Thursday, February 22, 2024

David Keith on why carbon removal won’t save big oil but may help the climate

OCCIDENTAL, AN American oil major, recently agreed to buy Carbon Engineering, a Canadian carbon-removal company, for $1.6bn. The deal underlines big oil’s growing interest in carbon-capture technologies, which suck carbon dioxide from the air. What does it mean for the climate?

Suppose a trucker dumped a load of manure on your front lawn and then demanded a fee to haul it away. Big oil made the fuel that is cooking our planet, so the idea that it might profit from cleaning it up strikes many people as obscene.

Critics argue that big oil is using carbon removal as a tool to protect its core business. As Occidental’s chief executive, Vicki Hollub, sees it, carbon removal means “we don’t need to ever stop oil.” Defenders argue that big oil can help meet social demands for decarbonisation by pivoting to carbon neutrality while bringing technical expertise to new low-carbon markets.

Greenwash or swords-to-ploughshares? My guess—informed by my experience as a climate-focused academic and as the founder of Carbon Engineering (on whose board I still sit)—is that the oil majors will be unsuccessful at both. Greenwashing will not protect them; nor will they smoothly pivot from being oil suppliers to carbon removers. Yet big oil’s carbon-removal play may nevertheless yield substantial climate benefits, in part because it is unlikely to play out as well as the companies hope.

Big oil will trumpet its green achievements, both real and imaginary. This will dampen public disapproval and help recruit talent, but it is hard to see how it reduces the threat to the core business, which is driven by accelerating climate policies and the decreasing cost of electric vehicles.

A world with large-scale carbon removal is a world with carbon prices high enough and decarbonisation policies strong enough to drive oil demand down sharply. Permanent carbon removal is likely to cost over $150 per tonne of carbon dioxide for at least a decade or two. That is equivalent to a penalty of almost $70 per barrel of oil. Though it may provide a green aura, an oil company’s carbon-removal business, however successful, will not protect its legacy oil business from strong carbon prices and policies. Neither greenwashing nor green reality changes the fundamentals.

The feasibility of a swords-to-ploughshares pivot rests on the premise that expertise transfers from oil and gas to carbon removal—or even beyond to solar power and other clean technologies. Although engineering skills are transferable, the business pivot is less plausible. A management culture built to succeed at making risky bets on big hydrocarbon plays such as ultra-deep offshore oil is different from the management culture needed to succeed in clean energy or carbon removal.

When oil companies build thriving carbon-removal businesses, the interests of these business units will be misaligned with the legacy oil business. Legacy oil wants low carbon prices and high energy prices. Carbon removal wants the opposite. Big institutional investors such as pension funds prefer pure plays, so they will push to cleave carbon removal from legacy oil. History suggests that incumbents rarely survive fundamental shifts in the underlying business. IBM was an exception, but it is now dwarfed by Apple and Microsoft. The benefits of synergy are usually outweighed by the costs and conflicts of maintaining the legacy business.

So even when big oil succeeds in carbon removal the most likely outcome is freestanding cleantech companies alongside legacy oil rather than successfully integrated conglomerates. Environmentalists can thus welcome big oil’s move into carbon removal for the skills it brings with guarded optimism that the swords-to-ploughshares pivot will do little to protect the legacy oil business.

And the skills are desperately needed. Building billion-dollar battery factories, hydrogen infrastructure or plants to extract carbon from the air requires engineering and management skills that are concentrated in industries like oil and commodity chemicals. Occidental, for example, plans to build plants that can remove and store up to 30m tonnes of carbon per year at King Ranch in Texas. That is the equivalent of decarbonising 30m-60m transatlantic passenger flights per year. Although Occidental has never built a direct-air-capture plant, Carbon Engineering’s technology knits together existing industrial processes to achieve the new goal of carbon removal, and Occidental has experience with almost all the components required for direct air capture, including potassium hydroxide, a chemical used in the process, and CO2 sequestration. A startup cannot build plants with tens of millions of tonnes of capacity without the skills of a company that has built industrial plants at scale.

Big oil’s pivot to clean should be celebrated as a marker of the power of environmental advocacy, not a sign of its weakness. These investments did not happen simply because big oil woke up feeling woke. The driving force is policy. Today’s most important driver is Joe Biden’s clean-energy incentives. But these incentives did not just happen because the American president woke up green. They are the fruit of decades of environmental advocacy.

Greenwashing is a risk. Environmentalists are right to worry. Big oil will try to use carbon removal to defend the status quo. But there is a political upside. In a decarbonising world in which big oil only does oil and gas, its only future is extinction and it will fight progress with its back to the wall. If, however, the industry is also in the decarbonisation business, its interests—and the interests of the communities that depend on it—are split, with the low-carbon business units fighting for strong climate policy even as the legacy businesses oppose it. My hope is that this blurring of interests will lubricate the political bargains needed to accelerate climate progress.

David Keith is professor of the geophysical sciences at the University of Chicago. He founded Carbon Engineering in 2009 and remains on its board.

© 2023, The Economist Newspaper Limited. All rights reserved. 

From The Economist, published under licence. The original content can be found on www.economist.com

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