A big new climate deal from Exxon Mobil backed by Joe Biden

Exxon Mobil Ink's first carbon capture contract

Could it be that Big Oil’s Next Big Thing received a major backing from Joe Biden?

Perhaps if carbon capture and storage is indeed as big a deal as ExxonMobil’s first-of-its-kind deal to extract, transport, and store carbon from other companies’ factories implies.

The deal announced last month calls for ExxonMobil capture emitted carbon CF industries‘ ammonia plant in Donaldsonville, La., and transporting it to underground storage facilities via pipelines owned by Enlink Midstream. The deal, slated to start in 2025, is meant to herald a new level in how manufacturers deal with the carbon they produce and is the latest step in ExxonMobil’s often fraught dialogue with investors who want oil companies to cut emissions.

The Inflation Reduction Act passed in August could decide whether deals like Exxon’s become a trend. The law expands industrial-use carbon capture tax credits to offset the high upfront costs of plans to capture carbon from places like CF’s facility, as other tax credits in the law lower the cost of renewable energy and electric cars.

The Anti-Inflation Act and Big Oil

The law can help oil companies like ExxonMobil build profitable businesses to replace some of the revenue and profits they will lose as electric vehicles proliferate. Though the company doesn’t share financial guidance, it has committed to investing $15 billion in CCS by 2027, and Dan Ammann, president of ExxonMobil Low-Carbon Solutions, says it may invest more.

“We see a big business opportunity here,” Ammann told CNBC’s David Faber. “We’re seeing interest from companies across a range of industries, a range of sectors, a range of regions.”

The deal sees ExxonMobil capture and remove 2 million tons of carbon dioxide from CF’s factory annually, the equivalent of replacing 700,000 gasoline-powered vehicles with electric versions.

Each company involved is pursuing its own version of the low-carbon industrial economy. CF wants to produce more carbon-free blue ammonia, a process that often involves extracting the ammonia components from carbon-loaded fossil fuels. Enlink hopes to become a railroad of sorts for captured carbon emissions, calling itself the wannabe “carbon transportation provider of choice” for an industrial corridor filled with refineries and chemical plants.

An industrial facility on the Houston Ship Channel, where Exxon Mobil is proposing a carbon capture and sequestration network. Between this industry-wide plan and its first deal for another company’s CCS needs, ExxonMobil is hoping its low-carbon business will quickly become a legitimate source of revenue and profits.

CNBC

Exxon itself wants to develop carbon capture as a new business, Amman said, citing a “very large backlog of similar projects,” part of the company’s pledge to remove as much carbon from the atmosphere by 2050 as Exxon emits itself.

“We want oil companies to be actively involved in reducing carbon emissions,” said Julio Friedman, deputy assistant secretary of energy to President Obama and senior scientist at Carbon Direct in New York. “I assume that this can become a showcase project.”

The key to the sudden activity is the Anti-Inflation Act.

“It’s a really good example of the intersection of good policy coming together with business and the innovation that can happen on the business side to address the big problem of emissions and the big problem of climate change,” Ammann said. “The interest we’re seeing, the backlog, everything confirms that this is starting to move and moving fast.”

The law increased an existing carbon capture tax credit from $45 to $85 per tonne, Goldman said, saving the Exxon/CF/Enlink project up to $80 million a year. Credits for captured carbon used underground to boost production of more fossil fuels are lower at $60 per ton.

“Carbon capture is a big boy’s game,” said Peter McNally, global sector leader for industrial, materials and energy research at consulting firm Third Bridge. “These are trillion dollar projects. It’s big companies that capture large amounts of carbon. And big oil and gas companies have the know-how.”

Goldman Sachs and environmentalists are skeptical

A Goldman Sachs team led by analyst Brian Singer called the law “transformative” for climate change mitigation technologies, including battery storage and clean hydrogen. But his analysis is less optimistic about the impact on carbon capture projects like Exxon’s, with Singer anticipating more modest gains as the law accelerates the development of longer-term projects. To further accelerate investment, companies need to build larger-scale CCS systems and invent more efficient carbon extraction chemicals, the Goldman team said.

Industrial applications are the third largest source of greenhouse gas emissions in the US, according to the EPA. That is just behind power generation and transportation. Reducing emissions in industry is considered more expensive and difficult than in generating electricity or in car and truck transport. Industry is at the heart of CCS as utilities and vehicle manufacturers look first to other technologies to reduce emissions.

Nearly 20 percent of U.S. electricity last year came from renewable sources replacing coal and natural gas, and another 19 percent came from zero-carbon nuclear power, according to government data. According to interim reports from the Department of Energy, the share of renewable energy is increasing rapidly in 2022, and the IRA is also expanding tax credits for wind and solar power. Most airlines plan to reduce their carbon footprint by switching to biofuels over the next decade.

More oil and chemical companies are likely to jump on the carbon capture bandwagon first. British oil giant in May bp and petrochemical manufacturer Linde announced a plan to capture 15 million tons of carbon annually at Linde’s greater Houston-area facilities. Linde wants to expand its sales of low-carbon hydrogen, which is typically made by mixing natural gas with steam and a chemical catalyst. March, oxy announced a deal with a unit of timber producer Weyerhauser. Oxy acquired the rights to store carbon under 30,000 acres of Weyerhauser’s woodland, although trees continue to grow on the surface, with both companies poised to expand to other sites over time.

Still, environmentalists remain skeptical about CCS.

Tax credits could lower the cost of CCS for businesses, but taxpayers still foot the bill for what remains a “bondoggle,” said Carroll Muffett, CEO of the Center for International Environmental Law in Washington. Most of industrial emissions come from the electricity that factories use, and factory owners should reduce that portion of their carbon footprint with renewable energy as a top priority, he said.

“It doesn’t make economic sense at the highest level and the IRA isn’t changing that,” Muffett said. “It just changes who takes the risk.”

Friedman countered that economies of scale and technological innovation would reduce costs, and that CCS could reduce carbon emissions by up to 10 percent over time.

“That’s a pretty robust number,” Friedmann said. “And it’s about things that you can’t easily address.”

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