These are challenging times

The world is struggling to reduce CO2 emissions at the pace required to limit global temperature increases to 1.5°C. The combination of the Ukraine war (stratospheric gas prices), searing summer heat and widespread droughts (higher energy demand for cooling, reduced hydro and nuclear power output) is resulting in more coal being burnt in the US, Europe and China. It has also driven European carbon prices to record levels. Ambitious national climate targets are taking a back seat as the cost-of-living crises bites. The recent signing into law of the US Inflation Reduction Act may represent a turning point, setting a precedent for other nations to follow, with US$369bn pledged towards climate investments over the next decade.

Carbon removal becoming essential

As we are all too aware, the earth’s surface temperature is already over 1.0°C above pre-industrial levels and it is becoming increasingly clear that removing CO2 from the atmosphere will be necessary to reach global climate goals. Carbon Capture & Storage (CCS) and Direct Air Capture (DAC) are CO2 removal technologies that are key enablers for reaching global net zero emissions by 2050. It is the only group of technologies that contribute both to reducing emissions in key sectors directly and to removing CO2 from the atmosphere to balance emissions that are hardest to abate. Combining bioenergy production with carbon capture and storage (BECCS) can deliver negative emissions (net removal of CO2 from the atmosphere) whilst producing energy in the form of electricity, heat, gaseous and liquid fuels. This is a nascent industry set for strong and urgently needed growth.

Carbon as a commodity

Carbon markets exist under both mandatory (compliance) schemes and voluntary programmes. Compliance markets are seeing prices hit record levels, while the voluntary carbon market has been growing rapidly in recent years, quadrupling in 2021 to ~US$2bn. This trend looks set to continue, with the market for carbon credits expected to reach US$50bn by 2030. Carbon credits from long-term engineered carbon removal technologies such as CCS, DAC and BECCS are in strong demand and fetch high prices as they offer a robust, verifiable, permanent carbon removal solution.