The most notable news from the Iceland CO2 direct air capture (DAC) project, illustrated in the Exhibit below, is not that it is working and how energy efficient it is, but that the CO2 capture costs are extremely high and yet all of the offsets are sold. One report talks about the costs per credit approximating $1000 per ton of CO2, which is likely accurate given that the facility is relatively small scale, at 4 thousand metric tons per year. The same report also states that the credits are almost sold out for the 12 years that they are being offered. We believe that this is indicative of the marginal demand for uncontestable carbon offsets, and this is a topic we have covered at length in our ESG and climate work. Shell, bp, and others are selling what they claim to be carbon neutral hydrocarbons around the world and are buying offsets to do so, but they are coming under quite a lot of “greenwashing” fire because of the less tangible/auditable nature of the credits they are buying – often related to agricultural or specific tree conservation/planting initiatives that are questioned because of the validity of the capture claim or the vulnerability of the credit to weather, fires, and forest maintenance years in the future.
Source: IMF Forum, Carbfix, September 2021
We are seeing much more activity around DAC than we would expect given the very high costs associated with the process, but we believe that this is being driven by the need to create a tangible and measurable offset that can be claimed by a third party/investors and that is not subject to double-dipping on the claim. Third parties can invest in projects to capture carbon from current emitters, but the value of the offset is questionable if more than one party is interested in claiming it. That said if 3rd parties are willing to pay $200 plus per ton for a clear offset, it might make sense for CO2 emitters to sell the credit rather than claim a tax offset or other credits themselves.