It is no secret that the world has a CO2 problem. Our addiction to fossil fuels has led to a dependency that is hard to shake and our efforts to wean ourselves to more sustainable alternatives have not gone fast or far enough. To try and mitigate further damage, and perhaps even ambitiously reverse the side effects, the use of Carbon Capture Utilisation and Storage (CCUS) now forms a not insignificant proportion of many projected climate solution portfolios.

Amongst growing global momentum, the UK government announced £20 billion of funding to accelerate the deployment of CCUS projects in the 2023 spring budget. Whether over-reliance on CCUS helps or hinders the cause, it is pragmatic to admit that it is not only here to stay, but also presents potential opportunities. Whilst Capture and Storage usually garner most of the attention, today we will be diving into Utilisation, sometimes also referred to as CO2 to X.

Before we lose ourselves in a landslide of letters, it is worth providing a brief background and placing CO2 utilisation within a wider context. As the name suggests, CO2 utilisation is the practice of putting the carbon that we have captured to use, instead of in the ground. This can have some obvious benefits – reducing the storage capacity required, breaking the link between capture sites and suitable geography for storage, and potentially providing more favourable economics for CCUS as a whole. Considering that storage prices can fluctuate to heights of USD 55/t CO2, and that CO2 capture is not (yet) a cheap process to start with, the latter point can prove to be a strong incentive to those whose wallets are impacted. Even disregarding all of this, as the thought process goes, since we are about to have captured CO2 coming out of the wazoo, we may as well try to do something with it.

Indeed, it will certainly not be the availability of carbon that will bottleneck the implementation of CO2 utilisation; the total capacity of projects in development in 2022 was 244 million tonnes per annum of CO2, representing an increase of 44% from 2021. Here, however, it is worth setting some expectations on the scale of CO2 that will be utilised compared to that which will be stored. Those envisaging a fluffy utopian world in which all of our daily commodities are produced from captured CO2 without the need to limit our fossil fuel burning habit will be (deservedly) disappointed. A McKinsey analysis of CCUS in 2030 predicted that the volume of CO2 captured would be over twice that of CO2 utilised, and Circular Cabon’s annual report highlighted that while 30% of all global CCUS startups are CO2 utilisation companies, they only received 6% of the deal value in 2022.

CO2 utilisation, therefore, clearly has its place in the larger hierarchy of climate solutions. But that is not to say it is not a useful, interesting and growing field in which exciting innovations are emerging. Whilst there is currently a large gap between ambition and reality, as in any emerging market, there are plenty of enticing questions making it worthy of a deeper dive.

What to do with all that CO2?

The first question to tackle when starting this research was ‘well, what can you do with captured CO2?’. The obvious and unsatisfying answers are urea production and Enhanced Oil Recovery (EOR). Obvious, as they have been widely commercialised for years (urea accounted for 57% of CO2 use in 2015, with EOR using a further 34%), and unsatisfying, as pumping CO2 into the ground to extract more oil to burn to turn into even more CO2 isn’t our idea of a good time. With some further digging, it is possible to represent the uses of CO2 in the following spider diagram. This is by no means an exhaustive list.

This diagram displays two points: firstly, that there are four main categories of uses (construction and manufacture, chemicals, fuels, food and agriculture), and a longer list of other uses, which have succinctly been named specific materials and niche products. Secondly that there are a lot of potential uses. However, just because there is plenty that we could do with CO2, this is not necessarily what we should do.

And it is here that we come to one of the unanswered questions in this field: which use cases should be pursued? It is relatively easy to discount certain uses (a favourite example of ours is fire extinguishers) on the grounds of not having a large enough carbon reduction impact to be worth pursuing. However, for many other potential uses, it is a much more difficult decision. The answer boils down to a combination of technical viability and economic feasibility, and, as of yet, many innovators have not progressed far enough down their respective pathways to prove or disprove either for their chosen use case.

There are two approaches to try and shortcut our way to an answer (aside from purchasing a crystal ball). The ‘top-down’ approach uses the collective intelligence of the many bright people who are already working, innovating and investing in this field, analysing where they are spending their own time and money to determine which CO2 uses are of interest and viable. A ‘bottom-up’ approach uses a series of ‘decarbonisation tests’ to filter through CO2 uses to determine which are worthy of our attention if we want to achieve maximum positive impact for the climate.

A ’top down’ approach: Following the money

Aggregating, tabulating, and then overlaying UK innovators onto the above spider diagram of CO2 use cases leaves us with the following landscape map for CO2 utilisation in the UK.

There are some quickly identifiable takeaways from this representation. Firstly, the boxes containing ‘building block’ chemicals (shorter chain molecules) are the busiest, revealing the chemical sector to be the most targeted by innovators in the UK. Consider why this is interesting: is it because they offer the most potential, or is it because these are the most accessible products from reactions with CO2 and we are simply seeing a reflection of what is currently scientifically possible?

Secondly, innovators are often seen in multiple use cases – this is particularly common with earlier stage companies, who are yet to focus their technology into providing for one market and are looking to keep their avenues of opportunity open. It is tempting to consider these as the innovators with the greatest potential, as they appear more frequently and promise the most, but analysing the funds raised by each innovator suggests that those who have progressed further in their development are focussing on a smaller set of use cases.

However, while there are plenty of promising innovators in the UK, there is a larger pool of global companies and investors that can also provide steer as to what categories of utilisation have already garnered the most interest. From a compiled database of ∼80 global innovators (admittedly with a large focus on the western world), the following number of companies were found to be targeting each sector:

Perhaps not unsurprisingly, due to the similarity of chemical composition between products, more than 20 of the companies targeting the fuel and chemical sectors position themselves as able to produce products for both sectors. This ‘double counting’ presents an issue when trying to analyse investment trends on a granular level but does not deny us the ability to create a high level view.

A similar picture is evident when examining the funds raised by innovators in each sector. However, the funding landscape has been dominated by 9 companies, together raising £3.5 billion of the £4.4 billion identified, many of whom have now grown in size enough to operate in two or three sectors. This exacerbates the double counting issue, but it reinforces the conclusion that the chemical and fuel sectors remain the most targeted.

Removing the companies that have raised over £100 million from the analysis greatly reduces the magnitude of uncertainty introduced from the double counting and, again, a similar story is repeated, with the construction and manufacture sector also of considerable interest.

The ‘bottom up‘ approach: First principles, then solutions

Working from the bottom up, it is worth considering the final product and production pathway by subjecting them to a set of filters, or ‘decarbonisation tests’, to see if they will return the sustainability benefits we want.

Five decarbonisation tests (inspired by the Energy Technologies Institute’s thinking on the subject) were devised to interrogate each end use:

1. Net benefit: Is there a net benefit to reducing emissions at a system level? What is the full life cycle impact?
2. Volume: Is the market large enough to have a meaningful impact?
3. Feasibility: Is the current conversion pathway technologically mature enough and what barriers are preventing further technological development?
4. Logistics: Are the logistics practical? What volumes of CO2 are necessary and is there a co-location requirement? Can this fit with existing supply chains?
5. Economics: Do the economics stack up? Is there a sufficient margin to accommodate the costs of the CO2 conversion process?

The first two of these tests are related to the final product produced, whilst the final three are dependent on the pathway and innovation used to convert the CO2. That means it is possible to apply the first two tests to the entire landscape map as shown, whereas the final three must be performed on an innovator-by-innovator basis against the specifics of their process.

As you might well imagine, performing such due diligence on a case-by-case basis is an involved and time consuming process, but a high level assessment of the first two tests is possible in the remainder of this blog post.

A quick review of the nature of each market allows an easy proxy for a full life cycle analysis to be produced. Is the end use of the converted CO2 permanent or circular? This can be seen overlayed on the landscape map below, with permanent markets obviously preferred over circular ones (markets with no overlay were not considered to be a priority). Using external analyses, a high pace assessment of sector volumes can be determined. Concrete/aggregate and fuels consistently appear with the largest market projects, with certain chemical use cases also occasionally mentioned. It is of course worth highlighting that these projections remain cautious of the extent to which captured CO2 based products will penetrate these markets, noting that it will be economic rather than technical barriers holding back the scale up of utilisation. Larger potential markets have been marked on the landscape map below by a shading of the use case.

Conclusion

This analysis highlights use cases in concrete production, and certain products in the chemical and fuel sectors, as the most promising. The former is particularly attractive due to its permanent sequestration, whilst all three benefit from a large potential impact. Investors searching for innovators with the potential to have the greatest impact on CO2 emissions should therefore focus their attention on these sectors.

Despite no new use case of CO2 having yet matured enough to prove their viability, it is clear that there are plenty of possible players in contention. To further understand who the diamonds in the rough might be, economic assessments of the individual pathways, product margins and innovators must be undertaken. A good starting point are these articles from Prescouter (CO2 conversion & utilization pathways: Techno-economic insights) and Extantia (CO2 valorisation: methods & competitive landscape).

The positive news is that innovators will always push forward the technological maturity of solutions, whilst policy and public perception shifts are easing economic and political feasibility closer and closer. The reality check is that CO2 is a hard molecule to break down, requiring abundant renewable energy, and the economic viability of such uses has yet to be validated at any scale. Even so, this marks itself as an intriguing time for the CO2 utilisation industry, with many outstanding questions.

The potential for rewards is great for those who can prove the correct answer first.

Written by Michael Cullinane, Investment Analyst, Carbon Limiting Technologies