This expert transcript is adapted from the GLG Teleconference “Direct Air Capture – Industry Implementation and Key Challenges” hosted on Tuesday, January 23, 2024. The transcript represents the views of the expert based on the information available at the time of record, and their views may have evolved over time.

If you would like to speak with Angus Gillespie, or any of our industry leading and experienced experts, please contact us.

Key Takeaways

1. High Costs of Direct Air Capture is a Challenge: The very high costs of direct air capture being reported at the present (up to $1,000 a tonne) is the cost at pilot scale. This is nascent technology, those costs will tumble as scale comes through and we see innovation move into the market. For industrial CCS, between 75 to as high as 90% of the overall supply chain costs are made up of capture. It’s all about capture. Amine based capture is relatively expensive, and an old technology that’s ripe for innovation.

2. Carbon Capture Storage and Utilization Projects Can Scale Alongside Direct Air Capture: Direct air capture is complementary to CCS. And in fact, it’s very complementary in the way that the capture process is identical in industrial or atmospheric recovery processes, so they will both benefit from the same innovation and cost reduction as you go forward.

About the Expert

Angus Gillespie is a low-carbon and renewables executive and the owner of his own consulting company, Edzell Climate Economics. He was also a part-time manager for European Affairs at the Global Carbon Capture and Storage Institute. Previously Angus was the vice president of CO2 at Shell between 2013 and 2018 where he worked with the executive team to develop and launch a series of CO2 initiatives and oversaw Shell’s global carbon capture storage and investment program. Angus can discuss:

    • The key players in the carbon capture industry.
    • The economies of carbon capture, cost of abatement economics and carbon pricing.
    • Climate change risk resilience within the oil and gas industry.
    • Internal carbon pricing implementation and best practices.
    • The use of carbon pricing in producing the merit order of decarbonization options.
    • Characteristics of the global carbon market, possible future developments and trends, and regional and national contrasts.


Full Transcript

Good morning, and thank you for joining us for today’s GLG event on direct air capture: industry implementation and the key challenges. My name is Sam Stopps and I will be interviewing Angus Gillespie for the next 30 to 45 minutes.

Angus is a low-carbon and renewables executive and the owner of his own consulting company, Edzell Climate Economics. He was also a part-time manager for European Affairs at the Global CCS Institute. Previously Angus was the vice president of CO2 at Shell between 2013 and 2018 where he worked with the executive team to develop and launch a series of CO2 initiatives and oversaw Shell’s global carbon capture storage and investment program. And before this, he was vice president of CO2 Strategy between 2010 and 2013 at Shell.

I would like to remind all of our participants, Angus will not be able to discuss Edzell Climate Economics or his consulting work in any capacity. He may have some limitations from his former employment at Shell and he will decline to answer any questions related to confidential matters.

1. Can you explain direct air capture and how does this differ from traditional carbon capture projects?

Yep, I can do that. Well, good morning to you, Sam, and good morning and good afternoon to those online. Probably the best way of leading into a discussion on direct air capture is actually to look at the whole family of carbon capture technologies. And it also helps to explain when I use the term CCS or direct air capture, what I’m referring to. So you’ll hear the term carbon capture utilization and storage often used in the abbreviation CCUS. So that’s a collective term for everything. You can think of CCUS in three stages. First, there’s the collection and sourcing of the CO2, that’s one stage. The second really important part is the processing, and that’s made up of capture and compression. And then the final stage of the supply chain is the application or use of CO2 at the end. So let me use that to describe what direct air capture is.

Most forms of CCS or CCUS today are industrial in nature. They collect the CO2 from industrial processes. So whether that’s gas processing, steel manufacturer, concrete manufacturer, whatever it is, it’s industrial, principally flue gas where you take the CO2 from. So direct air capture by contrast is taking the CO2 from the atmosphere. Now that has huge challenges, not least the very low level of concentration of CO2, but I’ll come to that. I’m sure Sam’s going to ask me some questions about it. That’s the fundamental characteristic of direct air capture. It’s taking CO2 from the atmosphere rather than supporting an underlying industrial process.

The processing part of the supply chain for direct air capture is almost identical to the industrial process. So, it’s the same capture process, usually based on a chemical amine solution to which the CO2 attaches and is then recovered through either heating or freezing, compression to an ultra-critical state. So the CO2 gas becomes a liquid and it can then be transported. And remember that final part of the supply chain is to do with how the CO2 is then used, the concentrated CO2.

Today its endpoint is either sequestration, that means that the CO2 is injected about one to two kilometers below the surface into redundant oil reservoirs or saline aquifers that have never had any hydrocarbon in them, and there is some CO2 that goes to utilization, which is where the CO2 provides some kind of valuable addition to another process.
Today, that utilization is almost exclusively EOR (enhanced oil recovery), so that’s improving the recovery rates from usually older oil reservoirs, when it’s to do with tertiary recovery. So that’s kind of the way direct air capture fits into everything. So the principle difference is direct air capture is taking the CO2 from the atmosphere.

So while all that is very challenging given the low levels of concentration, the main advantage of direct air capture is that the process is incredibly mobile. Because by nature it’s taking CO2 from the atmosphere, you can put the direct air capture plant literally anywhere in the world. It will still face the same challenge of the concentration levels of CO2. Unlike the need to support, say, ethanol production in the north of America, you don’t need it to be on top of the plant. What that means is you could position your plant where the cheapest form of energy is or the cleanest. There’s a great example of Climeworks who have a plant in Iceland using geothermal power. Effectively the energy used has a zero-carbon footprint.

Or you can position the direct air capture plant next to where the CO2 can be stored. A sink. So where the most immediate and easiest forms of sequestration lie, you could put the direct air capture plant there. And it also means, of course, post Paris Agreement, any country in the world can pursue direct air capture in its own territory if it wants. It’s a fascinating topic, direct air capture. And I’m sure, Sam, you’ll take me into reasons why it’s become more popular or indeed the fundamental challenge for direct air capture is the business case, which remains elusive. But that’s really how I would define direct air capture. Its principal difference is it sources the CO2 from the atmosphere.

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2. Are there any notable examples of live projects that are currently active and how are they performing?

Yep. I think the last time I looked a few days ago, there were 18 direct air capture plants across the world. Now that sounds impressive until I tell you that the total amount of CO2 captured, the total amount is 10,000 tonnes a year. What that tells you is that each of those plants is catching a rough average of a tonne of CO2 a day or 500 tonnes of CO2 a year. Now, that just underlines the fact that direct air capture itself is really at the pilot phase. I could point to the Gorgon industrial CCS plant in the west of Australia supporting LNG (liquefied natural gas) processing, which is capturing between three and four million tonnes of CO2 a year. By comparison, the average direct air capture plant is capturing 500 tonnes a year, 500, not 5,000, not 50,500. So very small, but this is a really exciting time for direct air capture because things look as though they’re starting to scale.
You asked for notable examples and the one I would point to now, its code name is Stratos, it’s being built by Occidental in partnership with Carbon Engineering who are the direct air capture company. It’s due to go live in 2025, the last report I read it’s all on target. And that will capture half a million tonnes of CO2 a year. It’s based in the Permian Basin in Texas. So that just takes the whole technology to another level.

This is a great time to be talking about direct air capture, it’s on the cusp of going from a pilot plan at least to demonstration scale. And there’s a lot of really promising words being sent by Occidental and Carbon Engineering about taking this from one large plant capturing half a million tonnes a year to potentially, I think Occidental have said they could take this to 135 similar size plants by 2050. So something could be happening. But I don’t want to over egg this. I mean, I looked at the global CCS Institute, their annual census report on all CCUS plants, and today there are 37 operating. These are large plants capturing more than half a million tonnes of CO2 a year. There’s 37 CCUS plants across the world. There is not one large-scale direct air capture plant yet. STRATOS would be the first. There are 20 in construction. STRATOS is the only example there.

So 5% of construction activity in CCUS is direct air capture. And there’s about 200 total CCUS projects in the pipeline. And there’s one other one following STRATOS, which is Acorn, which is in a little country called Scotland and up in the North Sea here. And that is the only example of another large-scale direct air capture plant in the pipeline at present.
Now I’m going to spend a few minutes talking about performance because this is the key question. So how are things performing? There’s nothing commercial when it comes to direct air capture at present, Sam. This is in a pilot phase, so first of all, let me give you the fundamental challenges.

The concentration of CO2 in the atmosphere is 0.04%. So that means the CO2 is so dilute that the costs of capturing it, compressing it, and then managing it are so high. On average, very difficult to get numbers out, but of the plants in operation today, I would be confident in saying there is no plant that is operating at a cost less than 1,000 US dollars a tonne of CO2 being captured today. So that’s $1,000 a tonne. Let’s use that as a nice round number to discuss during this call.

So if we look at industrial CCS by comparison, and it’s all to do that concentration of CO2, the average cost of CCS, and it can be very misleading, but an average industrial CCS cost is about $100 a tonne. But where the CO2 is very concentrated, let’s think about ethanol production, the concentration level of CO2 there can be about 90% and the cost of capture can be $20 a tonne.

If we’re looking at natural gas power generation closed cycle, the concentration level of CO2, it’s considered very dilute at 4%, but that’s still 100 times more concentrated than atmospheric CO2. The cost can be about $300 a tonne. So at $1,000 a tonne, we really need to see the economics improve. And as we’ll talk about, no doubt, Sam, that will be a combination of the costs reducing, the costs of capture in particular, and policy support and maybe the value of carbon credits associated with direct air capture coming in. But it’s all about the business case. So it’s a difficult future, but there’s a lot of that promise and a lot of hope being placed on direct air capture.
So again, to reinforce, difficult today, very challenging business case, but I think we’re on the cusp of some impressive growth.

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3. It’s been reported by the IEA (International Energy Agency) that capturing CO2 from the air is the most expensive application of carbon capture as CO2 in the atmosphere is more dilute than, for example, flue gas from a power station. Can you discuss that challenge in more detail?

Basically the concentration ratios and levels are fundamental to the capture costs. First, atmospheric is 0.04%, so of all the gases in the atmosphere, CO2 makes up 0.04%. If we were looking at a bioethanol plant, I gave you the average of 90% concentration of CO2 in the flue gas that’s being managed. And if we looked at natural gas closed cycle power generation, as I said, the concentration would be about 4%.

And then the relative costs of capture that go with that, I said about $1,000, more than $1,000 for direct air capture. Bioethanol, I’ve seen it as low as $20 a tonne, and for the power generation from natural gas, let’s say $300 a tonne. It can be around that. So huge range of contrast.

Let me go back to where I started, Sam, because it will maybe help some of the listeners put this into context. If we think of industrial CCS, remember I talked about the three parts of the supply chain, collecting or sourcing the CO2, the capturing compression part, and then the sequestration of utilization.

The costs are all in capture. So if we think of industrial CCS, so that bioethanol power generation plant, probably between 75 to as high as 90% of the overall supply chain costs for carbon capture and storage are made up of capture. It’s all about capture. Amine based capture is expensive, very expensive. It’s an old technology. It’s been around for up to 100 years to manage gas processing. It’s absolutely ripe for innovation. A lot of people are looking at that just now, a lot of agencies, but it remains very, very expensive.

So in industrial CTS, that amine-based capture process accounts for about 75 to 90% of costs, and direct air capture, that can be about 99% of costs in the capture process. So it’s all about capture, don’t get obsessed by the cost of transport or the cost of monitoring once the CO2 is being injected into the sub sphere. This is all about capturing.

But to help the listeners understand, I’m going to make a distinction here between CapEx (capital expenditures) and OpEx (operating expenses). When we look at the cost of constructing a direct air capture plant against an industrial CCS plant, they’re basically the same based on volume. So if we think of a 1 million tonne per annum CO2 capture and processing plant, some great work by Carbon Engineering in 2017, and this is all based on analysis, not on an example because we don’t have a scaled direct air capture plant yet. But they estimated that a 1 million tonne per annum direct air capture plant would cost about $1.25 billion. That’s almost identical to how you would cost an industrial CCS plant.

It’s not surprising given it’s all about the capture process. The design might be different given one is atmospheric and direct air capture and the other is industrial, but the costs of building a plant are pretty close to each other. The OpEx numbers that I quoted, that’s where the difference lies. So from the $1,000 a tonne for direct air capture to the $20 a tonne for the ethanol production, it’s all in the operating costs and that’s because of the level of concentration of CO2. Now before I move on to the next question, Sam, I have to really emphasize the number of $1,000 a tonne, which can be quite stunning. That’s based on actual operation today at pilot scale. Again, Carbon Engineering, they did a great piece of desk work a few years ago, and they speculated that if or when direct air capture does go to scale, and their test of scale was 1 million tonnes per annum of CO2 being captured from the atmosphere and sequestered, they reckoned that the cost then, and the exact number was between 94 and 232 US dollars a tonne.

And the reason I want to mention that number is a lot of people get confused because they read about this range of 90 to $200 a tonne, and then I talk about a thousand. The comparison is that the lower level of cost is based on what’s called nth of a kind plant. It’s based on a scaled plant. It’s based on good engineering analysis and a lot of assumptions, whereas $1,000 a tonne is based on what we’re actually seeing today at pilot scale. So the challenge for these guys, the people who are developing direct air capture, is to get that cost down from the $1,000 a tonne or more down to something like what Carbon Engineering speculated at 90 to $200 a tonne. That’s the fundamental challenge.

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4. If you look ahead to the next few years, do you have a positive view on the outlook for direct air capture projects and how do you see costs and support schemes potentially from governments developing??

Yeah, it might surprise some to hear me say I do have a positive outlook, and let me explain that. So, first of all, the big picture is if you get a company of the scale and respect to Voxi, saying that if, and this is a scenario they’ve launched, but if they can see the business case for direct air capture, they can imagine themselves building up to 135 large scale plants by 2050. So it’s a scenario, it’s not a commitment, it’s not a plan, it’s a scenario predicated on the commercial case being found. It’s all about getting to that commercial case.  What that means, and the way you pitched the question hints such, Sam, it’s a combination of two things. A reduction in cost and an improvement in the revenue associated with direct air capture.

Let me look at each of those in turn, when it comes to cost reduction, the cost will reduce. There is absolutely no doubt about that. Economies of scale dictate that that $1,000 a tonne will tumble as plants get larger and become more professional and more experienced and how they capture the CO2 from the atmosphere, that’s undoubted. So the question is, how quick can the economies of scale come in? And there’s a principle in finance, the learning rate, which says every time you double the volume of an underlying technology, there is a reduction in overall unit cost, the levelized cost. So we do this for large capture projects like power projects or liquified natural gas, LMG plants. And there’s been a lot of work in industrial CCS and in direct air capture on what that learning rate is.

For industrial CCS, it’s accepted that the learning rate is probably about 15 to 20%. What I mean by that is every time the global volume of CO2 captured and processed in an industrial CCS setting doubles, one would expect the ongoing expected levelized costs for the technology would fall by 15 to 20%. For direct air capture, there’s some work out there that speculates it’ll be much higher because of the high starting position and the low scale of pilot plans just now. So it could be 25% plus. That means economies of scale will offer a lot of savings. The other area of cost saving is new technology. And remember the point, it’s all about capture. Amine based solutions are pretty clunky, they’re pretty old fashioned, they’re pretty expensive. They account for 99% of direct air capture plants costs, ongoing opex costs.

As you can imagine, there’s a lot of innovation here just now. Some of it is all improved, mixes the solution, moving from amines to something else, but basically still a chemical-based solution. That’s a bit like the better mouse trap type approach. But there’s also a lot of work in membrane solutions. Rather than using chemicals, membrane-based capture is used in many forms of gas processing today. I’ve been around the CCS area for 15, 20 years and there’s always a lot of promise about membranes and improved chemical solutions for capture, but it’s not yet come through. But given the level of interest and need for direct air capture and industrial CCS, expectation is somewhere, someone out there is going to provide that breakthrough technology. And what would that mean for costs? It could be anything. 25, 50, even 75% cost reductions have been speculated. But that’s all on the basis of smart engineers and economists doing desk-based analysis rather than the natural operating plants. But that will come down.

And I should say here as well, Sam, that the context of this is organizations like the International Energy Agency, IEA, and IPCC, Intergovernmental Panel on Climate Change, really respected organizations, they have painted scenarios. Again, I emphasize scenarios, not forecasts, where direct air capture is dealing with up to one gigatonne, 1,000 million tonnes of CO2 by the year 2050. So we’re going from today, 0.0001 gigatonne to one gigatonne within 25 years. That’s the level of expectation. Now, what that builds into is that the degree of policy support in just the past four or five years has been through the roof for direct air capture. In the US people should be familiar with the Inflation Reduction Act. That has bolstered tax relief for all forms of CCS in the US, but particularly for direct air capture. If you have a direct air capture plant in the US then the federal government will pay you a tax relief, which can be taken as direct payment as well of $180 a tonne. So for every tonne of CO2 that you can recover from the atmosphere and sequesters safely, you receive a payment of $180 a tonne.

But here’s the exciting thing, I think, is that the whole voluntary carbon market is taking off now. Lots of companies, to back up their own voluntary net zero pledges, are now looking for safe, acceptable forms of carbon credit, and often to these companies that means not being associated with fossil fuels. So rather than buying carbon credits from concrete, steel, gas processing capture plants, they are looking for direct air capture plants. Now that Stratos plant I mentioned, people like BlackRock, Boston Consultancy Group, there’s a whole litany of companies that have already invested in that plan on the basis of getting access to those carbon credits on the other side. Now those are made on a bilateral contract basis rather than on a market basis, so we can’t be sure of the prices. But speculation is that the value of those voluntary credits, has been in the hundreds of dollars value range. I’ve read numbers that go from $300 a tonne up to $1,000 a tonne. Now they might be for very small volumes, but still there’s a precedent being set about the level of value for these voluntary tickets. In the US as well. There are regulatory markets that value direct air capture operations highly. The one that comes to mind is in California, the low-carbon fuel standard. If you are a registered regulatory transport fuel supply in California and you have a direct air capture plant anywhere in the world, it doesn’t need to be in the US or the state of California, that can be traded on the Californian market, the low-carbon fuel standard market. And the value for that has been up to $200 a tonne. Suddenly, rather than being put off by $1,000 a tonne cost, if you do the arithmetic using the US as an example, $180 a tonne from the federal government, maybe $500 a tonne on the voluntary carbon market. And if you’re also an oil major with an activity in the state of California, $200 a tonne for the low-carbon fuel standard ticket market, suddenly the economics are getting pretty close.

That’s why you’re getting companies like Oxy that are getting very interested in this. The thing to watch here is that it’s on the revenue side, really. The value, I think, particularly the voluntary credits, that market could really take off in future. Suddenly the outlook for direct air capture doesn’t look gloomy because of its high cost. But I think it looks positive because of the level of expectation up to one gigatonne by 2050 being set by respected agencies, the policy support that will follow that, and now the range of industrial companies making their own net-zero emissions pledges and looking for these associated carbon credits to underwrite those numbers in future. A fascinating time for this technology, Sam.

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5. Are you at all concerned that interest in direct air capture could take folks away from traditional CCUS projects? Or do you think that the industry can work to scale both at the same time?

That’s a great question. I’m going to broaden it actually, because you often get asked this question with respect to CCS versus renewables, or direct air capture versus renewables, direct air capture versus CCS. The fact is, Sam, we need all of the above, and I think there’s scope for everything. The climate challenge facing us is such that we need to do everything. We can’t be selective. It’s not about trade off between these technologies, it’s the need for everything. I remember when I first worked in CO2 management, way back at the turn of the century, and I mean the 21st century, there used to be a merit order of climate action that was talked about. First stage was avoidance, the next was reduction, then followed by mitigation, and the final area, and it was almost like break glass in case of emergency, the geo engineering.

That was avoidance. That meant that where you can cut out the use of fossil fuels and its associated CO2. That’s things like renewables and renewable power in place of thermal power. You can take that so far. And then you’re looking to reduce CO2, and that’s where CCS comes in. If you must have gas power, excuse me, gas power generation plants, for example, then if you can reduce the associated CO2 cost of that by the use of CCS, we should be doing that as well. Now, the next stage in the merit order is mitigation or compensation. That’s where things like direct air capture, or indeed, forestry, land management, you’ll hear biomass powered generation plan with CCS. It’s called BECCS. It’s bioenergy with carbon capture and storage. These are forms of mitigation or compensation where you can drive negative or zero emissions.

That’s mitigation. We have to do that as well because that four stage, geo engineering, that’s where you start to do pretty dangerous stuff, and put sulfates into the atmosphere or put things into the ocean, where you’re really trying to force higher levels of CO2 recovery. And that could have all forms of unexpected consequences. I think that’s quite dangerous. I think the meta order of avoidance, reduction, and mitigation is something we need to force those levers if we’re going to deal with climate change without resorting to that geo engineering option. I think there’s scope for everything. And I think what the encouraging thing for me, Sam, is that it seems as though the market is already valuing direct air capture in a way that wasn’t seen three or four years ago.

I think the market is already differentiating between industrial CCS and direct air capture in a way that allows scope for both to prosper and come through in some of the promises, the commitments, the needs that are being painted by people like the UNFCCC, that’s United Nations Framework Convention on Climate Change, the kind of COPP process or intergovernmental panel like climate change or the international energy agency. These relatively independent bodies are really pointing to the fact we need everything. It’s all of the above, I believe, Sam, if we’re going to be successful in tackling climate change.

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6. Before we end today’s event, what would you say in your view are the two to three main points that our clients should focus on from today’s discussion?

The first one I’d say is don’t be deterred by the very high costs of direct air capture being reported at present. This really is a nascent technology. Those costs will tumble as scale comes through and we see a lot of innovation move into the market. Second thing, watch the numbers. Watch, particularly large-scale plants being built. If you can, guys, go and look at Oxy’s website, their partnership they paid over a billion dollars US end of last year to purchase carbon engineering, the direct air capture specialist. The partnership is called 1.5, based on 1.5 Celsius control level from the Paris Agreement. But 1. 5, they lay out scenarios and cost models. I think the second one would be they watch the numbers. And the third thing, I’d probably pick on your last question, Sam, is don’t see this as a competition with CCS.

This is complementary to CCS. And in fact, it’s very complementary in the way that the capture process is identical in industrial or atmospheric recovery processes, so they will both benefit from the same innovation and cost reduction as you go forward. And I’ll sneak in a fourth, Sam, which is if you’re interested in this, look into the voluntary carbon market and the way it’s maturing. There’s an organization called CCS+ Initiative, and they’re putting together the protocols which will underpin the voluntary carbon markets to allow operators in the direct air capture space to really get rewarded richly for their efforts when it comes to carbon credits. Don’t judge the potential for direct air capture by what you see today, try to think forward 10, 20 years and see the strength that’s pulling people into the market all around us.

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This expert transcript is adapted from the GLG Teleconference “Direct Air Capture – Industry Implementation and Key Challenges.” If you would like to speak with Angus Gillespie, or any of our industry leading and experienced experts, please contact us below.

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