Why the Previous Generation of CCUS Failed and What Has Changed
Carbon capture, utilisation, and storage has occupied an uncomfortable position in the energy and climate policy landscape for most of the past two decades. The technology's basic feasibility was never in serious question — post-combustion capture, pre-combustion capture, and oxyfuel combustion all work as advertised, and the geological storage of CO2 in saline aquifers and depleted hydrocarbon reservoirs has been demonstrated at commercial scale since the Sleipner project began operations in Norway in 1996. What failed in the previous generation of CCUS development was not the technology but the economics. Without a sufficiently high carbon price or an equivalent policy mechanism creating a revenue stream for captured CO2, the capital and operating costs of CCUS could not be recovered at any scale that made commercial deployment viable. Projects announced with considerable fanfare — particularly in the power generation sector — were cancelled or indefinitely postponed when the financial models could not be made to work without support mechanisms that governments proved unable or unwilling to sustain.
The conditions that are driving the current generation of CCUS development are fundamentally different from those that produced the previous generation's failures. The US Inflation Reduction Act's enhanced 45Q tax credit — providing up to $85 per tonne for CO2 stored in geological formations and $60 per tonne for CO2 used in enhanced oil recovery or industrial utilisation — has created a durable federal subsidy mechanism that substantially improves the project economics of geological storage in the United States. The European Emissions Trading System carbon price has risen and stabilised at levels that make the avoided cost of CCUS commercially meaningful for energy-intensive industries subject to ETS obligations. The United Kingdom's CCUS cluster programme is providing contract-for-difference style revenue support for industrial CCUS projects in the HyNet and East Coast Cluster developments. These policy mechanisms represent a more sophisticated and durable approach to CCUS support than the technology demonstration grants that characterised earlier support programmes, and they are producing a correspondingly more durable pipeline of commercially committed projects.
The Industrial Decarbonisation Driver
The most significant shift in CCUS market development over the past three years is the emergence of industrial decarbonisation — rather than power sector decarbonisation — as the primary demand driver for the technology. Steel, cement, chemicals, and refineries are responsible for a significant proportion of global CO2 emissions, and they share a characteristic that makes CCUS particularly relevant to their decarbonisation pathways: a large proportion of their emissions are process-related rather than energy-related, arising from chemical reactions that are inherent to the production process rather than from the combustion of fuels that could be replaced with low-carbon alternatives. Cement production releases CO2 as limestone is converted to calcium oxide — a reaction that must occur regardless of what energy source powers the kiln. Steel production in blast furnaces requires the use of carbon as both a fuel and a reductant — a dual function that electrification alone cannot replace at current technology readiness levels. For these industries, CCUS is not one option among many for decarbonisation — it is the primary pathway available for addressing a significant proportion of their unavoidable process emissions.
The recognition of CCUS as an industrial necessity rather than an energy sector option has changed the commercial calculus for the infrastructure that makes CCUS possible — the CO2 transport pipelines and geological storage sites that provide the shared infrastructure for multiple emitters. Pipeline infrastructure capable of transporting captured CO2 from industrial emitters to geological storage sites creates economies of scale that individual emitters cannot achieve alone, and the business model for CO2 transport and storage infrastructure — which bears a structural resemblance to the business model for natural gas pipeline infrastructure — is attracting the interest of infrastructure investors who were not previously engaged with CCUS as an asset class. The Porthos project in the Port of Rotterdam, the Northern Lights project in Norway, and a growing number of US Gulf Coast CO2 transport and storage developments represent the emergence of a standalone CCUS infrastructure sector that is distinct from the capture technology and the emitting industries it serves.
CO2 Utilisation: The Revenue Stream That Changes the Economics
Carbon utilisation — the conversion of captured CO2 into commercial products rather than geological storage — represents a market development that was largely theoretical in the previous generation of CCUS and is becoming commercially real in the current one. The most developed utilisation pathway is enhanced oil recovery, which uses CO2 injection to increase oil production from mature fields and in which the value of the additional oil production partially offsets the cost of the CO2 supply and injection. More novel utilisation pathways — the synthesis of e-fuels from CO2 and green hydrogen, the mineralisation of CO2 into building materials, and the use of CO2 as a feedstock for chemical synthesis — are at various stages of commercial development, with e-fuels receiving the most investment and attention given the scale of the potential market in aviation and marine decarbonisation.
The market for CO2 as an industrial feedstock has characteristics that distinguish it from geological storage as a commercial proposition. Utilisation creates a product with commercial value — a revenue stream that storage does not provide beyond the policy mechanism that supports it. Utilisation also avoids the long-term liability questions associated with geological storage, which include monitoring obligations, leakage risk, and the regulatory uncertainty of who bears responsibility for stored CO2 over century-scale timeframes. The commercial attraction of utilisation relative to storage is reflected in the premium that utilisation-based CCUS projects can attract from industrial customers seeking products with low lifecycle carbon intensity — customers in the aviation, shipping, and chemical sectors who need low-carbon feedstocks to meet their own sustainability commitments and who are prepared to pay a price premium for products that are verifiably low-carbon.
The Project Pipeline and Infrastructure Investment Outlook
The global CCUS project pipeline has expanded significantly over the past three years, with the IEA and Global CCS Institute both reporting substantial growth in announced projects at various stages of development. The conversion rate from announced to operating projects remains a persistent challenge — regulatory approval timescales, financing complexity, and the coordination requirements of shared infrastructure projects all contribute to development timelines that are substantially longer than those of comparable energy infrastructure. The projects that are successfully progressing through development are disproportionately those with access to low-cost geological storage, strong policy support, and the offtake commitments that allow project financing to be structured on a project finance basis. The market is developing a clearer understanding of which project configurations can be financed and operated commercially and which remain dependent on policy support that may not be sustained at the required level. That clearer commercial understanding is itself a sign of the market's maturation from policy experiment to commercial infrastructure category.