A Recent IEEFA Report Questions the Credentials of Carbon Capture Systems, does it Serve Net Zero or the Fossil Fuel Industry?

Enhanced oil recovery dominates current CCUS capacity, which has been questioned for its role in fomenting greater use of carbon-intensive fossil fuels, but its close ties to oil prices and the growing tax incentives for dedicated carbon storage could see the industry change
September 15, 2022

Three-quarters of CO2 captured each year is used to facilitate new oil and gas production

Despite being in use for 50 years, carbon capture, utilisation, and storage (CCUS) technologies have become more popular recently. This is particularly true in light of the fact that globally respected energy organisations, including the International Energy Agency (IEA), have pushed them with more vigour in their suite of climate solutions. The Energy Technologies Perspectives (ETP) study from the IEA, which was released in 2020, emphasises the importance of carbon capture and storage (CCS) and CCUS in the transition to clean energy. In 2021, the IEA released its landmark Net Zero 2050 study with similar recommendations. The two studies rekindled support for CCUS/CCS as a climate solution. When you break down the term CCUS into its constituent parts, you could easily perceive it as a faultless solution for carbon-intensive industries. Previously ZCA has discussed flaws in the infrastructure required for an effective carbon capture system, but a recent report from the IEEFA raises further questions. Specifically, the associated acronym EOR, enhanced oil recovery, is the main use of carbon dioxide for industrial application. In order to extract more hydrocarbons from existing oil and gas reservoirs, oil and gas companies generally inject pressurised CO2 into those reservoirs. Since EOR projects consume around 73% of the CO2 that has been captured annually in recent years, they are now the only industrial use of CO2 that has reached a sizeable scale.[i] EOR speeds up oil production from fields whose maximum output rate has been reached. So, by reviving oil fields with diminishing production rates, oil producers can profit.

Source: IEEFA

How can the zero-carbon world look to CCUS when it facilitates further fossil fuel use?

An article from Environmental Research Letters (a journal of academic research) lead-written by Dr Benjamin K. Sovacool (Professor of Energy Policy at the Science Policy Research Unit (SPRU) at the School of Business, Management, and Economics, University of Sussex) outlines ten recommendations for policy around carbon capture. According to the research, its usage for enhanced oil recovery is not recommended since they favour short-term applications over long-term effects on the environment and probable repercussions on social acceptance.[ii] There is a limitation to this requirement, however. Enhanced oil recovery may be necessary to clear out reservoirs so that space can be made for carbon storage, or it may be necessary to generate revenues required by incumbent firms that can be invested in net-zero options.[iii] In either case, near-term enhanced oil recovery may still result in net carbon dioxide reductions. To put it another way, the immediate use of enhanced oil recovery may nevertheless lead to net, long-term carbon storage.

Can CCUS practices succeed without EOR?

There are already 21 CCUS facilities with a global capability to absorb up to 40 MtCO2 annually. Some of these facilities have been in use since the Val Verde region of Texas' natural gas processing plants started capturing CO2 and providing it to nearby oil producers for EOR activities in the 1970s and 1980s.[iv] Since these initial projects, the adoption of CCUS has increased in other areas and applications. The Sleipner offshore gas field in Norway saw the commissioning of the first significant CO2 capture and injection project with dedicated CO2 storage and monitoring in 1996, and it has since stored more than 20 MtCO2 in a deep saline aquifer.

Current CCUS projects

Source: IEA

What 16 of the 21 plants currently operational have in common is that they are all EOR plants; there are only five dedicated CO2 storage plants. According to the analysis from the IEEFA report, most have caught far less CO2 than planned. According to the analysis, ExxonMobil's LaBarge plant in Shute Creek, Wyoming, has underperformed in terms of capacity by roughly 36% during its existence. According to the research, the world's only significant CCS power plant, Boundary Dam in Saskatchewan, Canada, caught around 50% less than expected, while the capacity of Chevron's Gorgon gas system in Western Australia was approximately 50% less than planned in its first five years. The study featured two unsuccessful projects, including the Kemper coal CCS project in Mississippi, which was long delayed and subsequently abandoned in 2017.[v] The USA notably illustrates how promoting EOR projects through governmental incentives enhances their availability. The Windfall Profit Tax, enacted in the 1980s in response to a decline in domestic US oil output, encouraged the use of EOR by significantly lowering its tax burden. The US 45Q tax credit has recently been changed to offer a tax reduction of 35 dollars per ton of CO2 stored by EOR activities.[vi] According to the International Energy Agency's (IEA) Future Policies Scenario (specifically the sustainable development scenario), more oil fields will mature and be more open to new EOR operations. The same scenario predicts that by 2040, total EOR output will reach more than 4.5 million barrels per day and represent around 4% of world oil production.[vii]

The landscape, particularly in the US that seems to support EOR CCUS development over dedicated storage in the form of tax incentives, has begun to be fostered within the dedicated storage class of CCUS, now with a more generous tax credit than EOR in the US.[viii] Secondly, the resilience of EOR projects is considered to be lower due to the intrinsic link to crude oil prices.[ix] Current oil prices are at some of their highest in the past five years, even if they were not volatility within the oil market  notably demonstrated by Covid-19 and the Russian invasion of Ukraine, make dedicated carbon storage a less risky investment opportunity.[x]

Crude oil prices over the last five years

Source: Trading economics

The unpredictable nature of crude oil prices and growing tax benefits to be found in dedicated carbon storage, we could see CCUS move away from its significant role in facilitating greater oil production.


[i] IEEFA- The Carbon Capture Crux

[ii] Environmental Research Letters- Climate policy for a net-zero future: ten recommendations for Direct Air Capture

[iii] Ibid

[iv] IEA- A new era for CCUS

[v] New Scientist- Most major carbon capture and storage projects haven't met targets

[vi] Sustainability- Significance of Enhanced Oil Recovery in Carbon Dioxide Emission Reduction

[vii] IEA- Whatever happened to enhanced oil recovery?

[viii] Ibid

[ix] Ibid

[x] Trading economics- Crude oil

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Oscar Pusey
Research Analyst

Oscar is a recent graduate with a background in earth science. He is currently studying an MSc focussing on disaster responses, emergency planning and community resilience. His postgraduate research project will assess the link between climate crisis risk perception and attitudes to green energy projects. “Adapting to the climate crisis through the pursuit of net zero requires community engagement and understanding. Zero Carbon Academy’s goals closely align with this approach and I’m excited to have the opportunity to research and communicate a variety of topics relating to our environment and sustainability”.

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