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As the world confronts the climate crisis, carbon capture is expected to play a pivotal role in reaching net zero emissions by 2050. Anthony Okolie speaks with Mitchell Li, Energy Analyst, TD Asset Management, about why it could create a significant opportunity for renewable energy.
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As world confronts a climate emergency, carbon capture is expected to play a pivotal role in the race to net zero emissions. Here to wrap up the three part series on energy transition is Mitchell Li. He's an energy analyst with TD Asset Management. Mitchell, let's start off by talking about what is carbon capture.
Sure. So I want you to think about carbon capture in two different ways. Number one is point capture, and the number two is direct air capture. So on point capture, how that works is that you're installing special devices into your carbon emitting facility, say, an oil refinery, and that device sucks up the carbon dioxide before it ever hits the air. Now, number two is direct air capture, and how that works is, it's pretty much what the name implies. You're using devices to capture carbon dioxide from the air. The question is then, what do you do with this captured carbon dioxide? And there are again, two options. Number one, store it deep underground in, say, depleted oil and gas reservoirs or saline formations, or number two, recycle it for further usage in making stuff such as plastic or concrete or more.
And so what role does carbon capture play in the energy transition?
So again, Anthony, as you as you mentioned early on, the goal is to get to net zero emissions by 2050. And what this essentially means is that as a society, we need to add no more greenhouse gases to the atmosphere than we can take away. So electrification is going to play the biggest part of this. And what that means is just moving our energy sources to electricity, ideally powered by renewable energy, such as wind or solar. However, the world will still be doing stuff that emits carbon dioxide, and there's really no way around it. Let me give you an example. Making steel and cement emits carbon. And this is not just from burning fossil fuels, but as part of the chemical reaction to make these products. So to make cement, you need calcium and to make calcium, you need to burn limestone, which contains calcium, carbon and oxygen. Limestone plus heat equals calcium oxide and carbon dioxide. So it's just chemistry, and this is the chemical formula and you can't get around it. Making steel and cement alone accounts for about 10% of all emissions. Now you can kind of see where carbon capture can help because we can't get rid of emitting carbon dioxide. We need to find a way to capture it so it doesn't get put in our atmosphere. And in a net zero scenario, carbon capture will play about a 7% role from this decade to 2030, and then that increases threefold from 2030 to 2050, so almost 20%. So a huge key piece of the puzzle.
And previously we've talked about some of the challenges that some of these renewable energy sources face. What are some of the hurdles that carbon capture technologies need to overcome?
Absolutely. So let's talk about point capture first, because direct air capture is a little more complicated. So remember how I said with point capture you were using devices to collect carbon dioxide right from your facility? Well, what this does is that it adds to your facility's cost, and from a pure financial perspective, there really isn't any benefit. So let me paint a scenario for you. Suppose you're an engineer working for the city of Toronto and you're reviewing bids to repair a bridge or a building. One bid comes in charging 100$ per ton of cement and another comes in at double that price, but they factored in the cost of carbon capture. Which one would you pick? I'd assume probably the cheaper one. So how do we solve for this? And the answer is that we need to make carbon emitting things more expensive through policies such as carbon taxes or carbon pricing. Now let's talk about direct air capture, and this is a larger challenge mainly due to technology. So when carbon comes out of, say, an oil refinery or coal plant, it's very concentrated so it's easy to capture. But once it hits the atmosphere, it pretty much disperses and then it becomes really difficult to identify that carbon dioxide. So if you pick a random molecule in the atmosphere, the chances of that being carbon dioxide is 1 in 2500. So you can just imagine the kind of technology you need to extract carbon from the atmosphere. And so for direct air capture, it's much more of a technological hurdle we have to get over.
And what role do carbon taxes play?
Yeah. So carbon taxes or carbon pricing is a great way to incentivize carbon emitters to stop emitting. The idea is that if you're emitting carbon, you'll be paying a financial penalty. What's really exciting about carbon taxes and pricing these days is that governments are really coming around to this idea and rolling out carbon pricing plans. So there are various methods of pricing carbon. The market priced ones are actually really interesting because they're moving up much higher and faster than anyone expected. So probably two to three years faster than anyone expected. And what this means is that we should see an acceleration in the announcement of carbon capture projects soon.
And how does TDAM currently play in the carbon capture space? And if you can kind of distinguish between those carbon emitters and those that are involved in the carbon capture technology.
So carbon capture is really a technology deployed by the carbon emitters. This means the ones that operate these assets are kind of adding on this carbon capture technology to their projects. And what this means is that they're going to be the ones operating these assets. They're the carbon emitters. The ones building the equipments are usually the large manufacturers like GE or Honeywell. And ultimately, what this means is there aren't many ways to directly pure play a carbon capture thematic. What we've been doing at TDAM is that making sure our carbon emitting holdings have a plan to reduce them. And this means leveraging our position as shareholders and engaging with the companies to make sure they have a sound strategy towards reducing carbon, which oftentimes includes carbon capture. So we've been really approaching this from an engagement standpoint.
Mitchell, thank you very much for your analysis.
Thanks, Tony.
Sure. So I want you to think about carbon capture in two different ways. Number one is point capture, and the number two is direct air capture. So on point capture, how that works is that you're installing special devices into your carbon emitting facility, say, an oil refinery, and that device sucks up the carbon dioxide before it ever hits the air. Now, number two is direct air capture, and how that works is, it's pretty much what the name implies. You're using devices to capture carbon dioxide from the air. The question is then, what do you do with this captured carbon dioxide? And there are again, two options. Number one, store it deep underground in, say, depleted oil and gas reservoirs or saline formations, or number two, recycle it for further usage in making stuff such as plastic or concrete or more.
And so what role does carbon capture play in the energy transition?
So again, Anthony, as you as you mentioned early on, the goal is to get to net zero emissions by 2050. And what this essentially means is that as a society, we need to add no more greenhouse gases to the atmosphere than we can take away. So electrification is going to play the biggest part of this. And what that means is just moving our energy sources to electricity, ideally powered by renewable energy, such as wind or solar. However, the world will still be doing stuff that emits carbon dioxide, and there's really no way around it. Let me give you an example. Making steel and cement emits carbon. And this is not just from burning fossil fuels, but as part of the chemical reaction to make these products. So to make cement, you need calcium and to make calcium, you need to burn limestone, which contains calcium, carbon and oxygen. Limestone plus heat equals calcium oxide and carbon dioxide. So it's just chemistry, and this is the chemical formula and you can't get around it. Making steel and cement alone accounts for about 10% of all emissions. Now you can kind of see where carbon capture can help because we can't get rid of emitting carbon dioxide. We need to find a way to capture it so it doesn't get put in our atmosphere. And in a net zero scenario, carbon capture will play about a 7% role from this decade to 2030, and then that increases threefold from 2030 to 2050, so almost 20%. So a huge key piece of the puzzle.
And previously we've talked about some of the challenges that some of these renewable energy sources face. What are some of the hurdles that carbon capture technologies need to overcome?
Absolutely. So let's talk about point capture first, because direct air capture is a little more complicated. So remember how I said with point capture you were using devices to collect carbon dioxide right from your facility? Well, what this does is that it adds to your facility's cost, and from a pure financial perspective, there really isn't any benefit. So let me paint a scenario for you. Suppose you're an engineer working for the city of Toronto and you're reviewing bids to repair a bridge or a building. One bid comes in charging 100$ per ton of cement and another comes in at double that price, but they factored in the cost of carbon capture. Which one would you pick? I'd assume probably the cheaper one. So how do we solve for this? And the answer is that we need to make carbon emitting things more expensive through policies such as carbon taxes or carbon pricing. Now let's talk about direct air capture, and this is a larger challenge mainly due to technology. So when carbon comes out of, say, an oil refinery or coal plant, it's very concentrated so it's easy to capture. But once it hits the atmosphere, it pretty much disperses and then it becomes really difficult to identify that carbon dioxide. So if you pick a random molecule in the atmosphere, the chances of that being carbon dioxide is 1 in 2500. So you can just imagine the kind of technology you need to extract carbon from the atmosphere. And so for direct air capture, it's much more of a technological hurdle we have to get over.
And what role do carbon taxes play?
Yeah. So carbon taxes or carbon pricing is a great way to incentivize carbon emitters to stop emitting. The idea is that if you're emitting carbon, you'll be paying a financial penalty. What's really exciting about carbon taxes and pricing these days is that governments are really coming around to this idea and rolling out carbon pricing plans. So there are various methods of pricing carbon. The market priced ones are actually really interesting because they're moving up much higher and faster than anyone expected. So probably two to three years faster than anyone expected. And what this means is that we should see an acceleration in the announcement of carbon capture projects soon.
And how does TDAM currently play in the carbon capture space? And if you can kind of distinguish between those carbon emitters and those that are involved in the carbon capture technology.
So carbon capture is really a technology deployed by the carbon emitters. This means the ones that operate these assets are kind of adding on this carbon capture technology to their projects. And what this means is that they're going to be the ones operating these assets. They're the carbon emitters. The ones building the equipments are usually the large manufacturers like GE or Honeywell. And ultimately, what this means is there aren't many ways to directly pure play a carbon capture thematic. What we've been doing at TDAM is that making sure our carbon emitting holdings have a plan to reduce them. And this means leveraging our position as shareholders and engaging with the companies to make sure they have a sound strategy towards reducing carbon, which oftentimes includes carbon capture. So we've been really approaching this from an engagement standpoint.
Mitchell, thank you very much for your analysis.
Thanks, Tony.
