In the next few years will be crucial to boost CCUS market confidence and set the sector up for rapid growth over the coming decade. The failure or success of the existing projects could prove CCUS feasibility in combating climate change. However, halfway through 2024, we have yet to see the progress needed for these projects to reach their final investment decisions (FID).

Based on our 11-parameter risk assessment, out of the 600 million tpa of announced capacity by 2030, we expect around 200 million tpa to become operational. These are projects with a mature business case, a project financing plan, and in locations with a mature permitting process in place. To keep these projects on track, we would need to see around 40 million tonnes of capacity sanctioned per year for the next three years. Yet less than 7 million tpa of project capacity was sanctioned in 2023. And these projects have one thing in common – feasible project economics.

As the world is under pressure amid high inflation and a high cost of capital, carbon pricing and incentives are no longer enough to justify CCUS project investments. Additional financing is needed to strengthen economics. Hence, we see projects linked to commodities with expected green premiums, such as clean fuel, clean energy, and carbon dioxide removal (CDR) as more likely to move forward.

We saw significant progress in CDR offtake agreements in the first half of this year, with the total offtake volume signed so far already exceeding the total volume seen in 2023. Besides, policies for carbon removal are also progressing. Japan and the UK are both considering removal credits for their respective country ETS compliance, while the EU proposed an industrial carbon management plan. Also, Germany’s carbon management strategies highlighted the need for Long-term negative emissions. These series of policies set the future demand for CDR, thus providing the bankability criteria needed for removal project. With an average price of $240/tonne for BECCS projects, and $1,000/tonne for direct air capture (DAC) projects from disclosed contracts, these offtake agreements are currently trading above the estimated project cost.

We expect that projects that have secured an offtake agreement will reach FID status shortly to meet their delivery target. One such example is the project by Stockholm Exergi on its Värtaverket KVV8 waste power plant, which recently announced a 10-year offtake agreement with Microsoft to deliver 3.3 million tonnes of carbon removal credits. Close to 65 million tpa of Bio-based CCS project capacity is set to be sanctioned in the next  four years. The continuous growth in the removal market, as well as an increasing demand for clean energy will puts these projects on the low-risk spectrum.    

On the other hand, we have yet to see significant movement in hard-to-abate industries, like cement, steal and refinery. The stackability of incentives, cost avoidance, and sale of CDR credits has been and will be instrumental for project sanctioning in the next few years. As we continue to monitor the progress of CCUS projects, we note that the investment environment has improved significantly compared to the last [AD3] decade. With close to EUR 600 million grant recently awarded to CO2 infrastructure project listed under Project with Common Interest (PCI) in Europe, this further addresses the obstacles in large scale project development. There might still be some hiccups in the short term, but the long-term outlook remains positive with growing urgency to tackle climate change.

We have recently launched the CCUS Cube, which is available to all CCUS subscribers. The tool gathers project data from our CCUS solution in one place, enabling users to customize data for project analysis. We are confident that this new addition will further add value to our user and improve user experience. Please reach out to our support team if you need any assistance.