This is part two of a Green Molecules Journal series highlighting the US Department of Energy’s "Pathways to Commercial Liftoff: Carbon Management" report. The report provides an overview of current carbon management technologies and strategies, and outlines the steps needed to accelerate their deployment. Each category of carbon management comes with a unique set of challenges to achieving commercial liftoff, making the deployment of these technologies slow. Factors including high costs, demand uncertainty, lack of commercial standardization for partnerships, and long permitting processes continue to limit the industry’s growth. To address these challenges, the Liftoff Initiative has developed a set of recommendations for accelerating the deployment of CCUS technologies.
Cost Uncertainty: Capturing lower purity CO2 streams has been demonstrated and will continue to be supported through BIL programs and IRA incentives. FOAK CCUS projects, deployed with cooperative agreements and tax incentives, will provide cost benchmarks for project finance models. While low-cost-of-capture facilities may experience cost reductions, higher cost-of-capture facilities require specialized equipment. The costs of certain carbon dioxide removal approaches are currently high and further research is needed, with uncertainty about the scale and magnitude of cost reductions. Different strategies are emerging, including deploying small modular units or planning larger plants for economies of scale.
Demand Uncertainty: Carbon management projects face challenges in securing sufficient revenue sources for financial viability. CCUS and DAC projects heavily rely on 45Q as a key revenue source, but additional revenue streams from voluntary carbon markets or premiums for low-carbon products are often necessary. The voluntary carbon market is still immature, lacking standardized credit definitions and long-term offtake contracts that many investors require. Premiums for low-carbon products or compliance mechanisms are crucial to make CCUS projects financially feasible, but the demand and willingness to pay for such products are currently limited or unproven.
Lack of commercial standardization for required partnerships and commercial arrangements: CCUS and certain CDR projects involve complex partnerships between asset owners, investors, technology providers, and transportation and storage entities, making their development more intricate compared to established clean-energy technologies. The lack of standardized pricing and models for these partnerships adds further complexity, as agreements are currently negotiated on a project-specific basis, affecting the overall economics and timeline of project development.
Permitting: Developers and investors express concerns about lengthy and uncertain permitting timelines that could hinder project development. Specifically, storage projects aiming to permanently inject CO2 into geological formations require Class VI well approval, and developers emphasize the need for predictable timelines and technical assistance. While the EPA has issued six Class VI permits, with the first four taking two years and the remaining two taking between 3 and 6 years, the agency aims to expedite future permits to be issued within two years, which is expected to instill more confidence among stakeholders. However, the pace of deployment may still be influenced by storage availability and permitting, contingent upon state primacy efforts and EPA resources.
Infrastructure: The transport sector faces a challenge known as the "chicken and egg" dilemma, where the development of transport and storage infrastructure relies on identifying capture projects, while the development of more capture projects is hindered by the lack of sufficient infrastructure. To address this, Congress has allocated funding to the Department of Energy through programs such as Carbon Storage Validation and Testing and Carbon Dioxide Transportation Infrastructure Finance and Innovation. These programs aim to overcome the infrastructure challenge by financing projects that pair CCUS and CDR technologies with storage sites through a network of transportation resources. By coordinating these programs with other BIL initiatives supporting carbon capture and direct air capture facilities, the impact of incentives like 45Q and tax credits can be enhanced.
Local Opposition: Surveys indicate that the American public has limited awareness and familiarity with CCUS and CDR technologies. Only 19% of respondents in a recent survey reported having heard about carbon capture and storage. Discussions surrounding CCUS have raised questions and concerns related to technical and social aspects, with communities expressing concerns about risks, community empowerment, historical community-industry relations, socioeconomic status, compensation, benefits, and past experiences with government. As the number of CCUS projects has increased, some communities have shown resistance to their deployment.
Financial Viability: Shifting towards high-quality and long-lasting carbon removals would strengthen the demand for carbon dioxide removal (CDR) technologies. Compliance policies that mandate emissions reduction or the purchase of carbon removals would greatly enhance the economic viability of these projects. Advance market commitments, such as the Frontier commitment for carbon removal purchases and the First Mover's Coalition commitments for low-carbon products, can also stimulate the development of financially viable revenue streams. In cases where price premiums are not established, CO2- and CO-based products may need to rely on regulation and cost reduction to compete with traditional products. Changes in the regulatory landscape can have a significant impact on project economics.
Streamlining Permitting: Regulatory barriers have posed significant challenges to the deployment of CCUS technologies. The Department of Energy has established a four-phase plan spanning 8-9 years, which projects must comply with to be eligible for funding. Meeting these requirements can result in delays during the application, permit award, and project reporting stages. The Liftoff Initiative proposes streamlining regulatory processes to facilitate permit acquisition for CCUS projects, and it suggests enhancing the technical and regulatory capacity of the EPA and state agencies to improve the efficiency and effectiveness of the Class VI permitting program.
Development through Hubs: The advancement of investable projects is facilitating the construction of storage facilities and extensive transportation infrastructure that can be utilized for future carbon management initiatives. The establishment of regional carbon management hubs, backed by DOE's Regional DAC Hubs, Carbon Storage Validation and Testing, and CIFIA programs, has the potential to enhance shared infrastructure, thereby minimizing the overall requirement for transportation and storage infrastructure in widespread deployment.
Carbon markets and incentives can help to create a financial motive for companies to reduce their carbon emissions. The Liftoff Initiative recommends establishing carbon markets and incentives to encourage the deployment of CCUS technologies. To support deployment in their own countries, the United States and Canada, which together sequester 65 percent of the world’s annual carbon capture capacity, have supported CCUS through targeted policies to drive continued project rollout.