Private debt
Carbon capture: pragmatic solution or pipe dream?
3 min read 17 Sep 21
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Carbon capture solutions are sometimes criticised by those who want immediate cessation to industrial carbon emissions in order to limit global warming, and those worried about the high cost of implementation. But we believe that carbon capture and storage techniques are nonetheless a pragmatic and responsible solution to mitigating CO2 emissions in hard-to-abate sectors as they decarbonise over the next decades. We also believe that early stage carbon capture projects present an attractive investment opportunity for long-term, patient capital.
Reducing emissions isn’t enough
The depressing conclusion of the Intergovernmental Panel on Climate Change (IPCC) recent report on global warming is that levels of carbon dioxide (CO2) are higher in 2019 than any time in “at least 2 million years”, with many climate-related changes now irreversible.
'While there is no low-cost “magic bullet” solution to mitigating global warming, we believe carbon capture and storage (CCS) technologies — which capture industrial CO2 emissions and store them permanently in geological formations deep underground — are a promising route and merit early stage investment.'
While the IPCC report has turned up the heat on governments ahead of the COP26 in November, there still seems to be no political appetite for mandating sudden, dramatic cuts to carbon emissions which could risk economic disruption and social hardship. Governments are likely to retain long-term emissions reduction targets, giving developing countries and industries such as transport and construction time to wean themselves off carbon emissions. In this scenario, finding ways to mitigate the effects of continued emissions for several decades will be imperative. While there is no low-cost “magic bullet” solution, we believe carbon capture and storage (CCS) technologies – which capture industrial CO2 emissions and store them permanently in geological formations deep underground – are a promising route and merit early stage investment.
Who pays?
CCS has already captured the interest of the UK Government, which wants to achieve net zero by 2050. Its 2020 green revolution plan – backed by £12 billion in public sector investment – commits to deploy CCS in two industrial clusters by the mid-2020s and a further two clusters by 2030. But building CCS infrastructure is expensive, and significant private sector investment will also be required if CCS technologies are to be deployed at sufficient pace and scale to meet decarbonisation goals.
Is it investible?
While the UK is relatively advanced in CCS R&D compared to the rest of the world, implementation is still at an early stage, with the Department for Business, Energy and Industrial Strategy (BEIS) currently evaluating bidders for government funding for the first two UK clusters. Opportunities for private investment have been limited to date, and many potential participants are unable to invest at this early stage of development.
That’s where we come in – M&G’s Catalyst team. With a £5 billion mandate, we provide institutional-scale capital to new and emerging privately-owned businesses tackling a wide variety of sustainability challenges. The unusual flexibility and scope Catalyst has, and our long-term investment horizon, means that we’ve been able to take a long-term view on CCS. Over time, we believe that CCS projects will evolve into regulated infrastructure assets similar to offshore wind and solar, generating a stable, attractive revenue stream. As this happens, significant value will accrue to the early investors in the development of CCS.
This is why we’ve invested in Storegga Geotechnologies, an independent UK company which is the lead developer of a major CCS project in North East Scotland. Expected to be fully operational by the mid-2020s, the project will capture CO2 at source from energy-intensive industries and pump it, using existing offshore oil and gas pipelines, into storage under the North Sea bed. To give an idea of scale, the project has the potential to store more than 20 million tonnes of carbon per year within its first decade of operation – equivalent to around half the household emissions of a city the size of London.
The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested. The views expressed in this document should not be taken as a recommendation, advice or forecast.