Defossilizing Industry Scaling-up CCU 2025

CO2 capture capacity outlook to 2050, by CO2 source FIGURE 8 Notes: Relative share of CO2 capture capacity expected in 2030, 2040 and 2050 across CO2 sources. Biogenic comprises both BECCS and ethanol. Industrial point source is the sum of cement, steel, refining and chemicals. Source: Wood Mackenzie Lens Carbon. 0100200300400500600Mtpa 20304.1816.6240.7 DAC Total biogenic Industrial point source204051.89 47.05192.2 2050211.06 120.07497.3 Creating credibility The cost of capital is very sensitive to perceptions of policy risk or bankability of a subsidy offering. This is particularly important for CCU projects as they are effectively high-risk, long-term infrastructure investments with high upfront capital requirements. Early innovative projects therefore seek to identify jurisdictions with the right combination of credibility and adequate incentives. Commitment to direction and consistency across policy areas is therefore key. Without this, novel CCU projects can quickly become unfinanceable. For example, despite an initial boom in US investment in 2021 and 2022, investment is now challenged by political risk following withdrawal of federal climate tech funding and volatility around 45Q. This contrasts with Canada, which is increasingly viewed as an attractive region by financiers of CCU projects, due to the perceived stability of its ITC offering. In addition, financiers are growing less confident in backing companies which rely on single incentives for viability. Instead, they are looking for projects that can take advantage of numerous levers, so the failure of one does not derail the project. Some innovators, particularly those with multiple products or value propositions, are better able to strategically manage perceptions of policy risk (see Box 2). For the foreseeable future, certain jurisdictions with the right combination of scaling-up opportunities and credible policy environments will remain areas of focus. This is a challenge for start-ups seeking to identify sites to host demonstration projects, as suitable countries with credible and supportive policy environments may differ from their current base. While there is a balance to be struck by considering the location of their team, engaging with global companies for scaling-up opportunities can provide optionality. Such geographical diversification can also be a route to mitigating against policy risk. Canada is increasingly viewed as an attractive region by financiers of CCU projects, due to the perceived stability of its Investment Tax Credit. Defossilizing Industry: Considerations for Scaling-up Carbon Capture and Utilization Pathways 18