Carbon capture could be an important tool for tackling climate change. Can we find productive ways to use that carbon?

0:00Welcome to today's show brought to you by Engie. Your business has enough challenges. Energy shouldn't be one of them. That's why Engie builds tailored energy solutions around real business needs to support growth, strengthen predictability and move businesses forward. Because real power comes from shared expertise and relationships that outlast the paperwork. Learn more at engieresources.com.

0:26Hello and welcome to The Energy Gang, a discussion show from Wood Mackenzie about the fast-changing world of energy. I'm Ed Crooks and on today's show we're going to be talking about carbon capture and utilisation or CCU. I think it's a really important part of the toolkit for tackling greenhouse gas emissions for reasons we're going to be discussing during this show. And to talk about it. I'm joined by my colleague, John Ferrier, who's a senior research analyst at Wood Mackenzie. John's work focuses on the valuation of carbon capture utilization and storage projects and on analyzing key policies and regulations.

0:58Hi, John. Welcome to the Energy Gang. Thanks, Ed. Great to be here. Absolutely. Yeah, great to have you here. We're also joined by Sarah LeMaison, who's the CEO and co-founder of Dioxcycle, which is a clean tech startup working in this area of carbon capture and utilization. It's developing a new electrolyzer technology called carbon electrolysis, which can be used to convert waste carbon emissions into sustainable chemicals and fuels. Sarah, great to have you here. Thank you. Nice to be here. We'll probably get into what Dioxcycle does in a bit more detail a bit later on. But just as a kind of headline for the listeners, how do you describe what it is that the company does?

1:33What's your elevator pitch? Well, at Dioxcycle, we have developed a novel technology that turns carbon emissions, so CO, CO2, carbon monoxide, carbon dioxide, into clean essential chemicals like ethylene, which is the well's most used organic chemical, using just electricity and water. So, I mean, happy to go into more details, but hopefully that's enough for the elevator. Yeah, absolutely. And I think that's a great illustration of what we're talking about here on the show. When we talk about carbon capture and utilization, I think often people are more familiar perhaps with carbon capture and storage.

2:05People are familiar with the idea of capturing carbon emissions from industrial processes, power generation, whatever, and compressing it, storing the carbon dioxide under the ground, what we're talking about here is actually taking that carbon dioxide and doing something productive and valuable with it, as you say, like turning it into chemicals and other products. And finally, we're also very pleased to welcome to the Energy Gang, Tim Vandenberg, who's a climate tech innovation lead at the World Economic Forum, where he brings together innovators and policymakers to work to accelerate clean energy technologies.

2:37and you're also just publishing your new white paper on the subject to carbon capture and utilisation, right? This podcast is going out on Monday, September the 22nd. It's the first day of Climate Week and you're launching this new report then, right? Exactly, Ed, and thank you for having me on this podcast. It's wonderful to be here and you're exactly right to note that we're starting off Climate Week from our side with a collaboration with Wood McKinsey on indeed a white paper that looks into scaling carbon capture and utilisation pathways. Great to have you on the show. Welcome to the Energy Gang.

3:09Thanks very much for joining us as well. I introduced this show by saying that I thought carbon capture and utilisation was an important part of the toolkit for tackling climate change, reducing greenhouse gas emissions. And I thought it would make sense to start off by thinking a little bit about why that is and where carbon capture and utilisation can fit into the broader landscape of technologies for decarbonising the energy system. Maybe, Sarah, perhaps could I start with you on this one? What is the particular contribution of CCU and why is it important? So, first of all, I want to start by saying that CCU is not the answer to everything.

3:48I think it's very important that we think holistically about decarbonisation and that we do implement the technology that are the most efficient on a ton of CO2 abated per megawatt hour used in the right order. And so by priority, starting with the one that have the highest decarbonization potential. So when we think about decarbonizing a furnace in an industry, it's very likely not CCU that is the answer. And we should just electrify the furnace instead of like first, you know, turning CO2 into methane and then reusing that methane for furnace. However, there is one particular industry that cannot be decarbonized, which is the chemical industry, because it is the industry of carbon.

4:28So for this industry, I think CCU can play a very, very important role. And so the advantage of CCU, especially for the chemical industry, is double. First, one key aspect is that CCU provides a dual decarbonization opportunity. Because when you think about chemical processes, so for example, to produce ethylene, the world's most used organic chemical used in plastics, surfactants and a number of constriction material, the way it's produced right now, emit one to two tons of CO2 per ton of ethylene produced. So by doing CCU, now you're first avoiding these one to two tons of CO2 emitted per ton of ethylene produced.

5:06But you're also using other source of emission and repurposing them to make the ethylene. And so now you're not only avoiding the one to two tons, but you're also using 3.14 tons of CO2 per ton of ethylene you're making. And so your total potential decarbonization opportunity is like four to five. So that's the first point. And the second point I think that is very valuable about CCU is the fact that it can retrofit existing assets, meaning that now when we think about the speed and scale at which we need to scale these technologies to reach net zero, CCU offers a way to leverage existing assets, billion dollar assets that are already there, and really help like teaching existing incumbents how to use this novel process while also leveraging these assets, which are already amortized.

5:53And so I think it's a low-cap approach to these hard-to-abit sectors and to provide them with a way to reduce their emissions. Right. That is really interesting, actually. And that does begin to answer a question that I've often had about CCU, which is probably a lot of people will be more familiar with carbon capture and storage. Why go to utilization instead? What are the benefits of that route? And I think you've made that very clear. Yeah, I think clearly there are some issues, barriers, obstacles and challenges as well. We'll get into those in a moment. But yeah, OK, I do see the point about CCU as opposed to CCS.

6:34Tim, maybe bring you on this. What's your take on this? And as you're publishing this report for Climate Week on CCU, why do you see it as an important group of technologies? Yeah, I think Sarah, you know, did a deep dive on this already for the chemical industry, right? But if I, allow me to zoom out a little bit. Like how we look at CCU is more as a complementary tool to decarbonize and specifically to potentially defossilize industries that are still for now very dependent on carbon feedstocks, right? But it is about the source of that carbon feedstock. Is it a fossil base or is it a sustainable source of carbon, right?

7:12So think, for example, aviation fuel, chemicals, building materials. Those are sectors where we can't electrify everything. And what CCU does in those instances is that it allows to substitute captured carbon for virgin fossil carbon. Hopefully, at scale, creating a circular carbon economy. That's the ultimate systems-wide angle of these technologies, hopefully. But what we see right now is that the potential of CCU to do that system unlocking is hindered by things such as, for example, policy frameworks. They often undervalue that contribution because the climate benefits from CCU are harder to quantify than permanent storage, as you noted on CCS.

8:00But if we are serious about net zero, we need both tools. So it's not one or the other. we are saying we need a holistic approach called CCUS, right? CCS for removals and CCU for a circular carbon economy. And so for us, the opportunity now is to create clear technology agnostic incentives and assets such as like standardized lifecycle assessments so that utilization pathways can be properly recognized or at least starting to be properly recognized. Right, got it. Thanks very much. And I want to get into some of those issues like the policy barriers you mentioned in a moment. Before we do, though, John, you cover the whole of the industry, the whole of the CCUS industry.

8:41Where do you see utilization fitting in alongside storage? And how would you characterize the state of the industry today? Yeah, well, I think the key point is it's still at a very early stage. And if we look at the CCS project pipeline, there's a lot more advanced projects. We're seeing the scale of emissions being handled is much greater than we're seeing with CCU. perhaps another interesting point to kind of pick out you know we talked a bit about chemicals we talked about fuels and you know the real point here is with ccu we're talking about a wide range of different applications with different emissions benefits as tim has mentioned and you know there are also types of ccu which in essence function similarly to conventional ccs right so we have things like co2 treated building materials treating alkali minerals with co2 to generate carbonates which store carbon over centuries that is sort of functionally from an emissions benefit perspective equivalent to ccs so we're seeing some of that and and you know the same kind of incentives that are useful for ccs carbon pricing for example can more directly apply to those so some some are more advanced some of the policy frameworks are better suited to some applications that currently exist there's a lot of policy development that's needed so carbon capture and storage is definitely seeing more momentum behind it I think what's interesting from a carbon capture perspective is that carbon capture and storage is in essence inherently non-productive.

10:09It's an additional cost for the most part. And, you know, and the projects that are progressing derive revenue from the regulatory support that they receive or EOR or, you know, something like that. Footnote, EOR, enhanced oil recovery. So that's taking carbon dioxide and injecting it into the oil field to get the oil out more easily. Yes. And there is a degree of contention around that. Some people consider that to be utilisation. Others don't. I think we generally consider it would make that it isn't utilization. And if you look at the IPCC definition, that classifies CCU as carbon within a product.

10:41In the absence of regulatory support, if you have an opportunity to use the CO2 stream that you're capturing and direct it towards as a feedstock to produce a product, you can start to supplement your revenue that you get from subsidy with something else. And so we are seeing the first signs that CCU can be used to help kind of offset some of those CCS costs as well. So they kind of, there's a degree of interplay as well. Right. And so let's talk about policy for a bit. Is it the case then that at the moment there is more policy support for CCS, for storage, than there is for utilisation? Is that fair?

11:16Yes, absolutely. I think that's very clearly true. There are subsidy mechanisms around popping up all over the world around CCS, business models in the UK, all sorts in Europe, in the US as well, although you also have a tax credit for utilisation as well. So proportionately, there's definitely more support behind CCS. We are starting to see more around CCU, but I think given the kind of the spectrum of end products we're talking about, that presents a bit of a policy challenge. I think from a policy thinking perspective, policy strategy perspective, there are much clearer visions around the role that CCS is expected to play.

11:51And I think that's feeding in as well to how much subsidy support there is. Right. Other particular reasons for that then? Why is it that you think storage has generally been favoured until now? I think, to be honest, it comes down to prioritising emissions reductions very quickly. And I think, as sort of Tim's mentioned, with CCS, emissions reductions are more measurable, more tangible in some way. In many cases, conceptually, you have an emission source here. You need to intercept that. And in many cases, using off-the-shelf technologies with CCS, essentially. And so I think there's a simplicity to that.

12:23I think when you have carbon pricing that directly values those emissions reductions, that's the source of revenue. And you can start to hang additional subsidy off of that. So I think it's largely just this sense of we need tangible emissions reductions now. Countries have the nationally determined contributions. They have their emissions reduction targets. Whereas CCU is far more complex. You're talking about avoided emissions in some cases. You're talking about conventional reductions in other cases. You're talking about removals in some cases. And you're also talking about a range of different products, which might require very specific incentives to try and incentivize.

13:00It might be demand side measures or there might be other forms. So it's just the complexity around CCU and the diversity as well. Right. Sarah, so how do you see this then? So at DarkCycle, you are trying to navigate this complex policy landscape. You're doing it for real. How much is policy helping you right now? The European policy landscape is quite harsh, to be honest, on CCU. Because I think the intention has been good initially and how incentives that has been set up around the EU ETS framework, etc. However, what happens right now in Europe is that if you take a chemical plant that is taking fossil feedstock and turning that into a chemical, this chemical plant within the EU ETS framework is going to pay for the emissions they are emitting.

13:49However, they're not going to pay for the carbon content that is embedded in the chemical and that is, you know, living at the gate of their factory. However, if you look at a CCU plane now, if you take the same plant, but now consider the source of carbon is not fossil, but it's an emission. Actually, the plant still needs to pay for the emission as if they had emitted it. So now the plant is paying for that, which means that the CCU industry is not even advantaged. It's not even usual. It's put at a disadvantage versus fossil, which I don't think was ever the intention of the European Commission.

14:29And it's really a loophole that a number of companies and groups have been trying to fix for a number of years. And now we are really hoping for the EU ETS revision that is coming to fix that problem. And that's going to be very important. So to answer specifically on our case, we actually never bet on any policy support. I like to say that we are healthily cynical, although that's quite sad. But anyway, it would, of course, change a lot of things, you know. And that's also why I think there's not so many companies doing CCU right now. When you think about climate tech in general, you have a lot of people doing like geothermal, a number of things, electrification.

15:09But CCU is still like quite a niche pool of companies because of this in particular, because not only you have to create a new technology, and now you also have to face this kind of non-level playing field, which is hard. In the U.S., interestingly, as part of the one big, beautiful bill, because as you were saying, I don't remember if it was you, Timor, or John, you know, the 45Q tax credit recognize carbon utilization and provide like a tax credit for carbon utilization. And the one big, beautiful bill increase that tax credit from$60 to$85 per ton of carbon utilized, which can be CO2 or CO, which is interesting because there are some interesting pathways that are not talked about enough in CO valorization.

15:52And so actually now we are seeing our economics being really, I mean, uplifted in the U.S., which is also unexpected. But I think it also comes to the point that you were mentioning that EOR is considered in the U.S. as utilization. And I think that was, you know, we are kind of piggybacking this and benefiting from the support to EOR and more the oil and gas industry right now. Right. Because Dialog Cycle, you have dual headquarters, right? You're based in Paris, where you are now. And also you have a headquarters in the San Francisco Bay Area, where I actually happen to be myself right now. So you have the option, I guess, of investing in Europe or the US.

16:32Is the U.S. now then actually a much more attractive market to invest in because of that 45Q credit you're talking about? When you think that one ton of ethylene to be produced takes, you know, over three tons of CO2 or or I mean a bit less of CO to be made. But$25 per ton of CO2 means, you know, three times that,$75 per ton of ethylene you're producing of differential. And, you know, in the U.S., ethylene is sold at like, I mean, somewhere between$600,$700 per tonne. It varies. So you're talking about more than 10 % just because of that increase in tax credit, which is huge. So, yeah, I mean, the answer is right now, Europe is a hard environment to be in from a CCU perspective.

17:17However, you have also some price dynamics that changes a bit this because in Europe, ethylene production is based on NAFTA cracking and not ethane cracking like in the U.S. the cost base is actually higher. So your incumbent that you're trying to disrupt is higher, but your electricity price is also higher. So there is a lot of these questions that are very important. And so when we think about where to locate a project, we really think about like a country, a specific grid. You know, is it Aircote in Texas? Is it France with like the very nuclear heavy base, base load and actually quite low pricing?

17:51And we really have to think about region by region project to find the best combination of regional pricing, electricity pricing and availability of carbon emissions. So Tim, how do you think about this then when you hear Sarah and John talking about the policy landscape and some of the issues Sarah's been talking about in Europe? Is there a real problem there? And is there a case for policy reform to introduce significantly more support for utilisation? I mean, the underlying dynamic here is that, you know, policy frameworks around the world are really fragmented and inconsistent. So we should push for more global interoperability between these policy frameworks.

18:30Right now, for example, as they both mentioned earlier, there is a reward that is more rewarding for permanent storage, but it often then overlooks the climate potential of utilization. And that's not done on purpose, right? But I think what we globally need to go towards is we need technology agnostic policy that don't necessarily back a perceived winner too early, which I think is why we now have so many subsidy penalties, if you will, on CCU, because so much policy is favoring CCS. And that's also because simply we don't know yet. A lot of these pathways in both fields are in its early infancy, right?

19:07So we don't know yet which one at scale will be the winner, right? And so instead design policy so that the market can decide which technology proves themselves. then all credible routes will have a chance to get off the ground. And so I think that's the overarching theme here in policy that we need to work towards at a global scale. Every business has priorities to protect, goals to reach and decisions that need to hold up. Energy should support all of that, not become one more thing to manage. That's why Engie takes the time to understand your business before building energy solutions around it.

19:41Your operations, your goals, your pressures, your plans for what's next. because while Engie knows energy, no one knows your business like you. And when that expertise comes together, energy becomes more than something that powers your business. It becomes part of what helps move it forward. Engie helps turn energy plans into outcomes with solutions built around real business needs. Learn more at engieresources.com. That's E-N-G-I-E, engieresources.com. So you've been mentioning some of the issues around measuring exactly how many emissions are prevented by utilisation technologies. As John was saying earlier, there's a whole range of different utilisation technologies.

20:22And is the issue then that the kind of ultimate fate of the carbon dioxide or the carbon monoxide, possibly in some cases, in terms of getting to the atmosphere, is unclear often? I mean, take an example. Maybe Sarah, go to you on this. You use your captured carbon to make ethylene. That ethylene then goes to make plastic, household goods, stays locked up in plastic for a long time, but eventually does it not kind of breaks down and the carbon would get released into the atmosphere in some form. Is part of the problem with these policy frameworks not being as supportive as they could be that this is all so uncertain?

21:09We don't know, as I say, we don't know ultimately where the carbon is going to go. Somebody, the industry, whoever it is, needs to do a better job actually of kind of following through with the full life cycle of these emissions. Yeah, I mean, that's a great point. And unfortunately, I think there's a lot of like perhaps misunderstanding there because like we have to think about the question of carbon really from like the cradle to gate. So how is the chemical produced and then the gate to grave? So what happened then in the end of life of the product? Because if you really focus on that cradle to gate, it doesn't matter what happened at the end.

21:50As long as you treat all the types of chemicals the same way and you say a plastic, whether it's from fossil origin or from renewable carbon emission or bio origin, at the end, it might ultimately with that amount of probability be remitted. If we assume like that's the fate of it, we can just focus on how is it produced and how is it produced now? It's very clear. Like it's very clear to understand the benefit of CCU when you think about the comparative system, which is how, you know, 45Q tax credits, how the GREET model does it. You have to think about the reference scenario and the comparative scenario.

22:25So imagine now you have a steel mill that is making steel and emitting carbon, and you have a cracker that is emitting carbon and making ethylene. If we simplify scandulously, I can say you emit one ton of CO2 per ton of steel, one ton of CO2 per ton of ethylene. What you can really understand intuitively is that if you're now taking the emission of the steel mill and converting that into the plastic, you have just emitted less. you've divided by two, like the emissions, because now you're extracting only once fossil carbon and this fossil carbon is being reused. So it's simple to say, yeah, and now you've divided by two the emissions, whatever happens at the end of life.

23:07And I think this is a message we need to get out so that people understand the benefit and don't have to do the mental exercise of like, okay, but what happened at the end of life, which is the same fate, regardless of the origin of carbon. That's really interesting. And so, Tim, are you hopeful that policymakers are kind of developing an understanding of some of these issues, are thinking about this? I mean, presumably at the way if you talk to a lot of people in policy and regulation as well as in the industry, how much of an education job is there to do to get people to understand some of these issues that Sarah's been talking about?

23:42I think if you look across all the different stakeholder groups that have a stake in CCU, policymakers, industry incubants, innovators as Sarah, there needs to be more awareness raising across the board. How does CCU fit in the broader climate mitigation picture? How do you incentivize it to Sarah's point? You know, should we do new lifecycle assessment at the point of source of carbon rather than the emissions point, right? And so I think that's what is very crucial to these initiatives that we do at the World Economic Forum, which is kind of like creating a pre-competitive collaboration space.

24:13In this instance, you know, the CCU innovation ecosystem that was driven by the World Economic Forum and Uplink, their innovation platform, that brings together these innovators, these industry incubators, these policymakers, but also financiers, because unlocking finances to skill these technologies also has its own hurdles and barriers. So kind of understand in a pre-competitive capacity in terms of how can we collaborate, where is actually the opportunity, and only then if you have that space for conversation can actually be serious about scaling. So definitely there is an awareness raising exercise that needs to be done that we're doing with work like this.

24:47But it's very much a collective effort across the board. OK, so we talk quite a lot about policy and what policy can do to help CCU. I wanted to talk a bit about what the industry can do for itself to help it develop and grow. Maybe, John, bring you in on this first of all. But how do the economics for CCU projects stack up at the moment? Oh, that's a good question. and again I'll probably be a stuck record here and say it's very variable I think it comes down to on the capture side what kind of CO2 source you're capturing from on the one hand so there's a big focus across different CCU pathways to use biogenic and atmospheric CO2 and for example biogenic is sort of more in keeping with the usual cost that we would see on a conventional kind of post combustion capture project and sorry to be clear then so biogenic this would be what from vegetation yeah essentially this the sort of two groups of a co2 source from an emissions benefit perspective that kind of the focus unavoidable and process emissions so this might be something like a cement plant in which you know you will produce co2 in making cement unrelated to fossil fuel use and then there are emission sources that are considered kind of part of circulation in essence.

26:04So you have biogenic emissions, so if you've burned biomass for fuel, because as plants take out CO2 from the atmosphere as they grow, that CO2 is considered to just be returning to the atmosphere and not added anything to circulation, and similarly for atmospheric. So those are kind of the two distinctions. And again, to be clear, atmospheric then, so that would be capturing carbon dioxide from the atmosphere, so direct air capture and so on. But again, it comes down to the kind of end product that you're producing, right? So, So, you know, we see cost multiples for CO2 treated building materials much closer to cost competitiveness today, so one to two times.