Carbon Capture Technology: Panacea for Climate Change or False Promise?
Companies and governments are counting on carbon capture to help achieve net-zero emissions targets.
However, carbon capture technologies are costly and available only on a small scale.
While we generally view investments in carbon capture positively, we are focusing on companies that are actively working to boost their production of renewables, shift toward transitional fuels and reduce fossil fuel consumption.
Responding to increasing demands from investors, many large energy companies are investing in carbon capture technologies to help reduce the impact of greenhouse gas (GHG) emissions and achieve net-zero targets without lowering oil and gas production.
Carbon capture, utilization and storage (CCUS) are a suite of technologies designed to capture carbon dioxide (CO2) from high-emitting activities such as power generation and industrial facilities that either burn fossil fuels or use biomass for fuel. The captured CO2 is then compressed and transported for use in various applications or stored underground.
CCUS Is Attracting Attention
ExxonMobil, which recently committed to achieving net-zero emissions by 2050, said that carbon capture and storage is essential to its strategy. In 2021, the company rolled out a proposal for a massive $100 billion carbon capture and storage program centered in Houston, Texas, including offshore saline reservoirs in the Gulf of Mexico.1
Occidental Petroleum is building a direct-air-capture plant in West Texas whose carbon-removal technology relies on fans to suck in air, separate the CO2 and inject it underground into old oil fields. The company envisions a potential new line of business that will assist other companies to reach their CO2-reduction targets.2
Policymakers are increasingly interested in these technologies. For example, Prime Minister Boris Johnson has pledged £1 billion in public funds to help develop four major CCUS schemes in the UK by 2030 as part of the Labour Party’s green industrial revolution.3
Tesla and SpaceX founder Elon Musk is involved in carbon capture solutions as well. In February 2021, he and the Musk Foundation launched the $100 million Carbon Removal XPrize to encourage the development of carbon capture technologies.4
Big Potential . . .
Despite the headlines about and investments in CCUS, its ultimate usefulness is hotly contested. Advocates contend that, in theory, carbon capture is quite attractive. With improved technologies and scale, CCUS could potentially capture 90+% of CO2 emissions from industrial facilities and power plants.5 Energy uses account for over three-quarters of greenhouse gas (GHG) emissions globally; power plants account for almost 42% of that total, while industrial uses (manufacturing and construction) contribute over 16%.6
Data as of 2018. Source: Climate Watch.
CCUS is also becoming a crucial part of corporate and governmental policies to reduce CO2 levels. Estimates show we must remove about 4 billion to 7 billion tons of CO2 annually to meet the 2015 Paris Accord pledges, and the International Energy Agency projects carbon capture would account for nearly 15% of that.7
In addition, carbon capture can concurrently remove pollutants, such as nitrogen oxides and sulfur oxides, which are particularly harmful to vegetation—the earth’s original carbon capture technology. Ambient exposure to these pollutants may also lead to adverse respiratory effects in humans, notably lung diseases.
Lastly, stakeholders could put captured CO2 to productive use in enhanced oil recovery efforts, refining various fuels and manufacturing building materials. They could then store any unused CO2 in underground geological formations. While this scenario would require a significant investment in technology it would allow oil and gas producers to reduce emissions without fundamentally changing their business models.
. . . But Troubling Incentives?
Therein lies the crux of critics' arguments against carbon capture: Investing in CCUS technologies would prolong the world’s reliance on fossil fuels and detract from efforts to pivot to renewable alternatives. These technologies are still in the nascent stages of development, and their scalability is unproven. Research and development costs alone would be prohibitive, not to mention the amount of money needed to build large-scale CCUS plants.
There are currently just 21 large-scale CCUS industrial and power plants in operation worldwide.8 Swiss company Climeworks runs one of the world’s largest carbon capture efforts. Its Orca plant located in Iceland is the first CCUS facility to filter CO2 directly from the air and store it permanently underground. However, removing a single ton of CO2 at the Orca facility costs between $600 and $800.9
To limit global warming to 2 degrees Celsius, the United Nations estimates that 10 billion tons of carbon dioxide will have to be removed from the atmosphere annually by 2050.10 And although Climeworks wants to improve its approach to reduce the cost to between $100 and $200 per ton (in line with the U.S. Department of Energy’s goal), at current pricing, it would cost $6 trillion per year to achieve the world’s GHG emissions targets for 2050 using this carbon capture technique.11
Not only is this prohibitively expensive, but CCUS plants would need to scale rapidly to make this feasible. Experts estimate that CCUS capacity needs to grow from 40 million tons today to at least 5,600 million tons to meet the Paris goals of limiting global warming to no more than 1.5 degrees by 2050, not including the potential negative environmental impacts of carbon transport and storage.12 For example, storing CO2 underground and in natural rock formations could potentially damage biodiversity.
American Century Investment’s Perspective on Carbon Capture
Our environmental, social and governance (ESG) team understands the importance and potential of carbon capture. Without fossil fuels, many power plants worldwide would shut down. That would mean manufacturers could not make or ship products, economic activity would go into a tailspin, and people’s livelihoods and access to food would suffer tremendously.
Although the world’s alternative energy infrastructure is not ready to shift away from burning fossil fuels, in our view carbon capture is not a panacea for the GHG emissions problem.
Think of carbon capture in the same vein as companies’ net-zero commitments, as these pledges demonstrate that firms recognize climate change as a pressing issue they must address. And like net-zero commitments, carbon capture represents the progress that industrial facilities and power plants could make in the future (if many things go right) without making more tangible moves toward reducing the absolute level of emissions today.
When our ESG team analyzes companies, we have a positive view of investments in carbon capture technologies. However, our analysis focuses on moving toward transitional fuels and renewables and away from fossil fuels. While we view investments in carbon capture as a nice-to-have, we believe investments in alternative energy are a must-have. For us to consider a company as best-in-class, it must be actively working to:
Increase production of renewables.
Shift toward transitional fuels.
Decrease fossil fuel consumption.
Industries are restructuring to fight climate change in ways that allow economies to continue working while achieving emission-reduction goals. In our view, carbon capture represents a single brick in the climate change mitigation process, but not the entire foundation.
“ExxonMobil announces ambition for net zero greenhouse gas emissions by 2050,” News Release, ExxonMobil, January 18, 2022; David Blackmon, “Exxon’s $100 Billion Carbon Capture Plan: Big, Challenging and Needed,” Forbes, April 22, 2021.
“Oxy Low Carbon Ventures, Rusheen Capital Management Create Development Company 1PointFive to Deploy Carbon Engineering’s Direct Air Capture Technology,” News Release, Occidental Petroleum Corp., August 19, 2020.
Rachel Morrison and William Mathis, “UK Sets Out Sweeping Plan to Reach Net-Zero Emissions,” Time, October 19, 2021.
“$100M XPrize for Carbon Removal Funded by Elon Musk to Fight Climate Change,” XPrize Foundation, February 8, 2021.
“Carbon Capture,” Center for Climate and Energy Solutions, accessed March 14, 2022; Mark Dwortzan, “This is how carbon capture could help us meet key Paris Agreement goals,” World Economic Forum, August 2, 2021.
“Historical GHG Emissions,” Climate Watch, accessed April 5, 2022.
Irina Ivanova, “Congress is spending billions on carbon capture. Is it a climate savior or a boondoggle?” CBS News, January 25, 2022.
Sam Meredith, “Carbon capture is expected to play a pivotal role in the race to net-zero emissions. But not everyone agrees,” CNBC, July 20, 2021.
Ben Soltoff, “A step forward for CO2 capture,” Techcrunch, December 3, 2021.
Removing 1 ton of CO2 at the Orca plant costs at least $600, and 10 billion tons of carbon dioxide will have to be removed from the atmosphere annually by 2050, producing an estimate of $600*10 billion = $6 trillion.
“Carbon Capture Must Grow at Warp Speed to Meet Climate Goals: IEF Report,” International Energy Forum, September 23, 2021.
Many of American Century's investment strategies incorporate the consideration of environmental, social, and/or governance (ESG) factors into their investment processes in addition to traditional financial analysis. However, when doing so, the portfolio managers may not consider ESG factors with respect to every investment decision and, even when such factors are considered, they may conclude that other attributes of an investment outweigh ESG considerations when making decisions for the portfolio. The consideration of ESG factors may limit the investment opportunities available to a portfolio, and the portfolio may perform differently than those that do not incorporate ESG considerations. ESG data used by the portfolio managers often lacks standardization, consistency, and transparency, and for certain companies such data may not be available, complete, or accurate.
References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.