Banks and oil groups place bets on carbon capture systems

From banks and insurers to big oil companies, companies are betting on the development of the carbon sequestration industry and the resulting carbon removal credits that customers use to offset their pollution, which is expected to build a lucrative market.

In recent weeks, four companies, including retailer H&M and leading fossil fuel financier JPMorgan Chase, have agreed to spend $100 million in carbon credits by 2030.

At the same time, five other companies, including Swiss bank UBS and insurer SwissRe, have agreed to buy almost 200,000 credits on delivery from 2025 through NextGen, a new group backed by Mitsubishi.

NextGen will acquire credits from carbon removal projects, including a direct air capture (DAC) facility developed by Occidental Petroleum subsidiary 1PointFive, at an average “target price” of $200 per credit. Last year, 1PointFive also concluded a pre-purchase agreement with the aerospace company Airbus for 400,000 credits related to DAC.

The private equity firm Partners Group also announced in April that it would buy 7,000 credits over 13 years from Climeworks’ start-up direct-capture facilities that extract carbon dioxide from the atmosphere.

Climeworks, which sells small amounts of credits for about $1,000 each and larger amounts for less, said it was expanding its U.S. team to meet “increasing demand.”

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The price of carbon dioxide has reached a peak of €100 across the EU this year as polluters bought up the permits that allow them to emit one tonne of carbon dioxide.

Long-term carbon credit agreements, backed by new government subsidies in the U.S. and elsewhere, meant carbon-removal technologies were increasingly worth the investment, the companies said.

While there have been previous carbon sequestration “hype cycles,” the goal has been more serious on both the corporate and government side, said David Reiner of Cambridge Judge Business School.

The $369 billion US Inflation Reduction Act includes a tax credit of $85 per ton for facilities that capture and store carbon from polluting sources, such as fossil-fired power plants, and $180 per ton for DAC plants that extract the gas from the atmosphere.

A large-scale DAC plant would cost $125 to $335 per ton International Energy Agency. Carbon capture storage experts in the oil industry say the $85 tax credit has “sealed” the investment case for simpler carbon capture projects.

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Nick Cooper, CEO of carbon capture and storage developer Storegga, said the support from US taxpayers “has had a profound impact on the business environment. The CCS market has just picked up. . . It’s a bit like the US shale boom 15 years ago”.

The United States Environmental Protection Agency a arrears applications for carbon capture permits.

Although the oil and gas industry has long supported carbon capture as a climate solution, there are no large-scale operating plants and many previous projects have failed.

Critics argue that in favor of carbon sequestration, the industry allows oil and gas producers to continue to obtain fossil fuels instead of switching to renewable energy sources.

Much of the carbon capture is used for a controversial process known as enhanced oil recovery, in which coal is pumped underground to extract more of the fossil fuel than would otherwise be possible.

Occidental plans to use the carbon dioxide captured by the DAC for enhanced oil recovery and sell the fuel under the “net zero oil” brand.

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Occidental’s TotalEnergies, Shell and Oxy Low Carbon Ventures are also among the companies pushing to expand the market for carbon dioxide removal units through the CCS+ Initiative industry group.

However, DAC was an early-stage, expensive, energy-intensive technology, so there was “reason to be skeptical” about its commercial viability, said Reiner of Cambridge Judge Business School.

Explanation of carbon credits

Carbon dioxide emissions, which are said to be one ton of carbon dioxide avoided or removed from the atmosphere, are not seen by many climate experts as a long-term solution to global warming.

Buyers of the credits, such as polluting steel, cement, airlines and industrial companies, can use or trade them to offset their emissions.

As scrutiny of the quality of credits from tree planting and conservation schemes has intensified, developers of technological carbon removal projects have touted credits from such schemes as more reliable.

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