Banks and oil groups are betting on carbon capture schemes

Companies from banks and insurance companies to oil majors are betting on the development of a carbon capture industry and subsequent carbon removal credits used by buyers to offset their pollution which should turn into a lucrative market.

Four companies, including retailer H&M and major fossil fuel lender JPMorgan Chase in recent weeks, have agreed to spend a total of $100 million on carbon removal credits by 2030.

At the same time, five other companies, including Swiss bank UBS and insurer SwissRe, have agreed to buy nearly 200,000 consignment loans starting in 2025 through NextGen, a new Mitsubishi-backed group.

NextGen will obtain credits from carbon removal projects, including a direct air capture (DAC) plant developed by Occidental Petroleum subsidiary 1PointFive, at an average “target price” of $200 per credit. 1PointFive also secured a pre-purchase agreement last year with aerospace company Airbus for 400,000 DAC-linked credits.

Private equity firm Partners Group also announced in April that it would buy 7,000 credits generated by start-up Climeworks’ direct air capture plants, which suck carbon from the atmosphere, over 13 years.

Climeworks, which sells small quantities of credits for about $1,000 each and larger volumes for less, said it was expanding its US team to meet “growing demand.”

The price of carbon across the EU has reached a high of €100 this year, as polluters have bought permits that allow them to emit a tonne of carbon.

But long-term carbon credit deals, supported by new government subsidies in the US and elsewhere, meant carbon removal technologies were becoming more investment-worthy, the companies said.

While there had been previous “hype rounds” for carbon capture, there was “a greater seriousness of purpose from both business and government,” said David Reiner, of Cambridge Judge Business School.

The $369 billion US Inflation Reduction Act includes tax credits of $85 per ton for plants that capture and store carbon from polluting sources such as fossil fuel plants and $180 per ton for DAC plants that suck the gas from the atmosphere.

A large-scale DAC plant would cost between $125 and $335 per ton, according to the International Energy Agency. Carbon capture storage experts in the oil industry said the $85 tax credit “filled the gap” on the investment case for simpler carbon capture projects.

Nick Cooper, chief executive of carbon capture and storage developer Storegga, said US taxpayer support had “a profound effect on the business environment. The CCS market has just taken off. . . It looks a bit like the US shale boom 15 years ago”.

The US Environmental Protection Agency is faced with backlog applications for carbon capture permits.

While the oil and gas industry has long promoted carbon capture as a climate solution, no large-scale operational plants exist, and many past projects have failed.

Critics argue that the industry’s carbon-capture argument allows oil and gas producers to continue sourcing fossil fuels for energy rather than switching to renewable energy.

Much of operational carbon capture is used for a controversial process known as better oil recoverywhere carbon is pumped underground to extract more fossil fuel than would otherwise be possible.

Occidental plans to use the carbon captured using the DAC for better oil recovery and to sell the fuel under the “net zero oil” brand.

TotalEnergies, Shell and Oxy Low Carbon Ventures, part of Occidental, are also among the firms pushing for the expansion of the carbon removal credit market, through the industry group CCS+ Initiative.

However, the DAC was an early-stage, expensive and energy-intensive technology, so there were “reasons to be skeptical” about its commercial viability, said Reiner of the Cambridge Judge Business School.