Carbon Capture: Why ESG Investing and Oil Stocks Are Compatible

As more and more companies are pledging to reduce their carbon footprint, a novel solution exists: emulating trees’ carbon-locking function with artificial chemical reactions.

Key takeaways on carbon capturing

The Biden Administration pledged $2 trillion towards clean energy innovation, the Paris Agreements are renewed, and many companies aspire to become carbon-neutral in the coming years.
Carbon capture is a process whereby carbon dioxide is extracted from the air, compressed and stored underground.
This solution is promising, but rather expensive.
Most of the oil majors are looking to apply this solution in their models, business together with traditional renewable energy production methods.
ESG investing might not necessarily have to be played by avoiding CO2-emitting companies, quite the contrary.

An ongoing trend of reducing carbon in the air

In recent years, many companies have started to pledge to embrace carbon neutrality, on various timelines. Amazon aims to be carbon-neutral by 2040, while Microsoft even pledged to become carbon-negative by 2030.

Although most companies are investing in renewable energy solutions, including solar panels and wind energy, to cut their emissions, there is another way to fight climate change. Instead of reducing the amount of carbon released with new and capital-intensive methods like wind and solar farms, we can also capture carbon dioxide from the air.

With the new Biden Administration pledging $2 trillion towards clean energy innovation, it seems that the time of the green economy – or as some call it, the guilt economy – has come. Oil giants are being frowned upon for their climate-damaging activities, and the same goes for big tech and its electricity-hungry business activities. All these factors could make planet-cleaning an industry with a bright future, not only morally but also economically.

What does carbon capture mean?

While the start-up Single.Earth fights CO2 by protecting forests, a different kind of anti-CO2 weapon is coming into its own: carbon capturing. Carbon capture is basically like a vacuum for CO2. With artificial chemical reactions, specialised infrastructure can now emulate trees, sucking the carbon dioxide out of the air and compressing it, then storing it deep in the ground in the middle of rock formations. Proponents say that this is a secure, permanent solution. There are even thoughts of reusing it to create fuels, fertilisers, or other commodities.

Instead of reducing your company’s emissions, you can now pay companies like Carbon Engineering to clean up your mess for you. They are, in a sense, becoming the garbage men of big, high-emission companies. It is not about reducing CO2 output but balancing them out with science. The impact of only one carbon sequestration plant could cut as much as 250,000 automobiles’ worth of CO2 from the atmospherer.

The project is supported by the UN; they have stated that the carbon capture, use and storage (CCUS) would allow countries to decarbonise and bridge the gap until the next generation of clean energy technologies are developed.

The CO2 market is expected to grow to $12.5 billion by 2027 with the advent of carbon capturing, according to PR Newswire. Meanwhile, companies like Exxon estimate it to reach multi-trillion dollars by 2040.

What are the risks and is the tech proven?

The tech seems to work well, but one of the main obstacles to its widespread implementation is money. For Europe alone, a budget of €320 billion will be needed to achieve the CCUS deployment planned up to 2050, with an additional €50 billion to transport infrastructure. A strong political motivation will be needed to carry through this massive project.

The United States, United Kingdom and Scandinavia are leading the way, but most smaller nations will need support for deployment.

There are about two dozen projects underway globally, but the technology is still impaired by high costs and it seems that not enough thought was given towards possible liabilities if the underground gasses managed to somehow escape. Some even call it an (expensive) “Trojan horse” by fossil fuel industries, meant to keep their demand alive. The main argument behind this is that we ought to create processes that do not pollute in the first place.

Further research is constantly being carried out to improve the technology. Last week, a $100 million donation by FedEx – which also pledged carbon neutrality by 2040 – was given to Yale’s new Planetary Solutions Project to launch the Center For Natural Carbon Capture, which will focus on developing interdisciplinary solutions to reduce the amount of carbon in the atmosphere.

Tesla’s CEO Elon Musk also promised to put up $100 million for a contest seeking the best carbon-capture technology.

Who are the main players in the carbon capture industry?

Carbon Engineering seems to practise what they preach: their business plan is also their name. They are one of the first movers in the guilt economy, with a complete solution for companies willing pay for carbon capture. Shopify, perhaps not proud of sending you 10 packages of socks in the last 3 months, is the first major customer of Carbon Engineering’s CO2 capturing solution, buying the removal of 10,000 tons of carbon dioxide in the air.

Companies like Occidental Petroleum and BHP have also invested in the technology, and Chevron invested in a start-up working with similar technology, called Blue Planet.

Aker Carbon Capture, Microsoft, and Ørsted are also working hand-in-hand on a project to capture CO2 from Norwegian industrial sources. This comprises the transportation and permanent storage of CO2 in a reservoir submerged under the northern North Sea. Northern Lights plans to have have the capacity to transport, inject and store 1.5 million tons of CO2 per year.

Despite new climatic constraints and increased pressure from both the state and the public, Exxon Mobil is doubling down on its oil and gas production. However, far from burying its head in the sand, the oil giant is preparing for a low-carbon future by also investing massively in the carbon capturing technology. The company announced a $3 billion effort towards low-carbon efforts and created a new business unit to commercialise carbon-capturing technology as a profitable enterprise, estimating a a $2 trillion market by 2040.

Are you telling me to invest in major oil companies to fight climate change?

Some major oil companies like BP and Shell have preferred to shift directly to renewables by investing in wind and solar energy. However, there are concerns regarding the profitability and viability of these projects, especially in the short term.

Of course, the easiest way to “clean” your portfolio from polluting companies would be not to invest in any CO2-emitting industry. But this idea is a little simplistic, and your noble action does little to solve the underlying issue. The best long-term solution is to engage with major oil companies and help them turn towards the right long-term solution.

Indeed, what companies like Exxon understood is that technology and innovation were the only ways to reduce the environmental impact of energy production, without causing energy prices to soar, which could condemn billions of people to poverty.

Stopping the production of oil and gas altogether might be the dream of green activists, but it would turn into a disaster for many. The demand for petroleum will not disappear overnight, and of course it is used not only as fuel but as a lynchpin of the chemical industry. What we need is a smooth yet directed solution towards cleaner energy. It is not about cutting the wings of oil giants, but about helping them make a swift transition to a more sustainable future. Combining carbon capture with renewables might be the solution to a cleaner means of production, and to turn large oil and gas companies into responsible, green companies.