efficiency of DAC technology.

The other common approach to DAC adds on substantial water requirements:

“The second strategy absorbs CO2 into a liquid, transfers the CO2 to limestone pellets, and uses very high temperatures (about 600 degrees C) — typically supplied by a fossil-fuel-powered furnace — to remove the CO2 and recover the reagents. The CO2 released from the furnace can be captured too. This system requires a lot of water. But the chemical process is well suited to very large operations.”

Both of these are really expensive! Currently, the best estimate of the cost to remove one tonne of CO2 is ~$1,000. DAC proponents argue this will go down with scale, but it is unclear how much costs will fall by.

Finally, there is the question of what to actually do with the captured CO2 assuming companies are able to capture it. One option is to put it back underground (ExxonMobil, envisioning a future where CO2 is traded globally, recently purchased rights to CO2 storage in Indonesia and Malaysia). Another is to use it as an input in products like fertilizer, chemicals, or even carbonated beverages. Concrete and synthetic fuels that use captured CO2 are both examples of early-stage technologies being developed today.

But the kicker is that 75 percent of captured CO2 today is being used for enhanced oil recovery. CO2 gets injected back into aging oil wells, in order to help push out more gas and crude.

Overall, it seems reasonable to question whether the energy and capital needed to power DAC might be better used elsewhere. Mark Jacobson, director of the Atmosphere/Energy program at Stanford, argues that rather than building lots of renewable energy to power DAC, it would be a lot simpler and easier to just use it to replace electricity from fossil fuels: “there is never a case where direct air capture or carbon capture is useful.”

(2) The Biden administration is spending $6 billion to decarbonize heavy industry, including steel, cement, chemicals, and aluminum. The Department of Energy (DOE) says the funding will be allocated to 33 projects across 20 states, and, combined, will abate ~14 MT of CO2 emissions each year (compare to ~381 MT of industrial process and product use emissions in 2022). Reducing emissions in many industries is less straightforward than for the power sector, because many industrial applications require intense heat. As Morgan Bazilian, a professor of public policy at the Colorado School of Mines, told the New York Times:

“It’s different from the electricity sector, where widely available alternatives to fossil fuels like wind, solar and batteries have come down dramatically in cost… With industry, we haven’t yet seen clear winners emerge at the price needed.”

Leah Ellis, who runs a clean cement startup called Sublime Systems, one of the 33 award recipients, is also quoted in the piece:

“[Many novel technologies to cut industrial emissions] are too expensive for traditional venture capitalists and too risky for conventional project financiers … [DOE involvement] accelerates the scale-up of these technologies which must be developed and deployed globally as quickly as possible.”

(3) AI was a big topic of conversation at S&P Global’s CERAWeek energy conference, because it is expected to drive even more rapid growth in data center energy needs. Per Bloomberg, the surge in AI-related energy consumption means that by 2030, data centers might use more power than all houses and apartment buildings combined. For oil and gas companies, the hope is that this will drive gas demand for electric power higher.

Data centers are also seen as a potential target market for small modular reactors (SMRs), though the industry is relatively immature, with most SMR startups still at the design stage. Here’s Heatmap on the regulatory burden facing innovators in nuclear:

“As of today only a handful of small modular reactors are currently operational anywhere in the world, and none in the United States. The Nuclear Regulatory Commission, which governs all civilian nuclear construction in the country, has so far approved just one SMR design; NuScale… that approval process cost $500 million and took around five years.”

SMRs are probably too early to help tackle AI-related energy needs over the medium term. What might be more realistic is for the big cloud players to sign long-term power purchase agreements with owners of existing nuclear plants, or pursue co-development opportunities with nuclear plant owners - just look at Amazon’s purchase of a data center developed by Talen Energy around the Susquehanna nuclear power plant.

(4) A new report by Reclaim Finance analyzes the exposure of “sustainable” and “ESG” branded passive funds to the oil and gas industries. Out of the 430 funds they analyzed, from five US and European asset managers, 70 percent were invested in oil and gas companies that are expanding fossil fuel production. The report highlights how many of these funds are based on third-party “sustainable” indices, licensed from S&P and other index providers, and are often marketed to retail investors who don’t understand that sustainable funds don’t always exclude fossil fuel producers.

Further Reading

• As Carbon Air Capture Ramps Up, Major Hurdles Remain (Yale Environment 360) 

• Oil Giants Plan to Bury Massive Amounts of CO2 in Southeast Asia (Bloomberg) 

• Energy Dept. Awards $6 Billion for Green Steel, Cement and Even Macaroni Factories (NYT) 

• From AI to Oil, Demand Dominates the Talk in Houston (Bloomberg)

• The Advanced Nuclear Industry Would Like to Power Your Data Center (Heatmap) 

• Most Passive Funds Labeled ESG Finance New Oil, Gas Fields (Bloomberg) 

• Morningstar launches indexes on companies’ transition to low carbon economy (Utility Dive)

• 8th Circuit to hear consolidated lawsuits challenging SEC climate rule (Pensions & Investments)  

• NA100 Launches Sectoral Guide to Nature Engagement (ESG Investor)