Can Carbon Capture Solve the Climate Crisis?

It’s been a challenging time for people dedicated to fighting climate change. According to a recent UN Climate Change Panel report, the world is falling “miles short” of its greenhouse gas (GHG) reduction goals. In order to limit global temperature increases to the targeted 1.5° C mark, by 2030 we would collectively need to reduce GHG emissions by 43% from 2019 levels.

Per the UN report, we are currently on target for reductions of only 2.6%, likely putting the 1.5° C level out of reach. The UN does not sugarcoat the consequences of breaching this temperature barrier, stating that “pollution at these levels will guarantee a human and economic trainwreck for every country, without exception.”

Ouch.

To further complicate the situation, this analysis was conducted before the election of Donald Trump, who has called climate change “a hoax” and who has promised to expand domestic fossil-fuel drilling during the next four years. As a result, it’s more likely than not that we’re entering a period of increasing GHG emissions, when it’s been clear that we desperately need to be cutting back drastically.

If emissions are going to continue at current levels, or even increase, what can be done to alleviate the impact? And is there a way to invest in companies that are literally preventing carbon dioxide from entering the atmosphere in the first place?

The Rise of Carbon Capture, Utilization, and Storage

One way to mitigate the effects of GHG emissions is to stop pollution from getting into the atmosphere at all. In recent years, climate scientists have expanded the use of carbon capture, utilization, and storage (CCUS), more colloquially known as “carbon capture.” While techniques vary, at a high level CCUS involves three primary steps:

• Capture: Isolating carbon dioxide from other gases during industrial processes (such as in steel or cement production) or at power-generation sites (such as oil- or natural gas-fired electrical plants).
• Transportation: Compressing the isolated carbon dioxide and moving it via pipeline, rail, vehicles, or ships.
• Storage: Permanently injecting the compressed gas deep in rock formations where it cannot escape.

Carbon-capture technology is not new. In fact, the process is more than 50 years old and has experienced major technological breakthroughs since first being introduced in 1972. Successful techniques can now remove more than 90% of emissions during industrial processes and fossil-fuel power generation.

Despite this promise, CCUS has its share of critics. For instance, MIT scientists claim that the process is a “distraction” propagated by oil companies and that we should instead focus investment on sustainable energy sources including solar and wind energy programs.

The Economics of Carbon Capture

While renewable energy sources are fast becoming cheaper than fossil fuels, oil and natural gas seem here to stay, at least for now. In this context, CCUS could play a major role in combating climate change, particularly as oil and natural gas remain the dominant energy source in the U.S. and most of the world.

Indeed, the UN Framework Convention on Climate Change has explicitly stated that CCUS “is a key technology for the decarbonization of the energy sector in the long term.” Meanwhile, the International Energy Agency (IEA) has said that “achieving net-zero goals will be virtually impossible without CCUS.”

Despite all the potential of carbon-capture technology, as of September 2024, CCUS had been used to reduce only 0.1% of global carbon dioxide emissions per year. The number one reason that the technology has not penetrated the market further is cost. Capturing carbon remains expensive, even though the IEA argues that in many industries, “CCUS is currently the least-cost or only practical option for deep emissions reductions.”

Meanwhile, CCUS is far more cost-effective than other carbon-reduction techniques such as direct air capture technology, which acts like a vacuum cleaner to remove carbon after it’s already entered the atmosphere. Compared with the economics of direct air capture, CCUS is a veritable bargain.

Ways to Invest in Carbon-Capture Technology

Spending on CCUS has grown significantly in recent years. Investment in CCUS exceeded $6 billion in 2023—double 2022 levels. Still, that total represents only a tiny sliver of the $2 trillion that the IEA estimates will have been allocated to renewable energy initiatives in 2024. However, there are some paths to investing in companies and funds focused on carbon capture.

Two major players—publicly traded NET Power Inc. (NYSE: NPWR) and privately held Aker Carbon Capture ASA—are pure-play carbon capture companies. (Note that these are not investment recommendations but simply companies that illustrate the opportunity set.)

NET Power Inc. is building the world’s first “nearly” net-zero natural-gas-fired plant in Texas, with the goal of being online by 2027 (though the project has been plagued by delays).

U.S. oil and gas company SLB purchased 80% of Aker in June 2024, though shares of Aker may be available for trading in the private market.

For investors seeking broader exposure to carbon themes, there are numerous ETFs that track carbon indices managed by S&P Dow Jones, MSCI, and other major index providers. That said, investors should be aware that these markets are complex, have suffered significant volatility, and have proven controversial in recent years. Like the engineering involved in building net-zero power plants, it’s important to remember that investing in carbon markets can be extremely complicated.

What’s the Future of Carbon Capture?

It may be a tough moment for climate optimists, but there’s reason for hope. The EPA recently finalized a rule—mandated by the Inflation Reduction Act—that aims to vastly curtail methane gas leaks during drilling and mining. Combined with lower methane output and the broader implementation of CCUS technology, fossil-fuel production may contribute significantly less pollution to the atmosphere in the future.

Beyond extraction, burning fossil fuels remains the largest contributor to GHG emissions. In the U.S., three areas—transportation (contributing 28% of total emissions) electric power generation (25%), and industrial production (23%)—were the largest sources of pollution in 2022, according to an EPA analysis.

As costs for renewable energy sources become more competitive—and ultimately cheaper than fossil fuels—the market should move toward broader adoption of clean power in all three areas. Financial incentives can be powerful catalysts of change, even if oil and natural gas will likely remain part of the energy mix in some capacity going forward.

While CCUS may not be a perfect solution, we live in an imperfect world. As we continue to burn fossil fuel to generate power and produce steel, CCUS has the potential to mitigate the damage and buy us some time to transition more fully to a renewable-energy future. If we can collectively realize that we all live on the same fragile planet, we may just have a chance to save it before it’s really too late.

For more insights and guidance on navigating the evolving landscape of climate change, sustainable investing and other related issues, stay tuned to our blog for future updates and expert analyses.

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