Direct air capture or DAC is one of the many strategies we need to employ to achieve the goal of net-zero carbon emissions by 2050. So, how do we scale up the DAC industry to capture the hundreds of millions of tons of CO2 we need to remove from the atmosphere? And what would that kind of growth mean in terms of business opportunities and job creation?
John Larsen is a Director at Rhodium Group, an independent research firm that analyzes global disruptive trends. He leads the firm’s US power sector and energy systems research, specializing in the analysis of clean energy policy and market trends. Today, John joins Ross, Christophe, and Aldyen to discuss his team’s most recent report and associated webinar, Capturing New Jobs and New Business: Growth Opportunities from Direct Air Capture Scale-Up.
John outlines the policy recommendations he suggests to ramp up the construction of DAC plants, offering insight around potential government subsidies for decarbonization and sharing what policy solutions work (and which ones don’t). Listen in as John explores the clean tech innovations he finds interesting and introduces us to the most promising commercialization pathways for reaching net-zero emissions by 2050!
Resources:
Capturing New Jobs and New Business: Growth Opportunities from Direct Air Capture Scale-Up
Capturing Leadership: Policies for the US to Advance Direct Air Capture Technology
45Q Tax Credit for Carbon Sequestration
California’s Low Carbon Fuel Standard
The DOD’s Plan to Produce Jet Fuel from Seawater on Aircraft Carriers
Klaus Lackner at Arizona State University
Write to me through Substack @ rosskenyon.com.
Full Transcript
Ross Kenyon: Hey everyone, welcome to Season 2 of Reversing Climate Change. We are doing that podcast thing now and launching a Patreon. You can find it at patreon.com/noripodcast. There are various tiers with different types of goodies available. Do you want to receive a special newsletter digest of what Norinauts are reading that week? Be a part of a Nori book club? Get special access to Nori events? Go take a look at patreon.com/noripodcast for what we’re offering.
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Hello and welcome to the Reversing Climate Change podcast. I’m Ross Kenyon. I am the lead strategist at the Nori Carbon Removal Marketplace. Two colleagues joining me today for another DAC episode, which — very happy to be talking direct air capture in greater detail. Lot of movement on that front, so there’s quite a lot to talk about. Christophe Jospe, Podcaster Emeritus. I don’t like that term. Christophe, you still come on a fair amount, but Christophe is the Chief Development Officer at Nori. Hey, Christophe.
Christophe Jospe: I’m here for your DAC-up, Ross.
Ross Kenyon: You are my DAC-up. That’s right. Aldyen is also DAC-up over here. Aldyen Donnelly, Director of Carbon Economics at Nori. Hey, Aldyen.
Aldyen Donnelly: Hi, good to be here.
Ross Kenyon: Happy to have you. John Larsen is joining us today. He’s the Director at Rhodium Group and leads the firm’s US power sector and energy systems research. He is also a nonresident senior associate in the Energy and National Security Program at the Center for Strategic and International Studies. Thanks for being here, John.
John Larsen: Thanks for having me, guys.
Ross Kenyon: It’s my pleasure, and we had to get you on because we saw this latest report and associated webinar that happened with it, called Capturing New Jobs and New Business: Growth Opportunities from Direct Air Capture Scale-Up. Very interested in this link between jobs and direct air capture. Maybe we’ll start by taking a step back. What is Rhodium? What is your interest in the carbon removal sector, and what led to this report?
John Larsen: Sure, yeah. So Rhodium is an independent research firm. We do a lot of work on big global disruptive trends, which can mean a lot of different things. It can mean the rise of China and other developing countries and what that means for global trade flows and economic and geopolitical interests. That’s one side of our shop. Another side of our shop works on one of the most disruptive trends out there, which is climate change, where we do a lot of research and analysis on quantifying the impacts of climate change as well as solutions to it through energy market analysis, technology analysis and assessing climate policy.
So you asked me how did we get to this report. So we’ve been looking at direct air capture now for about two to three years as a technology of interest. We at Rhodium have been doing work for a long time now asking — our clients keep asking, well, what are the technologies we’re going to need, the energy system changes we’re going to need, the policy actions we’re going to need to reduce emissions to some meaningful target? That target keeps getting more and more ambitious and sooner and sooner as time goes on and the urgency gets more pressing here, to get US emissions down to net zero. Now it’s kind of where we’re focused.
And we had two philanthropic clients come to us a few years back and say we really want you to take a close look at direct air capture and really take the time to quantify where the state of the technology is now. Is it important to a net-zero solution in the United States by midcentury? And if so, how important? And what are the policies to start getting direct air capture down the road to mainstream deployment, if that’s the case? So that was a piece of work we did called Capturing Leadership, which came out last year, and I can talk more about that in a second. But this new work we did on capturing new jobs and capturing new business focused on the employment opportunities and business opportunities associated with direct air capture scale-up. And when I talk about direct air capture scale-up, I mean at the size and pace required for direct air capture to play the role we see it potentially playing in a net-zero US economy.
Ross Kenyon: John, I’m going to throw you a curveball before we talk about the report, because it’s not every day that we invite someone on who works for a group that is also a chemical element, let alone one that’s used in catalytic converters, which are really, really cool. But why Rhodium? What does that name inspire in the work that your group does?
John Larsen: I wouldn’t read too far into it. The founding partners of Rhodium, when the firm was founded back in 2008, were Dan Rosen and Trevor Houser. And when you put those together, that’s R-H, which is the elemental — you know, the periodic table symbol — and then you put the G up in the corner there to make it look like we belong on the periodic table, and that kind of puts it all together right there.
Ross Kenyon: Oh man.
John Larsen: Yeah, sorry to let you down.
Ross Kenyon: That’s fine. All right. So I guess we should talk about the report. So what was in the report?
John Larsen: We asked some big questions. I mean, direct air capture, as you guys know closely, and probably your listeners, is a new technology, right? Like, we see it as, like, right on — it’s commercial-ready, it’s ready to go, it’s ready for scale-up. But there is no direct air capture industry at any kind of scale compared to other energy industries associated with the energy system that you know and love, like the oil and gas industry or the electric power industry or anything like that, right? So it’s hard to fully get people who’ve never heard about a direct air capture report before to understand in a tangible way what’s in it for them and what it could mean for either their business or their constituencies or for the members of their labor unions or anything like that.
And so we dove deep into the technoeconomics of direct air capture, looked across all the different technologies that are out there now, and did the first-of-its-kind analysis of, OK, if you were going to build a megatonne-scale direct air capture plant, how many jobs are we talking? You know, what kind of jobs are they, what industries are they in? And found that for a typical — which, you know, it’s still kind of a, put that in air quotes — DAC plant, you’re going to generate about 3,400 jobs per plant, which is not small. That’s roughly on the same order as a large-scale coal carbon capture retrofit project, similar job numbers there just to put it in context, or similar to a medium-scale natural gas combined cycle plant construction. So you’re talking really big infrastructure investments here.
Beyond that, on the business side, we found that as you scale up direct air capture out of kind of the several hundred million metric tonnes of deployment or even gigatonne scale by midcentury, as we have projected may be needed to help the US get to net zero, you can see not only very large employment opportunities associated with that — as you just start doing the math, 3,400 jobs per plant and we’re talking about hundreds if not thousands of plants — but also on the business side, there’s really specialized equipment that goes into these plants to make them run. There are companies in America and elsewhere that make that equipment, and this would be a new growth opportunity for them.
The same thing with the steel and cement needed to build these plants, the same thing with the energy needed to run the plants. There are major upsides for the electric power industry in particular, for clean electric generation, as well as potentially for natural gas if some of these direct air capture plants are run on natural gas. So we quantified some very large business opportunities, in some cases bigger than the existing industry today when it comes to how big of a demand direct air capture could play for, say, equipment by midcentury. So it’s really exciting. We’ve gotten a lot of great interest and feedback from the work. I see it being super relevant going forward if we find ourselves in 2021 in the US in a real kind of economic stimulus conversation. I think the kind of job and opportunity numbers we’ve quantified could be a really compelling reason to make some new kickstart investments in DAC deployment. So I think there’s a lot to look at here.
Aldyen Donnelly: So I have a question. I wonder if you could maybe outline your policy recommendations — and I apologize if this is really clear in documentation I just haven’t read yet. But when I look at your presentation, it looks like you’re saying that DAC is ready to go, it’s commercially viable now, but it needs a carbon price of $242 a tonne. And right now, between 45Q, the federal tax credit, and the California statewide programs, basically the typical DAC plant you’re looking at, if all of the carbon it draws down is stored, qualifies currently for about $86 a tonne in taxpayer-funded credits.
So I look at that, then I look at another slide which suggests that of that potential of 690 million to 2.3 billion tonnes per year, DAC plants could draw down almost 95% of that capacity in your forecast is built after 2035. So my question is, what are you really asking for? Are you asking for 45Q tax credits for DAC to be bigger than they are now, or are you seeing a different combination of policies transition? I guess what I’m saying — I totally get that there are a lot of potential jobs here, and of course, by definition, if a strategy is going to employ a lot of people, it’s also going to be expensive. And I’d love to hear the policy path forward so I could see who’s paying at what time.
John Larsen: It’s a great question, Aldyen, and a lot of this is covered in our previous report, Capturing Leadership, which came out last year, and I’m happy to kind of walk through the high-level points there. All of the observations you made are important ones, and the key thing here — I mean, the answers are kind of complicated. I think it’s useful to look at this in a near-term versus long-term perspective, right? So a lot of the numbers you just pointed to are very much reflective of the near-term current situation for direct air capture in the United States, and probably elsewhere, with regard to eligible policy support from the Low Carbon Fuel Standard in California and then the 45Q tax credit, first and foremost.
And the key thing here is direct air capture is ready to go, but the first one, it’s going to be more expensive than the 10th one and the 100th plant. This happens with any early-stage technology, that the first few are always going to be expensive for a lot of reasons. One, never built one before. Two, it’s hard to get financing for something you’ve never built before. Three, it’s hard to find specialized labor for something you haven’t built before that performs the way you planned, right? So there’s lots of different issues there, and all those numbers you mentioned reflect that first-plant value.
The first and foremost thing to think about is the near-term policy need, which is — the goal here is to start building stuff. We need to build as many plants, preferably of varying technological designs, different applications, as much as you can, as quickly as you can, to start to build expertise, start to build supply chains, start to drive down the costs in this technology, because you’re not going to get that other 95% of the capacity we’re showing at any kind of level of cost effectiveness if you don’t start getting the cost down now.
So the policies for that could be varied. We see kind of a mix of supply and demand side policies. On the supply side you could see an additional, say, tax credit like an investment tax credit for direct air capture, where the taxpayer could write off, say, 30% of the capital cost of a plant right off the bat. And that way all the other policy support that you just mentioned can be leveraged more, because you have less capital to pay off. That can be coupled with important procurement policies. In particular, we see government procurement as a really big, exciting opportunity. There are already multiple applications of direct air capture through contracts with the Department of Defense to make, say, jet fuel in remote locations on aircraft carriers.
We see a huge opportunity to go way further than that, both on fuel production but also just like better scaling direct air capture there. You could see, in a different administration that cares about solving climate change, government procurement of actual carbon removal — that again could be another supply-side way to pull DAC into the market. And with that, you know, you could have competitive bidding, RFPs for DAC, so there’d be healthy competition to try to drive down the cost as well. So there’s a lot of different opportunities there.
Separate from that is kind of what we see as the non-cost barriers to direct air capture, which are also important barriers to carbon capture generally, in particular streamlining and reducing the permitting uncertainty and permitting timelines with geologic storage. It’s pretty important right now. Well, permits for geologic storage injection take on the order of five to six years. That’s a really easy way to not attract investment, and we’ve got to change that. So you know, you could throw a lot of new money at direct air capture and storage and not get very far if you don’t fix that problem. So all of those types of things need to change.
And again, if we’re in a kind of economic stimulus conversation, you could see a lot of new federal money come into the space to help catalyze that deployment, either through deployment grants or loan guarantees. There’s lots of other ways you could see that playing out. In the long run — and again, all of that action is all about getting steel on the ground and driving down the cost. It’s not about getting to like a gigatonne of scale. That’s just this near-term kind of early-stage deployment pathway where we’re getting into the tens of millions of tonnes of capacity.
From there, you’re going to need some comprehensive climate policy framework. That’s the longer-term answer. And that can take all sorts of different forms. It can be a carbon tax, it can be a cap and trade program, it could be a clean electric standard plus a clean fuel standard plus a clean product standard for industry, where direct air capture and carbon removal can qualify as eligible crediting for compliance across all those pathways. There’s lots of different ways to do this. You could also — and that’s something we outline in the report — have some sort of federal carbon removal agency which is solely responsible for getting CO2 out of the air and keeping it safely underground at the scales we’re talking about, and basically act as a public, like, waste management utility. There are any number of ways to go on that front. We don’t need any of those things tomorrow for DAC to scale. We need these kind of early short-term actions, but eventually we’re going to need this broader framework.
Aldyen Donnelly: So I have another question. If we’re thinking $242 a tonne is sort of the price they currently need to attract, setting aside who pays it, have you had a chance to form an opinion about how much that price can change over time with scaling up, or is it too early to?
John Larsen: Yeah, well, so, two things to note. That is the median first-plant cost, so we do have a range in the report as far as — or that’s based on the median, that’s kind of the delta needed to get to the median cost at a break-even rate. So some technologies and energy configurations may come in lower, some may come in higher than that. So that’s the first thing to say. But the second thing to say is we actually see, if you get to the kind of deployment paths that we are talking about in all of the reports we’ve put out, where you’re going from, you know, a nascent industry today to hundreds of millions if not gigatonnes of scale in 30 years, we can see the levelized costs come down.
So the full range, Aldyen, is $125 to $325 per tonne today, and we see that coming down to as low as, call it the high 40s a tonne, to about $145 a tonne by 2050. Yeah, I mean, it’s a big change, and most of that cost reduction happens early, right? Like, you know, the learning curve has exponential gains early on in the game, right? So like, you can really cut costs by 20 to 30% by going from zero to say 10 million tonnes of capacity. That would be a huge, huge step forward if we can get there.
Aldyen Donnelly: So I just have one more question that was sort of niggling at me when I watched it, when I looked at your presentation. And that is, when I look at that scenario in 2050, it suggests that your modeling says that electricity sector emissions will be, by 2050, less than 10% of what they are today. But the industrial process emissions, so the same sectors, steel, you know, cement, all of those key inputs into DAC, are still going to be 70% of today’s levels in 2020. So when I look at those numbers, it sort of looks like we’re building DAC to offset the emissions of the industries that are vibrant because we’re building DAC.
At what point do we shift from “all ratepayers and taxpayers should be paying to build DAC to offset the emissions, at least some of which arise from the demand to build DAC”? And at what point can and will those emitting industrial sectors be able to charge high enough prices for the products they produce to be financing DAC privately?
John Larsen: Yeah, I mean, so a couple things to think about there. So the first thing is the direct air capture deployment targets that we put out for 2050 are in the context of a broader set of energy system and economy-wide energy system modeling that we did that took into account lots of other decarbonization actions across the energy system over time out to 2050, such as really high levels of electrification of end uses, you know, so that everybody’s driving an EV by 2050, for example, and all buildings are electric. Carbon capture is deployed at scale and widely in both the electric power and industrial sector, so that all that carbon from steel production, for example, or cement, is captured.
You’ve got an electric power sector that is effectively completely decarbonized, mostly through a combination of four things — three things: renewables, natural gas and CCS, and then nuclear, in other words. You’ve got to do all the things all the experts say you’ve got to do to decarbonize, and you’re still going to need a lot of direct air capture. And the flip side is true, and I think answers the other part of your question, which is if you don’t, then all that direct air capture is going to have way less of a helpful return, right? Because if you’re stimulating demand for steel and cement because you’re building direct air capture, and you haven’t decarbonized those industrial activities separately, then you’re going to have even more tonnes to offset through CDR, right?
And so that gets into a very long, perhaps never-ending cycle that’s not necessarily where we want to be. And so I think what our work shows is that direct air capture is going to be, needs to be, an essential part of any comprehensive response to climate change, but it’s not the only thing we’ve got to be doing. And we’ve got to kind of hit it out of the park on all these different fronts, including industrial decarbonization, or else we’re just not going to get to the low-carbon economy everybody’s talking about.
Aldyen Donnelly: I guess I just have one more question and then I’ll stop. And I just want to reiterate, we in Nori are fans of DAC. In fact, our three original founding partners initially came up with the Nori concept to support DAC. So don’t take my questions to mean anything else. But the other sort of last question I struggle with is, in your modeling you’re assuming by 2050, as you just suggested, carbon capture and storage is big, natural solutions is big, we’ve taken fossil fuels entirely out of space heating and water heating and gone all electric. Are you envisioning in your modeling — is it comparable subsidies or government incentives per tonne CO2 equivalent reduced or sequestered in all of the very different ways you see being implemented, or is DAC special and getting a subsidy that nobody else gets?
John Larsen: Great question, great question. So for that modeling in particular, when asking the question how much direct air capture might we need to get to a certain target, what we did was we basically set an emissions constraint and then said, model, solve it, you know, figure out the optimal mix of all these things to get there. So that’s another way of saying there is a consistent incentive across the energy system for all technologies, and then they get deployed in response to that incentive. So direct air capture is seeing the same value of CO2 in those scenarios as, say, decarbonizing industry or electric power, or you know, decarbonizing fuel production for hydrogen and things like that. So I’ve dominated. I didn’t mean to. Sorry, somebody else take over.
Ross Kenyon: Aldyen, we’re — you’re on a roll, Aldyen. I mean, it’s kind of like thinking about policy, we just want to let you go at it. I think Christophe has stuff to go on that.
Christophe Jospe: You want to start with the end in mind, I think. Or, you don’t want to put up certain constraints, but you also don’t want to over-prescribe. One of the things that I loved in my DAC education, working under Klaus Lackner, was this beautiful concept that it could theoretically scale limitlessly, and it’s technology that, you know, could, as you rightly put it, John, play that waste management service, kind of play the cleanup crew in the suite of all the decarbonization options. But if I’m understanding Aldyen’s questioning, you know, you don’t want to build policies that play favorites. And so I’m just wondering, you know, you have a long, illustrious career of thinking through climate policy solutions. Across the course of your career, what are the biggest lessons you’ve seen of what works or what doesn’t work?
John Larsen: Yeah, it’s a great question. And you know what, I think there’s lots of different objectives in climate energy policy. The number one objective is solving climate change. But when you get to trying to answer that question and solve that problem, you get into all these derivative situations with separate, more discrete objectives. And I think my response earlier to the long-term versus short-term for DAC is a good one, right? Like, in the long run we want net zero in the US, and you know, ideally in a way that’s as least cost to get there as possible. When we at Rhodium asked that question, turns out direct air capture plays a relatively prominent role, more than I would have expected going in. I’ll just say that.
But the thing is, if you don’t have direct air capture technology ready, you know, on the shelf and ready to go, with supply chains and an industry behind it to really scale it up to the level that we’re showing, then you’re not going to get to that least-cost world. So then you get into a different objective question of, well, then how do we get back down that road? And that’s where these kind of near-term policy actions, where you do start to pick some favorites, maybe, you know, you might want to be looking at what are the, you know, you don’t put all your chips on solid sorbent technology for DAC, and you want to be DAC technology agnostic to make sure there’s like healthy competition and you’re providing lots of opportunities for different companies and researchers to get in on the action. At the same time, we do know that direct air capture is not going to scale to the level we need without some support to get it off the ground, right?
So that’s just one reflection on things. To answer your question directly, Christophe, we engage a lot with folks on Capitol Hill and Hill staffers who are thoughtful about this stuff. And we also engage a lot with our colleagues in the other disciplines, like economists and, you know, social scientists and all those folks. And one thing from engaging with Hill staff that I’ve heard recently and frequently is the most effective climate policy is one that can actually pass. Which is maybe different than the answer the economist might give you as far as like what the most effective climate policy is, a carbon price, or you know, one that polls the best and has the most social acceptance.
And at the end of the day, this problem is so complex and currently so divisive, unfortunately, politically, that I look around at what’s been able to get passed and actually start to drive change on the ground, and those are the areas where I focus as far as like exciting opportunities. And you know, most of that action in the United States is on the state level. Clean electric standards are now, you know, that get us to 100% zero-emitting electricity, are pretty popular now in multiple different politically diverse states around the country. That’s something to look at.
I’ll be honest, I’ve become a convert to the Low Carbon Fuel Standard in California. I initially thought that life-cycle-based regulation would be super complicated, probably too complicated to be administratively feasible. But ARB has done an amazing job of not just proving me wrong, but also showing that it’s driving new investment in clean technologies that we all know are going to be important to decarbonizing down the road.
I think there’s still some open questions around how to do certain decarbonization actions right. Electrification is maybe the big one, electrification of end uses. We have not, I have not seen yet an electrification policy that will drive the kinds of system change we need, given the inertia in consumer behavior and technology preference and just stock turnover, that will get us on the pathway to a full electrification of end uses by midcentury. That tells me we’re probably going to need some other options on the table, but that doesn’t mean you couldn’t come up with that policy. But I haven’t seen it yet. And then, you know, I’ll say ideally someday we’ll have a serious carbon price and that would be really great. But where those have been adopted, they’ve proven to be super impactful and do all the things that everybody says they can do. But we’re not quite there yet here, at least at the federal level in the United States, and that’s something to keep an eye on.
Aldyen Donnelly: You know, I agree and appreciate everything you just said, and I’m on the Low Carbon Fuel Standard team. I’d modify it to make it the Low Carbon Energy Standard if I was Queen of the world, which I haven’t noticed anybody wants me to be. It certainly took me a long time to get there, so I think we might be kindred spirits in that way. When it comes to policy and public acceptance, I still worry, not about DAC as a solution but about how we construct the policy.
So for example, the modeling says that for DAC to become commercially viable and create the jobs we’re talking about, we will be increasing natural gas production in the United States, which I don’t consider a bad thing. But it seems to me that if you’re going to the general taxpayers and saying some version of “you’ve got to phase out your use of natural gas to heat your homes and you’ve got to shift to electricity,” which, all other things being equal, is going to cost you more in heating prices — you’re also going to have to pay enough taxes to offer tax incentives to subsidize the cost that DAC and large industry pays for natural gas. I think that could be a mistake, that could really kill public support for what otherwise is a needed part of the package of solutions. So that’s why I keep worrying about what’s the combination of policies we’re talking about here.
John Larsen: Yeah, I mean, I’d say, you know, when we get into an honest-to-goodness legislative conversation about US climate change again, which I look forward to someday, these are definitely the kind of intersections and challenges that are going to come up. There’s lots of others, even in the more discrete policy conversations that we engage in now, say with 45Q and the carbon capture tax credit. The fact that most projects are associated with enhanced oil recovery is another example of a public acceptance challenge on how to, again, stimulate deployment of another important technology here, carbon capture more generally, and some people being, you know, seeing it as just a lifeline to fossil fuels rather than an early-stage support policy for something we’re going to need a lot more of down the road.
On the gas piece specifically, I mean, I guess you just get asked the question, like, the US in particular is well endowed with a lot of different cheap energy resources, both renewables and, turns out, natural gas. And figuring out the best way to tell the story of how to use those energy sources in the most cost-effective way is going to be important. And I agree, all that. I’m not quite sure the best way to electrify the end uses question and how to talk to folks that way. I think there’s actually some really interesting, compelling research around indoor air pollution that I think is yet to be socialized that could be very influential in shifting people to go electric. But at the same time, saying you can’t have your gas here because we need, you know, but we’re going to use it over here, is something that I think we’re going to have to wrestle with.
Christophe Jospe: So, John, the Otto von Bismarck quote, I think, politics is the art of the possible. And it’s kind of like, we create policy to guide and coax in the ways that we can. But then sometimes there are trends that no one really predicted, and then you just kind of hop on the trend and then create more policy to guide and coax. One of those trends being an abundance of natural gas becoming really cheap and certainly changing the landscape for carbon management. But I really wanted to take your view, stepping back, in terms of the trends and clean tech innovation, and it would be great if you could give some context from a DAC perspective on how you see that driving the DAC action, but also just in general, sort of what excites you and the Rhodium Group in terms of where you see the art of the possible in terms of seeing sort of broad-scale climate innovation tech really taking off.
John Larsen: Yeah, I mean, I think the electric power sector now is, has been and it still remains a really exciting place, as a matter of like both technology innovation and policy, in the sense that all of the economic trends, market trends have been pushing the most carbon-intensive generation, uncontrolled coal plants, out of the money, and pushing renewables and uncontrolled natural gas into the money, and that has really changed. I mean, you can just look all around, all the major electric utilities now have net-zero goals and more coming onto that bandwagon every day. We talked about states earlier and their leadership here. It’s a super exciting area.
But, you know, the how you get to 100% clean is a much harder question to answer than how do you get to like 80 or 85, 90% clean. That last five, 10, 15% is really, really tricky. The more you constrain your technology options to get to that 100%, let’s say just to renewables, for example, the harder and more expensive it’s going to be. I think we’re just starting to see examples of like on the ground, you know, real projects that can start to prove out how that’s all going to play out over the next several decades. Oh, and by the way, none of the electrification we’re talking about matters if you don’t decarbonize electric power, right? So like, you know, never hurts to just state that obvious point.
So the electric power sector is our prize, in some ways the most exciting area right now. But I would say, and that’s an area we’ve spent a lot of time with and are still focusing on in a big way. And I think direct air capture has two potential areas of benefit on that front. One is, the more you decarbonize electric power, the more opportunities there are to run DAC plants with grid electricity rather than purpose-built renewables or something like that, which certainly makes deployment easier. The other is you could see direct air capture playing a role in helping get the electric power sector to net-zero emissions by offsetting that last five, 10% if that’s the cheapest way to do it, with direct air capture and storage, right, instead of just with the generation side of the equation.
But I will say we’ve been spending a lot more time recently in the industrial sector generally, on a lot of fronts, on you know, how do you get industrial-grade heat and how do you do fuel substitution for low-carbon fuels like hydrogen, but also deployment of carbon capture technology. And I see, from our close look at the technology opportunities there, we see a lot of opportunities for cost reduction. Electrolyzer costs have a lot of pathways to get down to make hydrogen cheap, green hydrogen cheap, with carbon capture. We see a lot of low-hanging fruit for CCS deployment even under the existing 45Q regime in the United States. And even if you just extended the deadline for eligibility by a year or two, you could see a lot more deployment.
And that’s with just incremental tweaks to policy that could really move the needle and really start to scale up some of these technologies. And that’s an area we’d want to, you know, I didn’t expect we’d be in without a more formal comprehensive federal climate policy. I think it’s a testament to a lot of people’s hard work and trying to kind of get some base hits over the last few years on a bipartisan basis in Congress anyway. I just see a lot of room to run in the industrial sector, and just turns out that that’s the sector everybody says is the hardest to decarbonize. So I see a lot of excitement there. I mean, it’s still early days, so I wouldn’t say it’s hope yet, but there’s a lot of reasons to pay attention.
Christophe Jospe: So implicit in what you’re saying is there’s a pathway to get there, right? It’s some kind of 100% commercialization pathway. And when we’re talking about pulling carbon dioxide out of the atmosphere or capturing carbon dioxide at industrial sources, it begs the question, what are you going to do with it? And I would be curious to hear your take on what are the most promising commercialization pathways that will get us from here to there.
John Larsen: I think there’s so many different uncertainties that it’s going to be a mix of a lot of things. Now I think back to our like, you’ve got to set objectives when you’re talking about policy. I think the first objective in my view on this is the same one I’ve had for DAC, which is what’s the early-stage goal. The early-stage goal is getting this stuff deployed as much as possible and getting the cost down, building experience, getting supply chains built out, building an industry around the stuff. And if your goal is that, the pathways, I would say whatever pathways of commercialization are available and cost effective for niche applications, early-stage stuff now, should be pursued.
That can mean anything from, so the carbon utilization space I think is still really early, but really exciting, at least as far as getting things started so far. Our research does not suggest that utilization will be the answer in and of itself, right? Like, you’re still going to need geologic storage of large amounts of CO2 from these sources that we’re talking about to get things to decarbonize down the road. But using CO2 for feedstocks into chemicals, into other kinds of products like carbon fiber, is exciting, potentially lucrative in certain respects. There’s a lot of chemical engineering processes getting explored now that could actually like really cut down, you know, just making chemicals in brand new ways using CO2 could really change everything, and I think that’s exciting.
On top of that, you know, we’ve seen some activity in the enhanced oil recovery space. I think that’s going to continue. I think the Low Carbon Fuel Standard approach in California has provided a lot of new interest in carbon capture and other technologies. That’s going to continue and could potentially ramp up, not because California ramps up its ambition but because more states adopt low carbon fuel standards. And I mean, there’s active conversations now in states in the Northeast and Midwest, not necessarily copying and pasting California’s, but at least taking a similar tech-neutral approach. And so I think there’s a lot of that. And then in the meantime, I’ll just go back to the like recovery. I mean, it’s like a lot of the stuff we’re talking about here are really big projects that could employ a lot of people. And if Congress wanted to devote a big spending exercise to deploying the next wave of all these things, I think it would do a lot to accelerate the technology and get the economy back on track.
Aldyen Donnelly: You know, I think you’re right in principle, but I think there are some cautions we need to just all give ourselves. So the reason I get hung up on what in fact is the mix of policies is that the reality is all developed economies need a significant and major stimulus package soon, and jobs created has to be an important measure of what are the right places and ways to invest. On the one hand, I guess the fear I bring to the table is that it’s also the case that all of our governments are seeing exploding federal and state deficits and debt loads increasing.
So I do believe that if we actually want DAC and every other new technology we want to see succeed to succeed, we have to, from day one, assume that the will and the ability of government to maintain taxpayer incentives, say five years from now, is going to erode when that massive pile-up of debt is looking scary. So the reason I keep sort of losing sleep over policy is, what are the policies we can put in place right now that are going to involve government spending that creates the seed of a set of new industries and employers that can survive when the government money gets chopped out from under their feet in five years? So it’s not don’t do it, it’s how do you do it so that you increase the odds that you’ve started something that the private sector can carry on when that government debt load gets too big.
John Larsen: I’d agree, and I’d take it one step further, which is, in particular for carbon removal, we can’t count on the private sector to take the baton solely here, right? Because a lot of what we’re talking about is a public good, which is inherently, economics 101 textbook, this is a role for the government, right? So you need some sort of, the stimulus is the down payment. You need some sort of long-term climate policy framework of some sort, or maybe it’s more tech specific or sector specific, but you need a framework that requires additional investment into these areas for the long run, so that the private sector knows there’s going to be a market for this stuff. So I totally agree, like the stimulus is the first step, it’s the down payment, and then we’ve got to follow up with additional actions.
Ross Kenyon: Well, John, you’ve given us a lot to think about here. Is there any place that you would direct listeners to learn more? I suppose the reports that you’ve put out are a very good place to start.
John Larsen: Yeah, check out our work on our website, rhg.com, and look under our research in the energy and climate area. Look for more from us both on direct air capture, on carbon capture and on how both relate to any kind of recovery conversation in the coming months. We’ve got more work coming in this space, and my contact info’s on the website, and so you know, if you’ve got follow-up questions, feel free to reach out.
Ross Kenyon: Great. Well, thank you so much for being here. And thank you to my co-hosts. If you like the show, please rate and review us on iTunes, Apple Podcasts or Stitcher. And thank you so much for listening.
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