As the global effort to combat climate change intensifies, the importance of developing carbon-abatement solutions has never been higher, writes Jonathan Corning, ESG analyst at Boston Partners.
Developing carbon-abatement solutions has never been more important, and this is most evident in Europe, which has long been at the forefront of climate innovation. The European Green Deal outlines Europe’s goal to be the first climate-neutral continent by 2050. Toward that end, the EU introduced its ‘Fit for 55’ legislation in July 2021 to encourage the deployment of climate technology, including carbon capture, to accelerate the path to reducing emissions in the EU by at least 55% by 2030.
Not only can carbon capture play a critical role in hitting Europe’s ambitious climate targets, but achieving net zero emissions will be virtually impossible without promoting carbon capture and renewable energy in tandem.
This is why European policymakers must continue to incentivise substantial investments in carbon capture while expanding the availability of renewable energy throughout the electricity grid. Additionally, the establishment of carbon capture and storage (CCS) hubs must be encouraged by European policymakers to accelerate the energy transition by facilitating the widespread deployment of this technology.
A Multifaceted Strategy
While some critics argue that investing in carbon capture may divert resources from renewable energy sources, this is not a matter of either/or. A multifaceted approach is necessary to meet climate targets effectively. Indeed, the IEA (International Energy Agency) Net Zero 2050 Scenario expects carbon capture to account for almost a quarter of emissions reductions through 2050. Carbon capture technology is needed to address emissions from hard-to-abate sectors and existing infrastructure.
Carbon capture is energy-intensive and requires low-carbon energy sources to operate efficiently. Therefore, investments in this technology should be complemented by continued support of renewable energy sources. A simultaneous focus on both will be crucial to drive down the cost of low-carbon energy and reduce dependence on grid electricity derived from fossil fuels, ultimately leading to a sustainable energy transition.
Next Steps
Carbon capture is on track to reach about 300 million tons per year (Mtpa) of CO2 reduction by 2035, falling short of the approximately 4,000 Mtpa of CO2 capacity the IEA estimates will require by 2035 to achieve net zero emissions by 2050. Scaling carbon capture is crucial for achieving net zero emissions, considering the significant gap between the projected capacity and the required CO2 abatement. Fortunately, scaling carbon capture won’t break the bank, according to Boston Consulting Group (BCG).
Carbon capture capital expenditures are also expected to decline as installed capacity increases. Historically, the capital expenditures for other industrial technologies have dropped by 10 to 12 per cent each time capacity doubles. BCG estimates a global incentives floor of €60 to €70 per ton to achieve 4,000 Mtpa of CO2 abated. European countries, such as the UK and Norway, have led the way with generous incentives leading to improved economic viability of commercial carbon capture projects. Policymakers must continue implementing tax credits, capital grants, and carbon pricing schemes to create favourable investment conditions for carbon capture projects.
The next step for European policymakers is to encourage the development of CCS hubs. CCS hubs have the potential to significantly accelerate the energy transition by facilitating the widespread deployment of carbon capture technology. These hubs act as centralised facilities where multiple emission sources can capture, transport, and store CO2 emissions. By centralising the capture and storage infrastructure, multiple emission sources can share the costs of building and operating the facilities, making the technology more economically viable. Policymakers can further reduce capital costs by providing government funding until reaching commercialisation. At that point, support for CCS hubs will come from an explicit or implicit carbon market, further reductions in the cost of technology, and growing demand for decarbonised industrial products. Policymakers must prioritise the development of these hubs as a critical strategy in accelerating the energy transition and achieving ambitious climate targets.
Conclusion
Europe has been a global leader in sustainable innovation. To achieve climate neutrality, however, Europe must continue to promote the development of climate technologies, including both carbon capture and renewable energy. European policymakers play a vital role in providing the necessary incentives and regulations to scale carbon capture, which is critical if Europe hopes to be climate neutral by 2050.
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