Preview on COP28 Climate Summit for Adaptation Strategies

The upcoming COP28 climate summit will draw together political and business elite, climate activists, and global thought leaders at the end of this month in the UAE. They are coming with the purpose of advancing efforts to develop and adopt climate adaptation strategies, respond to climate-related extreme weather events, and cut emissions before 2030 to limit global warming to 1.5° C (2.7° F) above pre-industrial levels. Their discussions and any proposed solutions will be complicated by the deep divisions the exist over the how and how fast for energy transition. The risk on one end is a transition so rapid that it disrupts the economy, leading to widespread dislocation, with governments and peoples unable or unwilling to sustain transition. On the other end, some believe that if the transition is too gradual, it will fail to limit emissions before a perceived ecological tipping point is reached. Either extreme presents scary consequences to those committed to their beliefs regarding climate change or the importance of inexpensive energy independence, from deep economic scars, stunted development and falling standards of living throughout the world, and a chaotic global economy, to the acceleration of extreme weather events, rising seas threatening coastlines and entire island nations, desertification and water scarcity in other areas, growing food insecurity and mass migration.

The energy transition is a contested issue in the US. According to a Pew Research Center survey from June, most Americans think the U.S. should prioritize the development of renewable energy over fossil fuel sources. At the same time, most say they are not ready to stop using fossil fuel energy sources altogether. Additionally, many think the U.S. should never stop using fossil fuel sources. The Biden Administration has created a climate action policy that seeks to thread the needle of these divergent views, and the carbon capture and storage (CCS) program is a key element. CCS is increasingly viewed as a necessary complement to zero-emitting energy and efficiency in the fight against climate change. It is not a substitute for moving away from fossil fuels but creates time and space for a managed transition.

What is Carbon Capture and Storage?

Carbon capture and storage (CCS) technologies capture carbon dioxide (CO2) emissions from industrial and other sources, preventing new fossil CO2 emissions from entering the atmosphere. The similar carbon capture removal process captures CO2 emissions that are already in the atmosphere. The captured emissions are stored safely and securely deep underground.

For example, CO2 is separated from other gases at large industrial facilities (refineries, fossil and biomass-based power generation, steel mills and cement plants) or from the atmosphere. Captured CO2 is compressed and injected deep beneath the earth’s surface into a reservoir of porous rock located under an impermeable layer of rock (known as a cap-rock) that acts as a seal. This technology is well developed and proven over decades of utilization. According to studies by the International Energy Agency (IEA), high-level geological analysis suggests that the world has ample CO2 storage capacity. The IEA estimates that the US has 812 GT of storage capacity, 32 percent on shore and 68 percent off-shore – plenty for current emissions. The proximity of storage to emission sources, ideally clustered around CCS hubs with shared infrastructure where feasible, will be a crucial factor in reducing costs, decreasing infrastructure development times and enabling a rapid rollout of CCS.

An alternate type of CCS, Direct Air Capture (DAC), could address challenging emission sources such as long-distance transport and heavy industry, while also addressing historical emissions. Capturing CO2 from the air is the most expensive application of carbon capture. The CO2 in the atmosphere is much more diluted than in flue gas from a power station or a cement plant. Innovation is required to develop the technology and bring it to scale.

Governments Seek to Mitigate Risks for Developing CCS at Scale

Carbon capture at scale faces (at least) three major challenges. Topping the list is cost.  CCS projects require major upfront investment, particularly for transmission and storage infrastructure. The capacity of CO2 transport and storage infrastructure often exceeds the needs of one emitter. Investors face risks over demand growth expectations and government policy consistency over the lifespan of projects. For DAC, the technology has yet to be demonstrated as efficient and scalable. Environmental activists are critical of CCS because they believe investment and development will come at the cost of perpetuating production and use of fossil fuels. These are not unreasonable concerns, and they present real obstacles to planning, financing, developing and sustaining CCS projects.

Western governments are stepping in to address these concerns, including the Biden Administration.  Over the past year, Washington has announced significant programs to reduce upfront costs through significant government investment programs, namely new and revised tax credits to sustain investment, development and innovation. 

For example, in 2021, the Department of Energy (DOE) launched Carbon Negative Shot, an innovation initiative for carbon dioxide removal pathways that will capture CO2 from the atmosphere and store it at gigaton scales for less than $100/net metric ton of carbon dioxide equivalent.

In May 2023, the DOE announced $251 million to support 12 selected projects across seven states that will bolster the nation’s carbon management capabilities. The projects will expand CO2 transportation and storage infrastructure to help reduce CO2 emissions from power generation and industrial operations.

In the world’s largest investment in engineered carbon removal in history, the DOE announced in August 2023 up to $1.2 billion to advance the development of two commercial-scale direct air capture facilities in Texas and Louisiana and named 19 additional projects selected for award negotiations that will support earlier stages of project development. Three projects were selected for a total of $9 million in funding to perform detailed engineering design studies for regional CO2 pipeline networks. The program aims to kickstart a nationwide network of large-scale carbon removal sites to address legacy carbon dioxide pollution and complement rapid emissions reductions. Officials pledged the hub will not be permitted to use captured CO2 for enhanced oil recovery.

The Biden Administration cannot speak for future administrations, which may not see eye-to-eye on what amounts to major subsidies to one sector of the U.S. economy. Political risk may put downward pressure on capital investments if bipartisan support is not forthcoming.

In a sign of growing investor confidence in the upside risks, BlackRock just announced plans to invest $550 million into the world’s biggest direct air capture project in west Texas. 

Seeking the Elusive Goldilocks Solution

Decision-makers participating in COP28 will be debating and setting policy guidelines to stay on track with Paris climate goals.  The U.S. and EU’s 27 member countries support a “phase-out” of “unabated” fossil fuels well before 2050. Countries can keep utilizing traditional energy sources if they also use technology to “abate” emissions, i.e., carbon capture and storage. Leaders see this as a compromise position, taking into account that transition to renewables for some industries is not yet attainable due to technological, financial and logistical obstacles. This position falls between that of the 21-country High Ambition Coalition (HAC), which is seeking a more aggressive phase-out the use of all fossil fuels, with milestones for ending financing, exploration and development of new fossil fuel projects;  and that of countries seeking a slower and open ended “phase down.”

The divergent views will place the future of fossil fuels in the global energy mix at center stage of COP28 in a much more direct way than in previous climate conferences. It is unlikely that any agreement will earn a “just right” assessment from the plurality. The inability to reach a consensus with global climate goals trapped in gridlock, however, presents significant global risks for the climate and for the global economy.

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