The Oil & Gas Industry’s Role in CCS and CDR: International Energy Agency Conclusions

Authored by Wil Burns, Co-Director, Institute for Carbon Removal Law & Policy, American University

As part of its World Energy Outlook Special Report Series, the International Energy Agency (IEA) last week released a report that focuses on what the Agency believes the fossil fuel industry should do “to align with the Paris Agreement and with the 1.5°C goal.” Pertinent to the Institute’s work, the report includes a section (2.3.1) discussing the potential role of carbon capture and storage (CCS) within the fossil fuel sector, as well as direct air capture (DAC). While CCS is not squarely in the purview of the Institute’s work, it plays an integral role in one carbon dioxide removal approach, bioenergy and carbon capture with storage (BECCS), and the technology’s deployment will contribute to the development of conveyance and storage infrastructure relevant to the development of the direct air capture (DAC) sector.

The report contends that neither CCS or DAC can be viewed by the industry as mechanisms to “retain the status quo.” Under a business-as-usual scenario, the study concludes that oil and natural gas consumption would require an “inconceivable” 32 billion tons of CCS/DAC, including 23 billion tons of DAC to be Paris-compliant. Moreover, the study projected that this would require 26,000 terawatts of electricity generation in 2050, which would be greater than electricity demand in 2022, and $3.5 trillion in annual investments through mid-century, commensurate with the fossil fuel industry’s annual average revenue in recent years.

However, the report also emphasizes the important role that the fossil fuel industry can play in achieving Paris Agreement objectives through responsible deployment and investment in these approaches. The IEA’s World Energy Outlook 2023 study outlines a number of scenarios that reflect future potential global conditions. These include the Stated Policies Scenario (STEPS), premised on current climate policy, and commitments, the Announced Pledges Scenarios (APS), premised on the assumption that governments meet all national energy and climate targets made to date, and the Net Zero Emissions by 2050 (NZE) Scenario, which limits warming to 1.5°C.

In the APS, carbon dioxide capture grows from 45 Mt CO2 in 2022 to 440 Mt CO2 in 2030, with early action through large-scale deployment of CCS in the fossil fuel sector providing the foundation for subsequent use in other sectors where abatement is critical after 2030. This is projected to result in the global capture of 3.5 GtCO2 by 2050.

The NZE scenario requires much more aggressive carbon capture to contribute to the goal of holding temperatures to 1.5°C: 1 GtCO2 by 2030, and 6 GtCO2 by 2050, half of which is from DAC and heavy industry. This requires a whopping $500 billion of investment just through 2030. The study concludes that this daunting task requires the fossil fuel industry to go beyond conceiving carbon capture as a “social license to operate,” focusing merely on reducing Scope 1 and Scope 2 emissions from the sector. Rather, the IEA argues that the fossil fuel sector could use its “sizeable balance sheets” to leverage a competitive advantage across the broader energy economy, helping further the industry’s diversification strategies while facilitating requisite levels of CCS and CDR.

Section 2.3.1 of the report also includes an extensive analysis of the specific role of, and limitations to, deployment of DAC. On the one hand, the IEA emphasizes that countries with low-cost energy resources and ample CO2 carbon capacity could reap $60-150 billion per year if certificates for DAC sequestration are traded between $100-250 per ton/CO2. However, the study concludes that the cost of deployment, energy constraints, competition for DAC CO2 from synthetic fuel production, and constraints on annual CO2 storage capacity will limit DAC deployment. It projects that under the NZE scenario, atmospheric removal of CO2 will reach 1.7 Gt/yr. by 2050, with one-third of this achieved by DAC. The study finds this will require about $70 billion in annual investment for DAC in 2050 and approximately 500 TWh of annual electricity generation in 2050.

As is often the case with IEA reports, this one is short on specific policy prescriptions to drive the kind of investment by the fossil fuel industry that is contemplated in the study. While the study discusses some specific roles that governments are, and can, play in incentivizing CCS/CDR, it is by no means clear these will be sufficient to substantially move the needle. The suboptimal levels of investment of the fossil fuel industry to date in these technologies, given the sector’s massive contribution to greenhouse gas emissions, suggests that it may not fulfill the role contemplated by the IEA without far most aggressive demand-pull mechanisms, such as a carbon take back obligation. Hopefully, the IEA’s future reports on this sector will consider a wider array of policy options to foster a more responsible role by the fossil fuel industry.