Capturing Carbon on the Critical Pathway to Net Zero

Capturing Carbon on the Critical Pathway to Net Zero
April 3, 2024 24 mins

Capturing Carbon on the Critical Pathway to Net Zero

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As the world races to reduce climate risks and limit CO2 emissions, the demand for scalable and cost-effective decarbonization technologies is increasing. Carbon capture projects form an important part of the low carbon energy transition, bringing both challenges and opportunities.

Key Takeaways
  1. Organizations are gaining interest in carbon capture, utilization and storage as they look to reduce CO2 emissions on the critical pathway to net zero.
  2. Early adopters of these technologies are seeking both commercial opportunities and the means to meet their ESG goals to help set sustainability benchmarks in their sector.
  3. Carbon capture projects and infrastructure can be de-risked and financed through partnerships and risk transfer capital.

As the earth's temperature rises and threatens the planet's livelihood, pressure mounts for organizations and governmental authorities to support the reduction of greenhouse gas emissions.

Attention is increasingly focused on the harmful impacts of Carbon Dioxide (CO2) emissions. Businesses are assessing decarbonization strategies, such as the adoption of carbon capture, utilization and storage (CCUS).

Capturing carbon directly at the emission source can be a critical pathway for certain industries to achieve net zero. But against the capital challenges of implementing projects, de-risking the opportunity from technological, environmental and liability standpoints is paramount.

The Road to Net-Zero Carbon Emissions

To avert the worst impacts of climate change and preserve the liveable planet’s finely balanced ecosystem, global temperature increase must be limited to 1.5 degrees Celsius above pre-industrial levels. On the critical pathway to achieve this, the Paris Agreement outlines a roadmap to reduce global carbon emissions by 45 percent by 2030, before reaching net zero by 2050.1

While stopping all greenhouse gases from being released into the atmosphere may seem like an insurmountable task, implementing CCUS technologies is becoming an attractive decarbonization option.

90%

of CO2 emissions released by power plants or industrial facilities can be captured by carbon capture and storage technologies.2

With the whole value chain of commerce in energy and natural resources producing large amounts of carbon, whether through extraction, transportation or usage, the industry is making big investments in CCUS projects.3

Application of CCUS technologies is apparent across the global energy continuum, with the United States leading the charge in investment to capture carbon emissions. The U.S. has invested $3.7 billion to finance CCUS projects, with operating facilities currently capturing 23.7 million tons of CO2 annually. By 2030, this expansion is predicted to capture 113.5 million tons of CO2 per year. In comparison, Europe currently only captures 2.7 million tons of CO2 per year, but plans to increase to 80.4 million tons annually by 2030.4

While the use of fossil fuels will continue until green energy can sufficiently meet demand, organizations across industries question whether CCUS is a temporary or permanent fix. Large emitters, such as those in the heavy manufacturing industry, now have the opportunity to capture high emissions and reduce negative environmental impacts. For example, the built environment and construction sector accounts for 38 percent of global carbon emissions.5 These industries can therefore make significant sustainable strides by implementing CCUS, such as in the production of concrete.

Despite the significant opportunities on the critical path to net zero, integrating CCUS technologies brings with it new risks and challenges.

Quote icon

Capturing carbon presents huge potential, not only for the natural resources industry, but also for the sustainability of the world we live in.

Charles Philpott
Global Natural Resources Leader, Enterprise Client Group

Challenges of CCUS Technologies

While the International Energy Agency has noted increased momentum in CCUS deployment in recent years, challenges still face the approval and implementation of carbon capture projects.6

  • Lengthy Licensing and Permitting Approval

    Despite the U.S. government’s backing of carbon capture and sequestration technology at coal and natural gas plants, the process to obtain a Class VI injection well permit from the Environmental Protection Agency (EPA) needed for the construction of CCUS projects can be lengthy.7  The length of the process can cause severe delays in these ventures progressing; in some cases, taking up to six years to get the necessary licenses.

    In an effort to achieve greater flexibility and support while overcoming slow federal processes, some states in the U.S. are looking to secure their own authority to expedite the permitting process. However, state applications still await approval from the EPA, with over 70 outstanding Class VI permit applications across eight states in 2023 alone.8

  • Pushback from NGOs

    Environmental non-governmental organizations (NGOs) may oppose the involvement of the traditional natural resources industry in decarbonization projects. Their argument is that the sector may try to use it to extend the life of fossil fuels energy.

  • Carbon Price Uncertainty

    While the value of carbon capture in terms of the environment is clear, the price of carbon as a tradable product is not so transparent. As captured and stored CO2 does not have a defined trade value, the carbon market contains inherent financial risk.

  • Capital Challenges

    Sourcing the investment capital to feed into projects is difficult due to the capital-intensive nature needed to implement CCUS facilities and infrastructure; billions in capital investment are needed for projects of this scale.

  • Capturing the Attention of Key Talent

    Finding talent with the right skills is a challenge. The industry requires job roles that haven’t existed before. While the UK government estimates suggest CCUS could support up to 50,000 jobs by 2050, there are concerns that the availability of talent will act as a bottleneck as the sector competes with talent from other industries.9

  • Risk to Public Relations

    While any progression in decarbonization may appear to be a positive action, the public perception around leaks means that people may oppose the implementation of CCUS infrastructure and operation. Education programs might also be necessary to allay fears of health risks and potential negative impacts.

Capturing Carbon Opportunities

Despite the many challenges, CCUS shows promising investment. Fueled by government advocacy, the U.S. has the potential for up to $100 billion in investments by 2030 and $600 billion by 2050 for CCUS projects.10 This increase in investment is mirrored by further financial incentives in the American regulatory landscape. Any global organization conducting business in the U.S. could benefit from the Inflation Reduction Act (IRA), which provides enormous incentives for CCUS projects.

Under the IRA, over the next ten years, approximately $370 billion worth of tax incentives and renewable tax credits are available to developers and owners of renewable projects, from wind farms and solar installation to carbon capture.

Engaging in CCUS projects enables organizations and governments to lead with new technology innovation, meet ESG goals and set sustainability benchmarks in their sector or global region. For example, as the UK Government announces 100 new licenses for oil and gas exploration in the North Sea along with a carbon capture plan,11 it is attempting to secure a domestic energy supply that reduces carbon emissions while creating jobs at the forefront of CCUS adoption.

The CCUS market represents a significant opportunity for insurers. With potential premiums of $1 billion - 5 billion by 2030, CCUS is ranked in Aon’s top ten transformative trend (re)insurance opportunities.12 High levels of investment, coupled with a more open regulatory environment, are driving growth in the number of planned projects and therefore more need for (re)insurance protection.

Carbon is the fourth most abundant chemical element in the universe; so much is made from it and at the same time, we know how damaging CO2 emissions can be to the planet. Capturing carbon presents huge potential, not only for the natural resources industry, but also for the sustainability of the world we live in.

Securing Solutions in Carbon Capture Projects

CCUS is an emerging risk at scale, with little historical data or published experience. To help assess and quantify the risks and exposures, risk advisory engineering will be required to facilitate the placement of risk transfer alternatives.

Risk transfer enables businesses to de-risk CCUS projects while maximizing organizational and financial performance and navigating risk uncertainty. Transferring the risk across the duration of a project can also aid in expediting regulatory approvals, attracting additional sources of project finance and garnering community support for the projects as risks are demonstrably managed and mitigated. To find the right balance between risk retention and risk transfer, tools like Aon’s Risk Financing Decision Platform (RFDP) can help organizations achieve their financial objectives.

Credit solutions, including trade credit insurance, political risk insurance and surety services, are also critical tools for companies developing sustainable growth strategies in CCUS projects. Credit solutions can provide businesses with a more flexible and efficient way to secure financing for capital-intensive decarbonization projects. In the U.S., where the IRA is a major driver for carbon capture projects, access to tax insurance solutions can help unlock financing from U.S. corporate tax paying entities, who purchase credits from these projects to reduce their tax burden.

The investment needed for innovation in CCUS can only be realized by nurturing human capital to develop necessary skillsets capable of implementing emerging carbon-related technologies. It is not just a financial investment in training and upskilling, but rather a commitment to gathering people who want to work toward a more sustainable future. Defining and implementing a robust people strategy enhances an organization’s ability to hire and retain the workforce it needs to realize business goals.

By tapping into the consortia of talent and expertise across energy and natural resources industries, from traditional fossil fuels to renewables, working groups unite around a shared ambition — to limit the release of CO2 emissions. Partnerships with academia will also enable organizations to build a solid talent pipeline from a pool of environmentally-driven and motivated people.

Components of risk and capital need to be addressed before any infrastructure around CCUS projects breaks ground. Through the identification of risk capital and implementation of de-risking mechanisms, carbon capture can support the critical pathway to net zero.

There are many parties with varied interests involved in carbon capture. But one thing about CCUS projects that unites all is their ability to bring us one step closer to reaching large-scale reduction of CO2 emissions as quickly as possible.

Organizations can get ahead by working with partners who support the entire value chain across CCUS, delivering assured planning, risk profiling and human capital support.

Aon’s Thought Leaders
  • Charles Philpott
    Global Natural Resources Leader, Enterprise Client Group

1 For a livable climate: Net-zero commitments must be backed by credible action, UN
2 Carbon Capture, Center for Climate and Energy Solutions
3 Energy firms bet big on carbon capture projects in U.S., Canada, Reuters, 2023
4 Ibid.
5 Climate Change, CIC
6 Carbon Capture, Utilisation and Storage, IEA
7 Biden Delays Permits on Carbon Capture Technology, IER, 2023
8 Ibid.
9 Study finds skills ‘bottleneck’ could jeopardise UK CCUS, Energy Voice, 2023
10 Pathways to Commercial Liftoff: Carbon Management, US Department of Energy, 2023
11 Rishi Sunak unveils new North Sea oil drilling and carbon capture, The Times, 2023
12 Aon’s Transformative Trends

General Disclaimer

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

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