The growing landscape of carbon removal technologies

May 4, 2023

Earlier this month, we attended a conference in San Francisco that focused on various carbon removal technologies, including direct air capture, land-based carbon removal and enhanced mineralization. The conference had over 650 participants, with 130 of them being corporates from both private and public companies that are working toward reducing carbon emissions. The number of start ups in this space has grown exponentially in the last couple of years and the United States is becoming a leading global carbon capture centre.

The Inflation Reduction Act (IRA), passed in August 2022, has created favourable conditions for carbon capture technology deployment in the U.S. The most notable provision is the 45Q tax credit for CO2 storage, which aims to promote carbon capture utilization and storage (CCUS).Companies providing direct air capture technologies have grown from only three start ups a couple of years ago to over 60 today. One of the reasons for this is the attractive credit of US$130 per tonne of CO2 captured and stored.

We also learned more about the Department of Energy’s Loan Programs Office (LPO), which grants debt capital to companies providing clean energy services and infrastructure. Over the last decade, this office has already issued over US$38 billion, with billions more available for future funding. The LPO is focused on providing capital in three main areas:

  1. Title 17 Clean Energy Loan Program to accelerate the commercial deployment of innovative energy technologies.
  2. Advanced Technology Vehicles Manufacturing Direct Loan Program to promote local manufacturing of more fuel-efficient and clean vehicles.
  3. Tribal Energy Loan Guarantee Program to support the investments into energy projects for federally recognized tribes.

Many companies that will benefit from the IRA are also eligible to receive additional debt financing if they meet any of the LPO’s three programs, unlocking capital to deploy into clean technologies. With the amount of capital pouring into clean energy sectors, it is definitely an exciting time to follow the sector.

Although carbon capture is a difficult area to gain exposure to in public markets, there are a few public companies that have internally incubated such technologies. One such company is Advantage Energy Ltd. (AAV CN), which we currently own and had the opportunity to meet at the conference. Advantage is an Alberta-based natural gas and light oil producer that has started a subsidiary clean-tech company, Entropy, providing modular carbon capture and storage technology. Advantage owns 85% of Entropy, with Brookfield Renewable being the other strategic owner.

Entropy’s carbon capture technology is already in operation at Advantage’s Glacier Gas Plant and has a capture rate of 90% to 95% of post-combustion flue gas. With the addition of the technology, Advantage’s carbon emissions at that specific plant have fallen by about 15%, resulting in a CO2 savings of about 47,000 tonnes annually. This helps make the company one of the lowest emission intense producers compared to its peers.

The carbon capture process involves capturing the CO2 from the flue gas stream emitted by the plant, processing it by scrubbing it with a chemical solvent and then storing the captured CO2 permanently deep underground. The process is illustrated in the figure below.

The post-combustion carbon capture technology is a strategic advantage for Entropy and the company is a key asset for Advantage Energy. Currently, there are only two operating post-combustion carbon capture projects in the world. The post-combustion technology can be retrofitted to existing energy-generating assets, which is the market the company aims to serve through its capital-light licence and support model, in addition to developing, owning and operating carbon capture units. Moreover, Entropy uses its proprietary solvent called Entropy23 that allows for lower input and operating costs due to its superior chemistry developed in-house. 

Currently, Entropy is benefiting from Canada’s investment tax credit of 50% for carbon capture equipment, but it is also expanding its team to focus its commercial efforts in the U.S. to benefit from the IRA. Recently, the company announced a first memorandum of understanding with California Resources Corporation, in which Entropy will provide technology, engineering and development services to decarbonize gas-fired boilers, avoiding about 400,000 tonnes of carbon annually. 

Aurubis AG (NDA GY), Europe’s largest copper producer and the world’s largest copper recycler is worth mentioning for its commitment to reducing its carbon footprint. Copper smelting is a heavy emitting activity but critical for the energy transition as we have highlighted in a previous note. The company has set Science-Based Targets with a goal of 1.5-degree alignment by 2030 and is piloting the use of blue ammonia in its production process for copper rods at its Hamburg facility. The carbon dioxide by-product from blue ammonia production is captured and stored underground. If successful, Aurubis will permanently switch to blue ammonia, potentially saving 4,000 tonnes of CO2 annually.

The opportunities in the carbon capture space are extremely attractive, with both policy and capital driving growth. We are confident that Advantage and Aurubis will benefit from them in the future while providing critical technology in helping it and other companies achieve net-zero goals.

Global Alpha Capital Management Ltd.
May 4th, 2023