What’s Next for Carbon Capture, Utilization, and Storage?

Assessing challenges, opportunities, and how stakeholders can prepare for what’s to come

Carbon capture, utilization, and storage (CCUS) could play a vital role in reducing carbon emissions in a warming world—but unleashing its full potential will depend on the advancement of legal and regulatory frameworks and continued backing from governments around the world.

“CCUS is the only group of technologies that can contribute to deep emission reductions in key sectors, including heavy industry, while also supporting the removal of CO₂ from the atmosphere,” according to a 2022 International Energy Agency (IEA) report.

Yet obstacles abound. CCUS, which typically involves capturing CO₂ from the source before moving it to permanent underground storage or reusing it, faces challenges in yielding an economic return and operating in an emerging regulatory landscape. On the other hand, new government incentives, international standards, and policy developments are laying the groundwork for success—and the technology is available. In fact, as of July 2023, total CO₂ capture capacity of public CCUS projects in development, construction, and operation had increased nearly 50 percent from the year prior, according to Global CCS Institute. Large-scale projects are taking off in the Australia, Brazil, Norway, the United Kingdom, the United States, and other countries.

It is important that stakeholders take the long view; after all, it took well over a decade (plus plenty of subsidies, new regulations, and technological development) for renewables like wind power to become profitable at scale. In what follows, we discuss the CCUS value chain, key challenges, and next steps to make this process a reality.

Understanding the CCUS Value Chain

Industry is developing CCUS value chains and infrastructure that broadly break down into four components:

Capture and aggregation

Most technologies capture carbon at the source. Pre-combustion capture is largely used in industrial processes via commercially available technologies, while post-combustion capture separates CO₂ from the emissions of an industrial facility or power plant. Other methods include oxy-fuel combustion systems (where fossil fuels are burnt in pure oxygen rather than air) and direct air capture (DAC), which, though more expensive, is increasingly in use, with 130 DAC facilities in development worldwide.

This area is currently the domain of industrial operators that know their plants, processes, and profiles. While some have invested in integrated capture-to-storage projects, an opportunity exists for third-party service providers to take that CO₂ and aggregate it with output from other producers en route to the next step in the value chain. The Northern Lights project largely has adopted this model.

Transport 

Once CO₂ is captured, it must be transported—via ship, truck, or pipeline—to underground wells for storage or to sites that can repurpose it. Concerns exist regarding the potentially asphyxiant quality of the gas, as well as regulatory issues (particularly with regard to cross-border shipping). For its part, the US has a well-developed CO₂ transport industry, and other developments—like capture hubs and transport networks with shared storage infrastructure and CCUS-related mergers—are facilitating economies of scale in the country.

Additionally, the International Organization for Standardization (ISO) is working to develop global standards for CO₂ pipeline transport and other aspects of CCUS. The London Protocol, an international agreement aimed at protecting the marine environment that previously had prohibited the cross-border transportation of CO₂ for geological storage, has been amended to remove this barrier. That said, formal adoption and ratification of these amendments, as well as evolving agreements among nations, continue to create uncertainty. Some nations are engaging in bilateral agreements to accelerate projects between specific jurisdictions.

Storage

Carbon storage involves permanently storing CO₂ in underground geological formations, either onshore or offshore. In addition to integrated transport and storage operations, like the Northern Lights open-source network in Norway, other players are entering the storage space. Numerous jurisdictions—including Australia, the UK, the US, and several Nordic countries—have advanced carbon storage regulations, made easier by the ability to adapt petroleum storage rules to these purposes.

Use 

Some captured CO₂ is ultimately repurposed, including as an input for feedstocks in chemical production, fuels, building materials, and other products. By one estimate, 78 percent of all carbon currently captured from operational projects is used for enhanced oil recovery (EOR)—that is, injecting carbon into wells to free trapped oil. This use case might invite criticism; as Reuters pointed out, “Drillers say EOR can make petroleum more climate-friendly, but environmentalists say the practice is counter-productive.”

Despite this, CCUS technology and practice has benefitted from decades of EOR development, which has demonstrated the efficacy of injecting and storing CO₂ in geological formations via a long list of projects. Without a more mature market for carbon credits (see more below), EOR is one of few pathways to profitability for many operators, and progress for pure storage projects remains a challenge.

Key Challenges 

Other critical challenges for the CCUS industry include:

Regulatory uncertainty 

There’s been ample progress with CCUS regulation and policy initiatives. In the European Union (EU), the Net-Zero Industry Act aims to have 50 million tons per year of CO₂ storage developed by 2030, while the US’s Inflation Reduction Act offers a range of tax credits for different forms of carbon capture. Legislative advances have come in tandem, with most countries’ rules falling somewhere between two models: one wherein the government will set guardrails for pricing, access terms, and risk allocation (e.g., in the EU); and another that is incentives-based, encouraging more private arrangements (e.g., in the US) as third-party infrastructure accelerates.

Though numerous regulations and policy directives have been put into place, most have yet to be fully developed, and the industry lacks clear standards accepted by nation-states and international regulators. However, efforts are in place to promote international standardization; for example, the ISO Technical Committee 265 is working on “Standardization of design, construction, operation, environmental planning and management, risk management, quantification, monitoring and verification, and related activities in the field of carbon dioxide capture, transportation, and geological storage.”

Until these standards are finalized and accepted, a principal issue remains: aligning the rules of different countries. For instance, can one nation-state trust another that the CO₂ it’s delivering is safe and compliant with its laws? How do risk and liability change hands along the value chain?

Scaling up presents further regulatory challenges. For example, permitting in the US is a growing issue as applications for CO₂ storage facilities increase, generating opposition from some communities and environmental advocates. Though the Environmental Protection Agency (EPA) currently runs this process, permit timing is unclear, as is the agency’s procedure for granting primacy to individual states.

Cost and commercial viability 

As with any emerging market, costs are an obstacle. According to the IEA, costs for carbon capture can range from $15 to $120 per metric ton (depending on the type of process employed) and potentially over $300/t for DAC. Further costs depend on the method of transport and how CO₂ is stored. As a result, most operators are largely dependent on government subsidies, like the $1.2 billion in federal grants for two DAC hubs in Texas and Louisiana.

A more mature carbon credit market—where, for instance, carbon is taxed and/or stakeholders can easily trade credits internationally—could help. Even so, Global CSS Institute indicated, “Financing prospects have improved substantially” amid increased policy support, developer experience, and technological maturity, as well as lessened political and liability risk.

Accounting and verification 

Once carbon has been captured, transported, and stored, organizations will need to effectively measure and account for it. In the US, for instance, operators that want to receive relevant tax credits must meet guidelines outlined by the EPA’s Greenhouse Gas Reporting Program.

Unfortunately, no unified standard exists for measuring carbon emissions—which in turn inhibits the development of a trusted carbon credit market.

How to Prepare for What’s to Come 

Though it may have its critics, CCUS is not going anywhere. The technology is available, the market is growing, and commitments like the Paris Agreement incentivize nation-states and corporations to reduce greenhouse gas emissions.

That said, CCUS is a long-term play. Like other energy transition initiatives, it will take time, government funding, and regulatory advancements to develop. Unlike other initiatives, CCUS is primarily a waste management solution—and may truly be commercially viable only once it is bundled with the cost of carbon-emitting energy production and/or when carbon is priced as a tradeable commodity in and of itself. This is a ten- to twenty-year challenge—and now is the transition period.

In this moment, it’s important that stakeholders understand the importance of cooperation. Similar efforts have flourished when industry bodies share a clear agenda on regulations and unified standards. Industry can help regulators by providing real-world examples, engaging in a dialogue about what works and what doesn’t, and advocating for flexibility.

Whether corporations decide to take advantage of CCUS in their own operations, they must be able to effectively measure and control their carbon footprints. Tracking and regularly monitoring emissions along an organization’s entire supply chain is a complex issue, with different standards and frameworks in play. Experts can help leaders choose the best ones, stick to them, and conduct successful sustainability reporting. Doing so will lay the foundation for success as the accounting and verification of emissions-reduction efforts continue to mature.

Finally, stakeholders should be mindful that whatever they do now will be debated in the context of related disputes ten and twenty years down the line. CCUS participants need to structure commercial relationships in ways that protect them from potential disputes and/or provide avenues to resolve future ones.