CCS Environmental Analysis, March

IPCC Sixth Assessment Report: En route to 3.2°C temperature increase with current policies

The IPCC’s latest special report deals with climate initiatives in various parts of society and what effects these may have on the climate and other sustainable development goals. The report suggests some areas of opportunity, but does not provide concrete policy proposals. It points to positive developments over the last ten years regarding the lower rate of increase in greenhouse gas emissions and a broader involvement of society for climate action. Nevertheless, it emphasises that the gap between policy and the need for emission cuts is widening, and the window of opportunity to achieve climate goals can only be kept open through more vigorous and immediate measures, otherwise there will be significant negative emissions later on.

According to the IPCC, current policies will lead to a temperature increase of 3.2°C by 2100, and even with all announced climate ambitions, the target of 1.5°C will not be met. According to the IPCC, global emissions must be halved by 2030 to realistically meet 1.5°C target. This should be possible for a maximum cost of $100 per tonne of CO2e, of which around 1/3 of the measures can be implemented without additional costs. In particular, renewable energy, electrification, adjusted transport habits and new technology for energy efficiency are the most affordable initiatives. CCS is also included in the IPCC list of necessary measures up to 2030, though on the more expensive end. The extent of CCS adoption up to 2050 will depend on which decarbonisation strategies deployed. CCS is most important in scenarios where initiatives are delayed and carbon negative measures become necessary, and less important in scenarios involving a rapid transition in consumption and more renewable energy.

Occidental enters into net-zero oil contract

In March, US-based Occidental Petroleum published a Memorandum of Understanding to sell 1 million barrels of “net zero oil” over five years to a Korean refinery from 2024. The announcement should be seen in light of Occidental’s 2020 announcement of their goal of being climate-neutral by 2050. Their stated strategy is to continue focusing on oil and gas production combined with significant use of CCUS and DACCS in order to offset their customers’ emissions (known as scope 3). The strategy is in line with the oil and gas industry standard published by the IIGCC investor group last autumn, which outlines the use of international credits or DACCS to achieve climate-neutrality. Compared with other carbon credits (such as afforestation), buying credits from a DACCS project is likely more expensive, but may be viewed as more measurable and credible, and not to mention more scalable.

The contract with the Korean refinery involves Occidental offsetting the buyer’s carbon emissions by storing atmospheric CO2 at a DACCS facility, which will be built using technology from Carbon Engineering in Texas. The facility will have a capacity of 1 million tonnes of CO2 per year and be ready by 2024. Airbus has also agreed to buy carbon storage from the project. The costs associated with large-scale carbon capture using DAC are uncertain. The most relevant technology suppliers have announced their expectation that costs will fall to $100 per tonne of captured CO2, but a recently published report from IEAGHG estimates that a cost of around $200 per tonne of CO2 is more realistic. Credits are currently sold in a range of markets, which may justify these costs. One such example is California’s Low Carbon Fuel Standard (LCFS). Carbon Engineering stated last year that the energy consumption needed to capture one tonne of CO2 from the air could fall to 8.81 GJ. In comparison, one barrel of oil contains an equivalent of around 6 GJ and leads to emissions of around 430 kg of CO2 during combustion.

Lack of climate leadership gets personal: Shell directors sued

Over the last few years, courts in Europe have heard several important climate-related cases, and some of them have ruled in favour of the plaintiffs resulting in international attention. Shell has seen its fair share of such cases. In May last year, a lower court in the Netherlands ruled that it needed to do more to reduce emissions resulting from the production and use of oil and gas sold internationally. This includes emissions across the entire value chain, including as a result of the use of fossil fuel-based energy (known as scope 3).  This case has attracted special attention because it deals with corporate responsibility outside of the direct control of companies, as well as whether a court can make a ruling affecting matters outside of a country’s own jurisdiction. Shell appealed the ruling at a higher court last summer. The winner of the case against Shell, Milieudefensie, indicated to 29 multinational companies the impacts they believe this judgment will have on their climate efforts.

In March, a new climate-related case against Shell gained attention when the environmental organisation ClientEarth sued 13 Shell UK directors for breaching the UK’s Companies Act. The basis of the case is that ClientEarth, as a Shell shareholder, believes that Shell management has not made an adequate assessment of the climate risks facing the company when presenting a strategy that is not in line with the goals of the Paris Agreement. ClientEarth is arguing that its intention is to protect Shell and the long-term interests of its shareholders.

Germany turning on to blue hydrogen – but war is creating increased uncertainty

When the new German government entered office before Christmas, it was announced that they would increase production of renewable energy by 100 TWh per year by 2030 compared to its original target, and double its green hydrogen electrolyser capacity to 10 GW. According to the German National Hydrogen Strategy, this should provide 28 TWh of hydrogen. The strategy estimates that there will be a need for 90-100 TWh of hydrogen by 2030. In order to have enough hydrogen available in the transitional phase, it will be necessary to import primarily green hydrogen. However, an analysis released last autumn by Fraunhofer points out the challenges related to the availability of hydrogen on global import markets, and that solutions for the transport of large quantities of hydrogen are still not mature and will probably not be in place before 2030. In the past month, there have, however, been several reports of Memorandums of Understanding on deliveries of both green and blue hydrogen from countries such as Australia, the UAE, and Norway.

The situation for blue hydrogen has changed somewhat in the last few months. According to DNV and other stakeholders, it is not likely that natural gas will be used for hydrogen production due to uncertainty about future gas deliveries from Russia. In an analysis from Rystad Energy, it is pointed out that the rise in natural gas prices over the last 6 months means that blue hydrogen is now losing out to green hydrogen. Today, natural gas accounts for around 30% of Germany’s energy mix, and is almost exclusively based on imports, and primarily through gas pipelines. Energy loss in the process of converting natural gas into hydrogen is typically 30%.

New Dutch government increases climate efforts

When Mark Rutte’s fourth term began in December last year, it was with a declaration of significantly more ambitious climate goals than previously. The EU’s 55% reduction by 2030 has been topped by the Dutch government with a goal of a 60% reduction in emissions, followed by further cuts of 10% every five years. To become less reliant on gas imports, two new nuclear power plants are needed, as are efforts to increase the adoption of CCS. As a result of this, the authorities announced in March that the SDE++ subsidy scheme will be strengthened and that €13 billion will be available at this year’s funding announcement, a significant increase from previous years. The scheme is intended for projects developing renewable energy, hydrogen production, CCS and other industrial climate initiatives.  The Dutch government had previously set a ceiling on its CCS support of 7.2 million tonnes of CO2 by 2030. This has now increased to 8.7 million tonnes of CO2. Support from SDE++ is provided as a contract for differences and is awarded according to an auction principle. This year’s auction will take place from June to September. The first auction is for projects asking for a maximum support of €65 per tonne of CO2. Last year, the CCS project Porthos received funding from this scheme.

Please visit our CCS dictionary if there are professional expressions or abbreviations in this text you are not familiar with.

The Environmental Analysis is prepared by Gassnova’s analysis team.