Our Carbon Problem Is A Multibillion-Dollar Opportunity

Wal van Nierop

Mar 2, 2020

Published on 

Everyone is worried about the carbon dioxide problem, but nobody wants to pay for it yet. Industrial activity has emitted some 2,200 gigatons of CO2 in the past 150 years and continues to produce about 40 GT annually. If we exceed 2,620 GT, we’ll miss our shot to contain global warming within 1.5° C. Ecosystems, economies and communities will suffer irreversible damage as a result.

We have a mere 10 years to solve this problem, and there is no miracle scenario where we will replace fossil fuels with clean energy in time. Renewable energy, C02 sequestration in soil and carbon-zero production methods can do a lot, but not enough. Sources of mass market, dispatchable energy, like nuclear fusion, are coming, but not soon enough. Any hope for averting a climate catastrophe requires carbon capture, storage and utilization (CCSU) technologies.

To stay within 1.5° C, the International Energy Agency estimates that we need to capture 350 million metric tons of CO2 per year by 2030, either at the end of smokestacks or directly from the air. We captured 35 million tons in 2019—less than 1% of what we emit annually.

Why are we so far off target? Because there is no incentive to capture carbon.

So far, no country has managed to establish a viable carbon marketplace. But there’s hope. The cost of carbon is moving upwards. Startups including Climeworks, Svante, Carbon Engineering and others are making CCSU economical. And new policy proposals could make carbon markets not only feasible but profitable. What will it take seize this opportunity? And who will take it?

The Price of Pollution

Life on Earth is a balanced, evolutionary masterpiece that could not exist without CO2. Burning fossil fuels upsets this balance by releasing CO2 that has been stored underground for about 100 million years. This additional CO2 makes the Earth too efficient at trapping solar heat and hence causes temperatures to rise. Vegetation, soil and the oceans absorbed our surplus CO2 to the extent they could. But we pushed them beyond capacity, so now we need to lend nature a hand by preventing more CO2 emissions and by taking some out of the atmosphere.

At what price, though? The Trump administration claims that one ton of CO2 causes $1 to $7 USD worth of domestic social damage. That seems rather low given that disasters related to climate change cost the world more than $650 billion in the past three years according to Morgan Stanley. Moody’s Analytics predicts that 2° C of warming could cost the global economy $69 trillion by 2100. These numbers don’t capture the full impact on families, cultures, global health, and environmental refugees. No wonder that researchers think the cost of carbon in the U.S. is at least $50, and the global social cost is more like $417 per ton.

Let’s say policymakers priced CO2 at $100 per ton. That would mean that the 40 GT of CO2 we produce annually represent a $4 trillion tab. For perspective, that is 5% of the global economy, which, today, is worth about $80 trillion per year. Who’s willing to pay up?

Probably no one, unless we can create a marketplace where that $4 trillion of CO2 becomes an opportunity, not a cost. Carbon pricing, CCSU technology and policy need to be such that capturing, repurposing or permanently storing carbon dioxide is more profitable than emitting it into the atmosphere. That would create a carbon marketplace that minimizes further emissions, reduces levels of atmospheric CO2 and hence slows global warming.

Technologies to the Rescue

Two types of industrial carbon capture technology can meet the requirements of a carbon marketplace. “Point source capture” sequesters carbon from the end of a smokestack, effectively preventing emissions. “Direct air capture” uses a sort of high-tech vacuum cleaner to suck in air and collect the CO2, reducing the total volume of CO2 in our atmosphere.

Three startups lead the way on CSSU. Let’s begin with Climeworks, a direct air capture company based in Switzerland. In 2017, it commissioned the first commercial-scale direct air capture plant, which extracts 800 tons annually at a cost between $500 and $600 per ton. Climeworks hopes to bring the cost below $100 within five to ten years.

Although you can find Climeworks’ CO2 in local greenhouses and Coca-Cola products, the company also offers permanent underground CO2 storage as an offset. In fact, individuals can pay Climeworks a monthly subscription to convert their annual travel footprint into rocks. It’s the ultimate defense against flight shaming.

The big news in CSSU is a recent joint development agreement between Climeworks and Canada-based Svante (in which I’m an investor). Svante is renowned for its CO2 adsorbing nanomaterial filter, which, at scale, could reduce point source capture costs to $30 per ton. Combined, Svante and Climeworks might form the most powerful alliance in CCSU, with Svante’s nano-filter serving as the “Intel Inside.”

Svante’s test facility in Saskatchewan, Canada captures about 10,000 tons of CO2 annually from an industrial natural gas boiler. Its forthcoming commercial-scale facility, at a cement plant owned by LafargeHolcim in Colorado, aims to capture 725,000 tons per year of emissions for reuse and permanent storage in a depleted oil field or saline reservoir.

Another major player in CCSU is Canada-based Carbon Engineering, which is a pioneer in direct air capture. It’s designing a facility in the Permian Basin of Texas and New Mexico that could extract 1 million tons per year for permanent, deep underground storage in depleted oil reservoirs or sandstone formations. Carbon Engineering has suggested it can bring the cost per ton down to $94, but only in a scenario where the company uses the CO2 to make synthetic crude oil for gasoline, diesel and jet fuel.

The big question is: in what policy environment could these companies and their technologies thrive and grow a multibillion-dollar marketplace?

Governments Must Create the Playing Field for a Carbon Market 

The United States, surprisingly, is one of the most competitive places for CCSU. The reason is the Section 45Q tax credit for capturing and storing carbon.

Today, 45Q pays $35/ton for using captured CO2 in Enhanced Oil Recovery (EOR) or synthetic fuels. It also pays $50/ton for sequestering CO2 in geological storage. A bill under consideration might amend 45Q to pay an even higher credit for direct air capture: $43.75/ton for EOR or fuels and $65.50/ton for geological storage.

Still, the breakeven point for a true carbon marketplace is more than $50/ton, assuming a minimum $30/ton cost for capture plus $20 for transportation and storage. The CSSU industry can’t wait for 45Q to increase further, and the environment certainly doesn’t have time.

A complementary policy to 45Q would be a Fee and Dividend system, which is now under consideration in the U.S. House of Representatives. H.R.763, the Energy Innovation and Carbon Dividend Act of 2019, calls for a rising fee on the carbon content of fossil fuels at the point of extraction or importation starting at $15 per year and rising by $10 annually. The fees collected under H.R.763 would be distributed as a dividend to every U.S. citizen to offset higher gas prices and elevated costs for hydrocarbon-based goods.

Investor Daniel H. Miller and climate scientist Dr. James Hansen estimate that low and middle-class families would earn more from the carbon dividend than they would pay in higher prices. And the set pricing schedule of this Fee and Dividend system provides companies with certainty, helping them to plan ahead and strategically invest in low-carbon alternatives. Fee and Divided might just overcome the partisan divide in U.S. politics.

The Price is Right

45Q and Fee and Dividend could work together beautifully. 45Q rewards companies for either recycling carbon or permanently storing it. Fee and Dividend places a rising cost on producing and using more fossil fuels. Combined, 45Q plus Fee and Dividend could establish a market in which carbon prices surpass $50/ton.

At $100/ton, it would economically viable to capture CO2 at gas-fired powerplants and reuse it for feedstocks in industries like cement production, where startups Solidia and CarbonCure are making inroads. $100/ton is roughly the convergence point where CCSU technologies meet what consumers and the market are willing to pay.

Case in point: Microsoft, Amazon and Delta Airlines recently announced zero (or negative) emissions targets that are nearly impossible to hit without CCSU technologies and regulatory incentives. Widespread public support for these companies’ goals suggests that customers are willing to pick up the $100/ton tab voluntarily. If that price is right, the U.S. might just achieve the first commercial carbon market and provide a model that other governments can emulate.

Whoever Kickstarts the Carbon Market Could Win Big

Government regulations like 45Q and Fee and Dividend could indeed create a commercial carbon marketplace worth billions of dollars. That would finally spur real action on climate change.

But who will create the digital exchange that scales this market? Who will emerge as the big traders? Will it be traditional energy companies? What about IT companies that master the monitoring of carbon footprints tied to the Paris Agreement targets? Or, might new entrants shape the marketplace?

Time will tell. In the 21st century, breakthrough innovations rarely come from inside an entrenched industry, but early movers may win, nonetheless. Who will dare to try it?

We are running out of time. Governments should go the extra mile to incentivize first movers in CCSU. A commercial marketplace could turn our carbon problem into a massive opportunity. If the early players in the emerging carbon marketplace win big, everyone on Earth wins.