Carbon Capture: High Costs, Low Returns, and Broken Promises
Carbon Capture’s Billion-Dollar Mirage: Where Are the Returns?
After three decades and billions in subsidies, carbon capture has produced little more than enhanced oil recovery revenues and high-profile failures. Projects like Boundary Dam and Petra Nova illustrate the problem: large losses for taxpayers, modest returns for operators, and dependence on oil prices and subsidies. Direct air capture is even more uneconomic, with costs running up to $1,000 per tonne against carbon prices closer to $60.
The economic reality is stark: CCS has yet to stand on its own feet. Is this climate leadership — or as Tilak Doshi suggests—simply tilting at windmills?
1. Enhanced Oil Recovery (EOR) — The Primary Source of Revenue
Many of the projects generating financial returns rely on CO₂ to boost oil output (EOR):
Weyburn‑Midale project (Canada): Injected around 40 million tonnes of CO₂ over its lifespan, generating approximately $30 million in gross annual revenue for the gasification facility through EOR-linked CO₂ sales.
Petra Nova (Texas): This facility required roughly $1 billion in capital investment, supported by a $190 million U.S. grant and a $250 million loan from Japan—underscoring strong public subsidy. However, it ultimately became uneconomic when oil prices fell, and operations were suspended.
2. Pilot Projects & Demonstrations — Rarely Profitable
Many CCS projects have been experimental or demonstration-focused, often failing to deliver meaningful returns:
A 2024 analysis of 13 major CCS efforts revealed that most captured far less CO₂ than expected—or failed outright.
In the U.S., some projects have experienced outsized costs and technical failures, with approximately 80% failing due to technical issues, cost overruns, or lack of financial returns, despite subsidies.
The Boundary Dam (Canada) project, promoted as a pioneering CCS effort, generated estimated revenue of $25 million annually (selling CO₂ at ~CAD $25/tonne), but still resulted in over CAD $1 billion in losses for taxpayers and ratepayers.
3. Direct Air Capture (DAC) — Still Too Costly for Commercial Funding
Climeworks’ Mammoth plant in Iceland captures ~36,000 tonnes annually but costs around $1,000 per tonne, while large-scale hypothetical plants (>1 Mtpa) may lower costs to $94–232 per tonne. This remains far above typical carbon market prices.
4. Macro-Level Economic Potential
While direct returns today are limited, projections suggest a bigger economic opportunity if CCS scales:
A 2022 U.S. DOE report estimated that scaling carbon capture to 500–1,200 million tonnes per annum (Mtpa) could generate $75–110 billion in gross value added by 2030—and expand to $600 billion–$1.5 trillion by 2050.
Summary Table: Economic Outcomes of Carbon Capture Projects
Bottom Line
Real-world CCS has produced some economic returns, chiefly through enhanced oil recovery, but rarely covers its costs without massive subsidies or favorable commodity prices.
DAC remains far from economic viability, with prohibitive costs per ton of CO₂ removed.
Policy incentives are crucial. Without them, few CCS or DAC projects would be pursued based on economics alone.
Looking forward, large-scale deployment could unlock substantial economic value, but that remains speculative at best.
How Carbon Capture Might Actually Work
1. Piggyback on Natural Revenue Streams
Enhanced Oil Recovery (EOR): The only proven commercial pathway. Captured CO₂ is injected to produce more hydrocarbons, creating a revenue stream to offset capture costs.
Industrial By-products: Using CO₂ in materials (cement curing, synthetic fuels, plastics) where it has a resale value can turn waste into a product.
2. Drive Down Costs Through Innovation
Technology Advances: Calcium looping, solid sorbents, and membrane separation show promise at significantly lower energy penalties than amine scrubbing.
Modular DAC Plants: Scaling up standardized, mass-produced DAC modules (rather than bespoke mega-projects) could reduce costs from ~$1,000/t to <$200/t.
3. Leverage Policy and Market Mechanisms
Carbon Pricing Alignment: At today’s $60–80/t EU ETS levels, CCS is uneconomic. If carbon prices rise to ~$150–200/t (as projected by the IEA Net Zero scenario), some projects could become viable.
Tax Credits: In the U.S., the 45Q credit (now $85–$180/t depending on capture method) is a game-changer, making CCS bankable for power and industrial plants.
Contracts for Difference (CfDs): Guaranteeing a carbon price floor or offtake agreements for captured CO₂ would de-risk projects for investors.
4. Target the Right Sectors
Hard-to-Abate Industries: Steel, cement, fertilizers — sectors with no easy electrification pathway — are the best candidates. Capture here is cheaper and avoids carbon leakage in trade-exposed sectors.
Geographic Sweet Spots: Regions with favorable geology (North Sea, Gulf Coast, Alberta) where transport and storage infrastructure can be shared lower the unit cost.
5. Public–Private Partnerships
Treat CCS infrastructure like pipelines or transmission grids — a regulated utility model where the state co-funds backbone transport & storage, and private firms compete on capture technology.
This spreads risk, avoids stranded assets, and creates economies of scale.
Bottom Line:
CCS/DAC might work if it shifts from grand “climate virtue projects” to focused industrial decarbonization, enhanced oil recovery, carbon markets, and modular cost innovation — underpinned by credible policy frameworks. Without these, it remains a subsidy sink.
Who will pay the costs?: Quick emission & pass-through math (per unit of fuel)
Incremental impacts from a $150–$200/tCO₂ carbon price (combustion + refinery CCS + possible methane fee pass-through), and show where VAT/excise/existing carbon taxes bite in four common jurisdictions. All currency figures below are in the same currency as the carbon price (so if you’re thinking CAD$/t, read $ as CAD; if US$/t, read $ as USD).
Gasoline combustion CO₂: 0.008887 t/US gal = 0.002348 t/L →
Add $1.33–$1.78/gal or $0.35–$0.47/L at $150–$200/t.Refinery CO₂ (average): ~40.7 kg CO₂/bbl = 0.969 kg/gal = 0.000969 t/gal (global average) →
Add $0.145–$0.194/gal or $0.038–$0.051/L at $150–$200/t (refinery CCS pass-through). Stanford Center for Carbon StorageUpstream methane fee (illustrative): depends on excess methane intensity at the facility. If a fee applies, it’s $1,200/t CH₄ in 2025 (US policy level; see notes). An example sensitivity: 2 kg CH₄ per barrel above threshold ⇒ about $0.057/gal ($0.015/L) if fully passed through. (This is a what-if; actual pass-through varies by asset and policy status.) US EPAReutersAP News
Incremental subtotal before sales/VAT:
Gasoline: $1.48–$1.97/gal ($0.39–$0.52/L) from combustion + refinery CCS.
Add methane pass-through if applicable (e.g., ~$0.06/gal in the example), then apply VAT/sales tax where relevant.
Jurisdiction snapshots
United Kingdom (petrol)
Existing levies:
• Fuel Duty: 52.95p/L (fixed).
• VAT: 20% applied to the product price + duty + other adders (so VAT also applies to the new carbon/CCS charges). racfoundation.orgIncremental from $150–$200/t:
• Combustion + refinery CCS: $0.39–$0.52/L.
• VAT on those increments: add ~20%, i.e., +$0.08–$0.10/L.
• Illustrative methane fee pass-through (if any policy bites via imports): add the amount, then VAT applies to it too.Total incremental at pump (ex-FX): ~$0.47–$0.62/L including VAT, plus any methane pass-through (and VAT on it).
(Fuel Duty is pre-existing and unchanged by the carbon price; VAT already applies to it.) racfoundation.org
European Union (generic member state)
Existing levies:
• Excise (minimums): €0.359/L for petrol (many countries are higher).
• VAT: typically ~20% (varies by country) applied to product + excise + adders. Tax FoundationTaxation and Customs UnionIncremental from $150–$200/t:
• Combustion + refinery CCS: $0.39–$0.52/L.
• VAT on increments: roughly +$0.08–$0.10/L at a 20% VAT.Total incremental at pump: ~$0.47–$0.62/L incl. VAT, on top of the country’s existing excise and VAT base. Tax Foundation
United States (gasoline)
Existing levies:
• Federal gas tax: $0.184/gal.
• State taxes/fees: vary widely (e.g., CA > $0.60/gal; see state table). No national VAT. ComplyIQ by IGENFederation of Tax AdministratorsTax FoundationIncremental from $150–$200/t:
• Combustion + refinery CCS: $1.48–$1.97/gal.
• Sales tax: some localities add ad-valorem sales tax on fuel; apply that % to the new adders if applicable.
• Methane fee pass-through: if applicable to the upstream asset and not repealed/neutralized, use the sensitivity above (e.g., ~$0.06/gal for 2 kg CH₄/bbl) — policy status is currently fluid (see notes). The Washington PostAP NewsTotal incremental at pump: ~$1.48–$1.97/gal (combustion+refinery) + any sales-tax % + any methane pass-through.
Canada (gasoline)
Existing levies (federal):
• Excise: $0.10/L gasoline ($0.04/L diesel).
• Federal fuel charge (carbon levy): set to $0 as of Apr 1, 2025 (CRA notice). (Provincial carbon systems vary; BC, QC etc. have their own.)
• GST: 5% applied to the final pump price (incl. excise and adders). Natural Resources CanadaCanada.caIncremental from $150–$200/t:
• Combustion + refinery CCS: $0.39–$0.52/L.
• GST on increments: ~+$0.02–$0.03/L.
• Provincial carbon/sales taxes: add if applicable in your province (varies).Total incremental at pump (federal layer only): ~$0.41–$0.55/L incl. GST, plus any provincial carbon/sales tax effects.
Policy/status notes you’ll care about
UK duty & VAT mechanics: VAT is charged on top of duty and other adders, so carbon/CCS charges bring an extra VAT take. racfoundation.org
EU floor excise: Countries can (and often do) set excise above the EU minimum; VAT rates also vary. Tax Foundation
US methane fee: EPA finalized a $900→$1,200→$1,500/t CH₄ schedule, but Congress voted to repeal the rule in Feb 2025; legal/policy end-state was unsettled at last reporting. Treat methane pass-through as scenario-dependent. ReutersAP News
Canada fuel charge: $0/L federal fuel charge since Apr 1, 2025 (CRA). Some provinces maintain their own carbon pricing. Canada.ca
Bottom line (gasoline)
If carbon prices align to $150–$200/tCO₂, expect roughly:
US: +$1.48–$1.97/gal (combustion+refinery) (+ local sales tax/methane if any).
UK/EU: +$0.47–$0.62/L including VAT, plus any methane pass-through (VAT applies to it too).
Canada (federal layer): +$0.41–$0.55/L including GST, plus provincial effects where applicable.
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