Carbon capture, utilisation and storage (CCUS) is an important part of the technology portfolio for meeting net zero ambitions. In the IEA’s Net Zero Emissions by 2050 (NZE) Scenario – which lays out a pathway for the energy sector that aligns with the Paris Agreement goal of limiting global warming to 1.5 °C – around 1 billion tonnes of carbon dioxide (CO2) per year are captured and stored by 2030.
There is progress towards this goal. Our latest update to the IEA CCUS Projects Database reveals that 2023 saw continued year-on-year growth in project announcements, final investment decisions (FIDs), and plant commissioning. Yet as we get closer to the 2030 milestone, reaching the level of capture and storage capacity in the NZE Scenario will also require project lead times to be drastically shortened. New business models centred on creating CCUS hubs could help, and recent policy developments have revived interest in CCUS more broadly. But is this enough to put announced projects on a path to deliver in full and on time?
How does momentum track against net zero?
In 2023, announced capture capacity for 2030 increased by 35%, while announced storage capacity rose by 70%. This brings the total amount of CO2 that could be captured in 2030 to over 430 million tonnes (Mt) per year and announced storage capacity to around 620 Mt of CO2 per year. While this momentum from announcements is positive, it will need to accelerate to align with the NZE Scenario.
Moreover, announcements are just the first step: whether all projects materialise continues to be an open question. In 2023, around 10 capture facilities entered operation and almost 20 projects reached a final investment decision. But capacity that is either already in operation or has reached FID still accounts for just 20% of announced capture capacity for 2030. For storage, this drops to around 15%.
The IEA’s Net Zero Scenario sees CCUS playing a particularly important role in decarbonising hard-to-abate industries and the power sector, facilitating the production of low-emissions hydrogen and ammonia, and in efforts to remove carbon from the atmosphere. Two-thirds of FIDs taken in 2023 involved these use cases, versus only 40% in 2022. But greater ambition is needed in some sectors – particularly industry, which currently makes up less than 10% of announced capacity. It would need to reach a quarter of all of CO2 captured by 2030 in the NZE Scenario.
Countries are recognising the value of collective action and strategic signalling
With renewed recognition of the need to collectively do more on CCUS, the past year has seen the creation of significant new initiatives. Launched at the Major Economies Forum in April 2023, the Carbon Management Challenge features a joint call to action for governments to accelerate the deployment of CCUS technologies. By the beginning of 2024, 19 countries and the European Commission had signed on to the Challenge, which aims to raise ambition by supporting a global goal of managing at least 1 billion tonnes, or 1 gigatonne (Gt), of CO2 annually by 2030, in line with the NZE Scenario. To date, CCUS commitments from the participants represent just under 15% of the 1 Gt goal.
Several countries have also advanced strategic plans to support CCUS. For example, Canada finalised its Carbon Management Strategy at the end of last year, while the European Commission released its Industrial Carbon Management Strategy in early 2024, which sets out a comprehensive policy approach to help the European Union develop at least 50 Mt of capacity by 2030 and 280 Mt by 2040. The Strategy, which aims to establish a single market for CO2 in Europe, comes one year after the proposed Net Zero Industry Act identified CCUS as a strategic technology, and as other European countries (including France and Germany) are developing their own plans to signal the strategic importance of CCUS.
This signalling is already helping enable cross-border projects between European countries. In March 2024, Denmark and France signed a new arrangement removing a key international regulatory barrier and making it possible to transport and store CO2 between the two countries. Such deals are required under the London Protocol, an international agreement that regulates the cross-border transport of CO2 for offshore storage.
Recent policies have sparked renewed optimism for CCUS but take time to be implemented
In 2021, the United States passed the Infrastructure Investment and Jobs Act (IIJA), which provides approximately USD 12 billion across the CCUS value chain through 2026. Just one year later, the Inflation Reduction Act (IRA) increased the so-called 45Q tax credit for CCUS projects to USD 85 per tonne of CO2 permanently stored, USD 60 per tonne of CO2 used in enhanced oil recovery or other industrial uses, and up to USD 180 per tonne of CO2 extracted by direct air capture (DAC) projects.
Together, these two pieces of legislation promoted a flurry of activity, with project announcements almost doubling between the 2022-23 period and the 2020-21 period. The IRA has boosted geological storage development in particular, with announced capacity tripling between February 2022 and February 2024.
Announced capture and storage capacity for 2030 in the United States, 2018-2024
Europe has also seen its share of major policies propelling project announcements forward. From 2020 to 2022, policies in Denmark, Norway and the United Kingdom – as well as ongoing support for CCUS from the European Commission – generated interest in developing projects, particularly for CO2 storage. For instance, in September 2023 the United Kingdom awarded 21 licences in its first-ever CO2 storage licensing round, with the potential to store up to 30 Mt of CO2 per year by 2030.
Last year, around 40% (EUR 1.4 billion) of the funding from the latest round of the EU Innovation Fund went to CCUS projects targeting CO2 capture in industrial sectors such as cement production and CO2 utilisation in synthetic fuels. Under the newly-revised TEN-E regulation, the European Union last year identified 14 CO2 transport and storage projects as key infrastructure projects to help achieve EU energy and climate objectives, around double the number identified in the previous round in 2021.
While new policies have helped spark project announcements, translating this interest into investments and operating projects takes time. Funding calls and grant negotiations mean there is an inevitable delay between the announcement of funding and when it is dispersed to a project, influencing when a project can eventually start operating. For instance, for the EU Innovation Fund, it typically takes more than a year from when a funding call is issued to when the grants are awarded. In the United States, as of February 2024, approximately 45% of the 2021 IIJA funding for CCUS had been allocated or made available to projects.
Permitting remains a hurdle and needs to start as early as possible
CCUS hubs could reduce lead times for new capture projects ready to connect to associated infrastructure. For example, two biomass-fired power plants in Denmark could start capturing and sending CO2 to the Northern Lights storage hub in 2026, around five years after the projects were first announced.
But complex infrastructure hubs could themselves take a long time to reach commissioning, with potential delays around the permitting of large-scale transport and storage infrastructure and the need to co-ordinate multiple stakeholders. Hubs currently in operation and under construction have taken closer to 10 years, and some cross-border pipeline projects are currently experiencing delays due to permitting holdups.
In the United States, it takes two years on average for federal authorities to process what is known as Class VI permit applications for CO2 injection wells. In Europe, exploration licenses are awarded through tenders with typically shorter lead times, but projects can take around six years to begin injection after a license is granted.
Project developers therefore need to apply for permitting as early as possible in the project timeline. While the number of Class VI applications in the United States has increased almost 10-fold since the beginning of 2022, only around half of announced storage capacity for 2030 has submitted a construction permit. In Europe, over 85% of announced storage capacity for 2030 has applied to or been granted an exploration license, but only a couple of storage licenses have been granted. While policy makers can help accelerate and clarify procedures, industry must also take action and move beyond concept announcements.
Key steps can accelerate progress at the urgent pace that is needed
Time is short to ensure that CCUS can play its part in reaching net zero emissions by mid-century – and not only in advanced economies. Emerging markets cannot be left out of the renewed momentum around CCUS, and must have access to international resources and funding, since translating interest into actual CO2 emissions reduction takes time.
To deliver on CCUS commitments, governments, regulators and industry should consider the following.
Hit the ground running: Funding calls and negotiations are understandably rigorous to ensure that public funds are used effectively. Yet governments and industry can prepare to move quickly by the time funds are dispersed.
- Governments can ensure that departments and ministries are staffed with the expertise and level of resources required to roll out large public funding programmes, and review applications in a timely manner.
- Companies that are serious about deploying CCUS or developing projects should not wait for public funds to conduct feasibility studies. Investments targeting Front-End Engineering Design (FEED) studies, or capital and operating expenses, could put companies in a better place to leverage public funding when it becomes available.
Partner, partner, partner: Moving past final investment decisions to the start of construction is often a challenging milestone. Establishing partnerships and co-ordination can be instrumental. For part-chain projects, starting early discussions with customers and off-takers to get agreements in place could accelerate the time it takes to reach a final investment decision. Partnerships can be developed within industry – such as by identifying suitable engineering, procurement and construction (EPC) partners – and also expand to the financial and investment communities.
Take initiative on permitting: It is important to maintain high-quality reviews to ensure environmental and social integrity, but both the public and private sectors can take steps to mitigate potential delays.
- Governments can accelerate administrative procedures by establishing clear permit approval timelines, designing a one-stop shop for permitting activities in jurisdictions where it makes sense, and supporting capacity-building by sharing best practices from successful permit applications.
- Project developers can conduct meaningful stakeholder outreach and engagement campaigns early in the project development process. Including local communities in these initial discussions can help ensure benefits are shared and reduce concerns about the project. Alongside these discussions, companies should also consider applying for project permits as early as possible.
Source – IEA
By
Mathilde Fajardy, Energy Analyst
Carl Greenfield, Energy Analyst in the Carbon Capture Utilisation and Storage Technology Unit
Commentary — 15 March 2024