• George Anjaparidze

Economics of Direct Air Carbon Capture

Policy Pulse – 14 June 2022 – George Anjaparidze

Photo by Chris Lutke on Unsplash

  • Direct air carbon capture processes are effective and can be cost-competitive, the capture of a metric ton of CO2 can be achieved at a price range of $94 to $218

  • Cost of capital is a key factor determining the cost-competitiveness of direct air carbon capture

  • Carbon pricing mechanisms in 2022 across leading markets had a price range of $87 to $137 per metric ton of CO2

  • Support for cost-effective direct air carbon capture technologies can have a transformational impact as these technologies could enable meeting Paris Agreement temperature goals while continuing to use significant parts of the existing energy system, thereby allowing adequate time for meaningful transition to sustainable energy use


Background

Carbon dioxide (CO2) removal refers to taking carbon out from the atmosphere either through natural or technological means. According to almost all scenarios considered by the latest IPCC climate mitigation report, carbon dioxide removal could help take out between 192 – 1221 Gt CO2 from the atmosphere in this century. The high-end of this range (1221 Gt CO2) represents a colossal amount. It is roughly 80% of all CO2 emitted by human activity since 1750 or about 20 times the current global annual greenhouse gas emissions in CO2 equivalent terms.


The most cost-effective forms of carbon removal from the atmosphere can be found in agriculture and forestry sectors, which include activities such as vegetation growth as well as sequestration of carbon in soil. Opportunities in agriculture and forestry sectors represent the next wave of cost-effective climate action. However, the full carbon sequestration potential of these sectors remains unrealized due in part to concerns related to permanence, meaning investments that support carbon sequestration activities in these sectors have been held back by concerns that the captured carbon will at some point be released back into the atmosphere. For example, because of forest fires and erosion. Permanence concerns in these sectors have been addressed through program design features such as buffer pools, where unexpected underperformance in any one particular year or project can be matched by accumulated emission reductions in the buffer pool, set aside from portfolios of projects. Nevertheless, not all countries have the available resources, especially land and water, to pursue opportunities in agriculture and forestry sectors.


Therefore, in countries where land and water resources are scarce, carbon sequestration through use of technology can have an important role in climate mitigation strategies. Carbon sequestration methods, including direct air carbon capture, that store the captured carbon in solid, compressed gas or solution form, can give more certainty on permanence with negligible risk of CO2 leakage into the atmosphere. However, technologies and processes such as direct air carbon capture are characterized by much higher costs. Nevertheless, several initiatives and companies, including Climateworks AG and Global Thermostat, are investing in bringing these technological solutions to market. One company, Carbon Engineering, developed an innovative direct air carbon capture process at an industrial scale using existing mature technologies. The result is a direct air carbon capture process that is cost-competitive with existing carbon prices in leading markets.


New direct air carbon capture processes can be cost-competitive

The cost of capturing one metric ton of carbon dioxide using new direct air carbon capture processes developed by Carbon Engineering is estimated to be between $94 and $134, depending on the operating conditions and when the cost of capital is zero. However, when the cost of capital is high, for example 12.5% per year, the cost range becomes $145 to $218 per metric ton of carbon dioxide captured. These ranges are broadly consistent with estimates of the International Energy Agency, which reviewed a larger set of processes and technologies for direct air carbon capture.


In comparison, direct carbon pricing mechanisms in 2022 across leading markets had a price range of $87 to $137 per metric ton of carbon dioxide. Therefore, under certain conditions direct air carbon capture can offer a cost-competitive alternative compared to existing carbon pricing practices.

The three types of direct air carbon capture plants presented in the chart are the same as plant configurations A, B, and C contained in the Joule Journal 2018 paper “A Process for Capturing CO2 from the Atmosphere” and have the following characteristics:

  • Early plant – represents expected costs of constructing and operating early plants where locations have geological storage and comparatively low natural gas prices.

  • “N-th” plant – reflects improvements in construction costs, better supply chain relationships, and other learning that are expected to be realized after the construction of early plants.

  • “N-th” plant with cheap power – incorporates the learnings associated with “N-th” plants and in addition is deployed in locations with low-carbon electricity that is available at low-cost.


Policy implications of cost-effective direct air carbon capture processes

Direct air carbon capture has the potential to offer near endless opportunities for sequestering carbon at the same carbon price, when required conditions are met. In effect, the availability of this technology at cost-competitive rates and at scale can put a price ceiling on reducing carbon emissions. Meaning emitters would in effect have the option to pay for direct air carbon capture instead of implementing more costly emission reductions. In addition, in countries that are phasing-out nuclear power, direct air carbon capture technology can allow the continued pursuit of ambitious climate goals while using fossil fuels to balance intermittency of renewable power. In Europe, availability of direct air carbon capture technology has the potential to reduce opposition of radical climate activists to urgently needed projects that strengthen energy security by enhancing access to Caspian energy resources.


Technologies and processes, such as direct air carbon capture, have the potential to remove greenhouse gases from the atmosphere at a rate that would enable the world to continue to use significant parts of the existing energy system while meeting Paris Agreement temperature goals, thereby allowing adequate time for meaningful transition to sustainable energy use. Despite this potential, there are risks associated with these technologies as it could turn out to be more costly in practice to deploy or could have unforeseen adverse consequences that hinder implementation. Nevertheless, the availability of these technology options points to the need to keep an open mind about how to solve the climate mitigation challenge and the importance of using technology neutral policy instruments to incentivize desired investments.


Carbon pricing policies can be designed in a technology neutral way and are generally more efficient instruments than the use of bans or blacklists of certain technologies or fuels. Therefore, using carbon pricing metrics to measure alignment with temperature goals is more appropriate than trying to engineer alignment with some predetermined technology-based policy trajectory. Carbon pricing is not a panacea and is most effective when combined with a broader policy mix. Nevertheless, in general, a price signal on carbon ensures that the most cost-effective emission reductions are prioritized not only within a sector but also across sectors. Ensuring appropriate accounting and equal treatment between emitting and capturing carbon are among the key issues to resolve for using carbon pricing to support carbon capture and sequestration actions. An added benefit in the current economic context is that carbon pricing can create fiscal space to foster green recovery and growth.


In the context of direct air carbon capture processes developed by Carbon Engineering, public policy intervention and support may be appropriate to accelerate the learning from early plant development to “N-th” plant deployment. While individual projects using Carbon Engineering technology have received support, including grants, tax credits, and promise of future carbon credits, there is a need for a more systematic approach that targets lowering the cost of capital. An enabling framework that reduces the cost of capital, without dulling the appetite of equity investors, may be an appropriate option to consider (for example through availability of more attractive debt financing). In the US context this may imply the need for a federal debt support facility, whereas internationally it may be fitting to incorporate these considerations in policies of export credit agencies and providers of international concessional finance.


Crucially, governments should not restrict their focus only on processes developed by Carbon Engineering, which were inherently limiting as the designed carbon capture approaches used only mature technologies. In parallel, governments should also support research and development of more novel approaches to carbon capture because in the longer-term they may prove to be even more cost-effective. Commitments by governments to support technology-based direct air carbon capture processes will motivate further research and breakthrough solutions.


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