Carbon capture: an industry that has taken 30 years to appear overnight

Carbon dioxide removal (CDR) technologies have long been seen as a tool to tackle climate chaos, but the potential was largely theoretical. Two projects at Sleipner and Snohvit off the coast of Norway have been capturing and  safely storing millions of tons of CO2 for 27 years and 15 years, respectively, but overall deployment has been slow to take off.

However, this has changed as the urgency of climate action has gathered pace. In 2021, Orca, a large-scale DAC and storage plant in Hellisheidi, Iceland, entered operations, becoming the first of a new generation of facilities based on newer, cheaper technologies. Although small (Orca only currently captures about 4,000 tons of CO2 annually)¹, the Icelandic plant showed the potential. Since then, there has been a rush of planned CDR projects.

“Let’s be clear – CDR alone will not save the planet. It remains more effective never to emit CO2 than to try to suck the particles out of the atmosphere after the fact,” says Steffen Halscheidt, Global Practice Group Leader, Oil & Gas at Allianz Commercial.

“However, this is not always practical in a world where we need steel and concrete and where people still want to fly and build and heat their homes. CO2 is unlikely to be dislodged from industrial processes any time soon, so carbon mitigation is essential if we are to reign in climate change.”

The knife edge upon which the world is poised is captured in the ‘carbon budget.’ This refers to the maximum amount of CO₂ that can still be emitted while having a chance to limit warming to 1.5°C by the end of the century compared to pre-industrial levels. If average global temperatures rise above 1.5°C, it is expected that the natural systems that sustain us will push past a dangerous turning point. 

According to one estimate in the UN-backed Intergovernmental Panel on Climate Change’s (IPCC) recent review of climate science (AR6), the world can only emit 300 gigatons (Gt) more from January 1, 2020²  for a high likelihood of limiting warming to 1.5°C. As we currently emit about 40Gt CO₂ annually, the remaining budget could be burnt by about 2027. 

“Growing carbon removal in line with current estimates requires an urgent, massive scale-up in the next decade,” says Halscheidt. “Government policy must be met with private capital to unlock the full potential of CCS and limit global warming to 1.5 degrees to avoid the most catastrophic impacts of climate change.” As well as insurance coverage, Allianz currently provides finance to such projects.

There are reasons to be optimistic: The infant industry is growing fast. In 2019, the capacity of CCS facilities worldwide was 85 million metric tons per year. By 2022, it had already reached over 240 million metric tons, with a growing crop of new projects in the pipeline around the world (see box). 

Government support is also helping get the industry off the ground. Some $251bn of the dollars earmarked recently by the Biden administration⁶  in the US for climate action is targeted at carbon capture. The EU’s response, the NextGenerationEU, is also likely to promote carbon removal, too. 

“This is a rapidly developing industry,” Halscheidt comments. “The underpinning technology has been around since the 1970s⁷ , but factors are combining now to see growth accelerate, and it is being driven by smart, young, dedicated people who understand the future our planet faces and are determined to make a difference.”

“Of course, as with any nascent industry, alongside the benefits that CCS could bring in reducing the amount of CO2 emitted into the atmosphere, there are also a number of challenges that will need addressing as this sector develops,” explains Funké Adeosun, Global Transition Solutions Director at Allianz Commercial. “These include: the high cost of scaling-up facilities and implementation, uncertainty about the long-term ability of some countries and sites to sequester carbon without significant leakage and the potential for seismic activity caused by underground injection of CO2. In addition, while the risk of accident during transportation is relatively low, leaks could still occur. There is also the potential that some companies enthusiasm for carbon removal may be a tool for improving their reputations in the eyes of increasingly-climate conscious consumers while continuing with their emissions.”

From a risk consulting and underwriting perspective, the potential risks are well known, even if the industry is relatively new, explains Nicholas Pilz, a Senior Energy and Construction Risk Consultant with Allianz Commercial in North America.

For a construction insurance project, such as Allianz Commercial’s involvement, this would typically involve the risk of damage during erection/installation of heavy plant and equipment, potentially also resulting in delays to the project.  Then there is also structure/collapse risk (e.g. collapse of a building frame/structure which could occur during erection for a number of reasons), as well as equipment accident during delivery risk (e.g. specialist processing skids must be transported to project sites and can be damaged during delivery and offloading). Not forgetting, the testing and commissioning of various systems including gas fire boilers for fire/explosion risk.  

Pilz, who has been deeply involved in the Stratos project, explains that the technology to be deployed in the DAC plant is a combination of proven industrial processes and equipment, commonly used at large scale in other industries, such as the pulp and paper industry, mitigating risks associated with scaling up the technology (a pilot plant, albeit on a smaller scale, has been in operation for years).  “Many learnings from the pilot plant have been incorporated into the design of this project,” says Pilz.

“For me, what is exciting is that they are developing a project that is scalable and repeatable, so this project and others can ramp up quickly.”

“For us, as Allianz Commercial, it is great for us to develop a long-term partnership with companies involved in such projects as they help our world transition from one of fossil fuels to one with a very low use of carbon fossil fuels compensated by CCS,” Halscheidt concludes.