Carbon Offsets Market Spurs Direct Air Capture Deployment Plans

Through its Oxy Low Carbon Ventures subsidiary, Occidental Petroleum announced in March 2022 that it sees potential for the building of 70 direct air capture (DAC) facilities by 2035, given conducive market and policy conditions. The latter includes the establishment of suitable geological storage for the captured carbon and the adoption of regulations that incentivize carbon removal.

This move is an unprecedented jump in potential DAC projects by any actor, and comes at a time when unprecedented developments in the world of carbon capture are afoot. By sheer volume of carbon captured as well as count of facilities, DAC is far behind commercial-scale carbon capture technologies on offer. The largest single commercial DAC in the world is planned to have a maximum capture capacity of 1 Mtpa. This Occidental planned facility in Texas, operational in 2024, will eventually reach that capture capacity. By comparison, the Orca DAC facility in Iceland, powered by geothermal energy, has a capture capacity of around 0.004 Mtpa, which is the largest single commercial DAC facility in operation.

Generating, Stacking, and Selling Carbon Credits 

Two key financial incentives—the US 45Q federal tax credits and the voluntary and compliance carbon markets—present an opportunity to Occidental. Buyers for the offsets have already been lined up. 

But how exactly might a DAC facility generate carbon credits? A well-known example of credit generation is how producers of low carbon transport fuels sell to regional markets such as the California cap-and-trade program. The United States Energy Association identifies 12 states with tax incentives relevant to carbon capture utilization and storage/carbon capture and storage (CCS) projects. 

DAC is not limited to the point source of emission, such as a power generator. DAC can be installed near sites of storage rather than having to transport CO2 over long distances. In addition, CCS via DAC seems much more straightforward and verifiable compared with issues of integrity and additionality that have emerged in the wider world of voluntary carbon credits. 

Carbon Engineering, in partnership with Oxy Low Carbon Ventures’ 1PointFive, offers a carbon removal service. Essentially, DAC capacity is reserved for companies, allowing them to buy capacity and to then claim offset emissions thereafter. (The growing activity is not limited to the oil & gas industry, with various stakeholders such as private equity firms developing their own carbon offset platforms.) Occidental also reportedly receives a $50 million tax incentive for DAC in the state of Texas.

Going Forward

“The value that CCS brings to decarbonization is not sufficiently recognized by either public policymakers or the markets,” stated a February 2022 report from the National Regulatory Research Institute. At a time when around less than 1% of US annual domestic CO2 emissions are captured for storage per year, conditions are ripe for the expansion of carbon capture, and DAC may be taken far more seriously than before. 

The Biden administration's Build Back Better Bill would have seen up to $180 for every tonne of carbon captured and stored via DAC. Although that package failed toward the end of 2021, certain tenants of the bill that would enhance the 45Q federal tax credit may still emerge in one form or another. With the clock ticking on climate change, interest in carbon capture is expected to continue to grow, with DAC offering a novel and exciting solution thoroughly imbricating the world of carbon credits with various industries. At the same time, expect scrutiny of carbon offsets to also grow.