FactSet Research : DAC Promises Decarbonization, But Efficiency Remains in Question

DAC Promises Decarbonization, But Efficiency Remains in Question Energy

By Corey Boettiger| January 12, 2023

With construction underway on Occidental's (NYSE: OXY) 500 kt direct air capture (DAC) project in Ector County, Texas, which is also the world's largest, questions remain around the role DAC will play in U.S., and global, decarbonization goals. Often touted as a way to decarbonize "hard to decarbonize" sectors, such as transportation and agriculture, the premise of DAC is simple: use energy to pull CO2 out of the air, compress it, transport it, and either store or utilize it. While DAC is still a relatively new technology, recent changes to U.S. policy via the Inflation Reduction Act (IRA) have drastically changed the economic viability of DAC, increasing the 45Q carbon tax credit for this technology from $50/t to as much as $180/t. While this change will likely bring on many new DAC announcements, the efficiency with which DAC can assist in emissions reduction goals, particularly because of the energy requirements and emissions still associated with the U.S. power grid, is still unclear. So, how efficient is DAC, and are these projects going to require additional energy infrastructure buildouts to be effective?

The U.S. grid has become significantly cleaner in the last several years. Wind and solar development have continued to expand, and historically cheap and cleaner-burning natural gas was able to push out coal as a fuel source, which has an emissions intensity of nearly double that of natural gas. The result is a U.S. power grid that has seen minimal load changes but a reduction in CO₂ emissions of nearly 30% from 2010 to 2021.

However, the U.S. grid is still not 100% carbon free, which means any increase to load, without also increasing the supply of zero carbon energy, will result in additional emissions. According to Carbon Engineering (the company supplying DAC technology to OXY), the current technology utilizes either 8.3 MMBtu of natural gas or a combination of 4.9 MMBtu of gas along with 0.37 MWh of electricity per metric ton of CO₂pulled from the atmosphere. The technology is designed to capture emissions from onsite natural gas consumption (in addition to CO₂ from the atmosphere). However, if electricity is used in combination with the gas, this will cause additional load to the grid. Additional load will almost certainly come from either natural gas generators (emitting around 0.35 t CO₂/MWh) or coal generators (emitting around 0.8 t CO₂/MWh). Given the above numbers, unless additional low- and zero-carbon generation is built with DAC, each metric ton of CO₂pulled out of the atmosphere would cause an additional 0.12 to 0.30 metric tons of CO₂to be generated from a marginal power plant.

However, OXY seems to know this already and is taking steps to be involved with building out and procuring zero carbon generation. In recent press releases, OXY has mentioned partnering with Origis Energy on a new solar farm being built near the OXY DAC project in Ector County, TX. In their most recent quarterly earnings deck, OXY also mentions being the primary energy offtaker of a new gas power plant being developed by NET Power that will also be fitted with carbon capture. Given both of these projects are new builds and slated to come online in the next few years, getting energy from these sources will help to offset any losses in net carbon removal associated with marginal generation from the grid.

DAC presents unique advantages and solutions to the emissions problem given its ability to decarbonize hard-to-decarbonize sectors and its flexibility in location. However, without further buildout of zero-carbon energy sources alongside DAC, additional load on the grid will reduce the net effectiveness of DAC. In light of this, expect future DAC announcements to include multiple strategies to procure zero-carbon power solutions in order to maintain maximum carbon removal efficiency from the project.

BTU Analytics is a FactSet Company. This article was originally published on the BTU Analytics website.

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