Carbon Capture Technology: Panacea for Climate Change or False Promise?

Efforts to reduce carbon dioxide (CO2) and other greenhouse gas (GHG) emissions are expanding globally. However, renewable energy sources like solar and wind are insufficient to achieve critical emission-reduction targets. Therefore, reducing energy consumption and fostering innovation are essential in combating climate change. Recognizing that the world will continue to rely on fossil fuels for a significant portion of its energy needs, companies are developing technologies to capture carbon emissions both at the source and from the air.

“Carbon capture, utilization and storage” (CCUS) refers to technologies that capture carbon dioxide (CO2) from high-emission sources such as electric power plants and energy-intensive industries such as cement and steel manufacturing. The captured CO2 is then compressed and transported for use in other applications or stored underground. While not a new idea, CCUS has recently attracted billions of dollars in investment from governments and the private sector, aiming to make it scalable and economically viable.

Carbon Capture Technology’s Role in Reducing Emissions

Advocates for investing in CCUS innovations emphasize that carbon capture could be a true game changer in the fight against climate change. With improved technologies and scalability, CCUS could capture 90% or more of CO2 emissions from industrial facilities and power plants. This technology could also help reduce emissions in activities where switching to clean energy and other greener solutions isn’t yet feasible.¹

Energy use accounts for over three-quarters of GHG emissions globally. Power plants account for almost 42% of this total, and industrial uses (manufacturing and construction) contribute over 16%.² Therefore, CCUS could play a crucial role in efforts to limit the rise in average global temperatures to no more than 1.5 degrees Celsius above pre-industrial levels, as outlined in the 2015 Paris Agreement.

In addition, carbon capture can simultaneously remove other pollutants, such as nitrogen oxides and sulfur oxides, which are particularly harmful to vegetation—nature’s original carbon capture technology. These pollutants not only damage ecosystems but also pose respiratory risks to people. Ambient exposure to these pollutants may have adverse respiratory effects on people, notably lung diseases.

CCUS Is Attracting Attention from Governments and Innovators

CCUS is becoming crucial to governmental and corporate plans to reduce CO2 levels. Estimates show we must remove an estimated 4 to 7 billion tons of CO2 annually to meet the 2015 Paris Agreement pledges. The International Energy Agency projects carbon capture could account for nearly 15% of this CO2 removal.³

Policymakers and other stakeholders are increasingly interested in these technologies. For example, in December 2023, the UK announced plans to invest £20 billion in CCUS, including establishing a new competitive market to unlock more investment and drive economic growth, using competition to drive costs lower for the industry. The plan outlines the potential to capture and store CO2 equivalent to taking 6 million cars off the road.⁴

Tesla and SpaceX founder Elon Musk is also involved in carbon capture solutions. In February 2021, he and the Musk Foundation launched the $100 million Carbon Removal XPrize to encourage the development of carbon capture technologies.⁵

Fossil Fuel Industry’s Investment in Carbon Capture and Storage

Oil and gas producers are some of the biggest supporters of CCUS. ExxonMobil has said that CCUS is essential to its commitment to achieving net-zero emissions by 2050. In 2021, the company proposed a massive $100 billion CCUS program to be centered in Houston, Texas, an area with some of the most polluted air in the U.S. If the project achieves the scale proposed by Exxon, the participating companies in the region could receive over $4 billion annually in federal tax incentives for 12 years.⁶

Occidental Petroleum (Oxy) is building a direct air capture plant in West Texas. The company’s carbon-removal technology relies on giant fans to suck in air, separate the CO2 from the other gases and inject it into old oil fields. While a good portion of the captured carbon will be used to power more oil drilling efforts (a process known as Enhanced Oil Recovery), the company envisions a potential new line of business whereby other businesses would pay Oxy to remove and sequester carbon on their behalf to help them reach their CO2-reduction targets.⁷

However, despite decades of research and billions in public and private investment, the International Energy Agency reports that as of March 2023, only a few dozen CCUS plants were in operation worldwide. These plants can remove only about 46 million metric tons of carbon dioxide annually, roughly 0.1 percent of global CO2 emissions. Most existing capacity is attached to gas processing plants because capturing CO2 at that point is typically far less expensive than at power plants or industrial sites.⁸

Carbon Capture Technology and Its Potential Drawbacks

Oil and gas companies have been using captured CO2 for decades to enhance oil recovery by injecting it into the ground to extract more oil. Energy producers can also use captured CO2 to refine fuels and manufacture building materials. Any unused CO2 can be stored in underground geological formations. This approach allows oil and gas producers to reduce emissions without fundamentally changing their business models.

But therein lies the troubling incentives at the heart of arguments against carbon capture. Investing in CCUS technologies could prolong the world’s reliance on fossil fuels and detract from efforts to shift to renewable alternatives. These technologies are still in the early stages of development, and their scalability remains unproven. Research and development costs are prohibitive, not to mention the significant investment needed to build large-scale CCUS plants.

Swiss company Climeworks operates one of the world’s largest carbon capture efforts. Its Orca plant 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 must be removed from the atmosphere annually by 2050.¹⁰

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

This is prohibitively expensive, and CCUS plants would need to scale rapidly to make this technically feasible. Experts estimate that CCUS capacity must grow from 40 million tons today to at least 5,600 million tons to meet the Paris Agreement’s goals by 2050, not to mention the potential adverse environmental impacts of carbon transport and storage.¹²

So far, utilities seeking to reduce their total emissions have generally said CCUS is still too expensive to use at coal plants (the “dirtiest” fossil fuel in terms of its impact on climate change). Replacing coal-fired plants with wind and solar power is far less costly and has none of the risks of CCUS.¹³

Environmental Risks of Carbon Capture and Storage

CCUS introduces its own environmental risks. If underground storage sites aren’t sufficiently robust and properly maintained, carbon dioxide can leak into groundwater or the atmosphere. When transporting captured CO2 via pipelines to a storage location, a pipeline leak can send a plume of CO2 into the air that can travel a mile or more. In 2020, a CO2 pipeline ruptured in Mississippi and sickened dozens of people.

Exxon’s proposed project for the Houston area includes storing captured CO2 in offshore saline reservoirs in the Gulf of Mexico.¹⁴ Detecting leaks and infrastructure weaknesses in the water is more challenging than on land. Bad weather and ocean conditions could also delay the response to offshore emergencies.

These potential hazards represent legal and financial liabilities, along with the risks they present to the environment and biodiversity and human health.

American Century’s View on Carbon Capture

American Century’s Sustainability team understands the importance of carbon capture as a potential tool in combating climate change. Power plants worldwide continue to rely on fossil fuels. In the future, we will need even more power for data centers, artificial intelligence and air conditioning to cope with rising temperatures. Without adequate power, manufacturers couldn’t produce or ship goods, leading to a severe economic downturn and significantly impacting people’s livelihoods and access to food.

However, even though the world’s alternative energy infrastructure isn’t ready to shift away from burning fossil fuels, carbon capture isn’t a panacea for the GHG emissions problem, in our view.

We think of carbon capture similarly to companies’ net-zero commitments, which show that firms recognize climate change as a critical issue they must address. Like net-zero commitments, CCUS represents the future progress that industrial facilities and power plants could make if everything goes as planned. Still, it doesn’t reduce the current level of emissions.

Our team has a generally positive view of companies’ 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 CCUS 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 pursuing reforms to fight climate change in ways that allow economies to continue working while achieving emission-reduction goals. We believe carbon capture represents a single brick in the climate change mitigation process but not the entire foundation.