Carbon Capture – Will speculative dollars to reduce emissions pay off?

Data Insight Dealspeak 22 June

Carbon Capture – Will speculative dollars to reduce emissions pay off?

Summit Carbon Solutions has not built a thing. But it had no trouble raising capital.

The Ames, Iowa-based developer of the largest carbon sequestration project of its kind says it has raised more than USD 1bn in corporate equity since its 2021 founding. Strategic investors Continental Resources [NYSE:CLR] and John Deere [NYSE:DE] were joined by large funds like Tiger Infrastructure Partners and TPG Rise Climate. Its project, a pipeline connecting midwestern ethanol and fertilizer facilities to its planned carbon sequestration facility in North Dakota, should be completed in 1H24. The company will have storage capacity for 1.2 bn tons of carbon dioxide.

Realistically, that is a drop in the bucket for what is needed to meet global carbon reduction goals. As the reality that carbon-free energy solutions such as renewables and hydrogen are unlikely to be enough, capital is racing to companies offering technologies to rid the air of the carbon dioxide that drives climate change. The question, over the coming months and years, will be which companies will prove commercially viable.

Capital bubbling up

Investments in carbon capture, sequestration and utilization in North America were minimal before 2020, according to Dealogic data. Since 2008, at least USD 1.59bn in equity has flowed into companies that either suck carbon dioxide out of the air, plan underground storage facilities or use processes to mix the gas into building materials. Of that, USD 1.165bn has been announced so far in 2022 alone.

The funding has both flown into projects in North America and abroad. To decarbonize, Chevron [NYSE:CVX], like many US-based energy companies, will focus on carbon capture and hydrogen production instead of renewable energy, the preferred path of European energy giants, its CEO Mike Wirth told a think tank in early June. The oil company led a USD 150m investment in Carbon Clean, a UK-based carbon capture company. Its CEO, Aniruddha Sharma, says the world needs a 30x to 45x increase in carbon capture capacity by 2030 to help hold global warming to 1.5 degrees Celsius. That sets the stage for even more investments.

When is the (financial) payoff?

For all the expected demand for decarbonization tools, the dollars flowing in are highly speculative. Carbon Upcycling CEO Apoorv Sinha, whose Calgary, Alberta-based company uses captured carbon dioxide to make an additive that strengthens cement and concrete, says most investor interest is coming from strategics motivated by environmental, social and governance (ESG) demands, plus some select venture funds.

"We're still probably a couple years out from companies being M&A targets," he says. Buyers need to see technologies performing at scale.

In carbon utilization, Halifax, Nova Scotia-based CarbonCure is arguably the most advanced North American company in commercialization, making it closest to being a logical target, according to a sector investor. Those that could seek additional capital include Vancouver-based Progressive Planet and Carbon Upcycling.

On the carbon capture side, New York-based Global Thermostat has previously considered going public, along with other paths to land additional capital. Vancouver-based Carbon Engineering has been building partnerships. Both would benefit from a large cash infusion or could become a viable target for a strategic or financial buyer in the next couple years, notes the investor.

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