# How Carbon Capture & Storage Fuels New Oil & Gas Ventures
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Chapter 1: Introduction to Carbon Capture & Storage
Carbon Capture and Storage (CCS) is emerging as a novel investment asset class, unexpectedly revitalizing oil and gas exploration. Fink advocates that the IMF and World Bank should absorb the associated liabilities.
From 2010 to 2022, global fossil fuel subsidies averaged $576 billion annually. However, intense lobbying by major oil companies has led to the inclusion of substantial subsidies and tax credits for Carbon Capture Technology in the U.S. government's Inflation Reduction Act (IRA). These incentives encourage fossil fuel companies to target gas extraction in areas rich in CO2, with tax credits awarded based on the volume of CO2 captured. This results in the paradoxical scenario of exploiting high CO2 fields, contributing to increased atmospheric CO2 levels.
The IRA’s financial incentives represent a new revenue stream for oil and gas firms, effectively subsidizing their efforts to extract more fossil fuels, thereby accelerating the expansion of oil and gas operations. A 2022 analysis by Rystad Energy projects that the 20 largest oil and gas firms will invest $932 billion in new field development by 2030, climbing to an astonishing $1.5 trillion by 2040.
Larry Fink, CEO of BlackRock, perceives the IRA subsidies as a fresh investment frontier, asserting that government incentives for decarbonization could yield returns of 12-14% with ease. In July 2021, inspired by TARP, Fink suggested that the World Bank and IMF should take on the investment risks tied to global decarbonization, including losses from 'stranded assets'—investments that fossil fuel companies have made.
This proposal effectively shifts the burden of stranded asset liabilities to the World Bank and IMF while privatizing the benefits of new energy infrastructures and associated revenues.
Section 1.1: The Economic Impact of Fossil Fuel Subsidies
The latest IPCC report (March 20, 2023) attributes 10% of greenhouse gas emissions to fossil fuel subsidies. The International Energy Agency (IEA) indicated that explicit fossil fuel subsidies surpassed $1 trillion in 2022, including consumer and producer subsidies. Over the period from 2010 to 2022, average government subsidies totaled $576 billion.
When considering implicit subsidies, such as the costs of climate change impacts and health effects from air pollution, the IMF (2022) reported that global fossil fuel subsidies amounted to $5.9 trillion, or 6.8% of GDP in 2020, projected to rise to 7.4% by 2025. Notably, only 8% of the 2020 subsidy reflects explicit undercharging for supply costs, while a significant 92% stems from undercharging for environmental costs and foregone consumption taxes.
In recent climate negotiations, carbon market mechanisms have gained attention. The financialization of nature has led to market instruments allowing corporations to trade greenhouse gas emission units, thus enabling them to avoid accountability for climate change while continuing to exploit natural resources.
The first video titled "How Does Carbon Capture Actually Work?" explores the mechanisms behind carbon capture and its implications for energy production.
Section 1.2: The Role of CCS in Oil Production
As a result of lobbying from oil companies, the IRA includes billions in subsidies for Carbon Capture Technology, prompting these companies to accelerate oil and gas projects. The CCS concept aims to capture carbon and store it underground; however, companies are increasingly using this technology to inject carbon into existing fossil fuel reservoirs, facilitating the extraction of additional oil. Thus, the IRA effectively subsidizes fossil fuel companies to increase oil production.
The irony lies in the fact that the most successful applications of carbon capture have involved extracting more oil. Most major U.S. projects rely on carbon injection into underground reservoirs to boost oil recovery.
Bruce Robertson, an energy finance analyst, notes, “...huge government subsidies often do not yield results...The oil and gas industry holds significant political power, shaping the climate agenda.”
The passage of the IRA was heavily influenced by support from key lobbyist Joe Manchin, and an analysis by the Institute for Energy Economics and Financial Analysis revealed that of the 13 largest CCS projects, over half were capturing less than 50% of the anticipated CO2 or had shut down entirely.
The Gorgon Project in Australia, one of the largest natural gas extraction sites, has only managed to capture about half of the expected greenhouse gases since its launch in 2019, forcing companies to purchase carbon offsets.
Andrew Forrest, CEO of Fortescue Metals Group, remarked on the Gorgon Project's shortcomings, stating it has failed to deliver on its promises, resulting in increased emissions rather than reductions.
The second video titled "Carbon Capture & Storage - How It Works" provides insight into the operational aspects of CCS and its potential drawbacks.
Chapter 2: Financial Mechanisms and Stranded Assets
Larry Fink emphasizes the long-term necessity for hydrocarbons, projecting that fossil fuels will remain critical for at least another 70 years. He views IRA subsidies as a lucrative investment opportunity, reflecting a new asset class within the fossil fuel sector.
Fossil fuel executives have welcomed the tax credits for CCS. ExxonMobil's CEO acknowledged the IRA's contribution to the carbon capture value proposition, while other executives highlighted its potential for facilitating new projects.
For BlackRock and fossil fuel companies, the IRA represents a significant opportunity for investment, especially in CCS, which essentially pays oil companies to increase oil production. This trend has encouraged financial markets to ramp up investments in exploration and production.
Section 2.1: Risk Transfer to Global Institutions
In the wake of the 2008 financial crisis, TARP was established to stabilize the financial system through government purchases of mortgage-backed securities. Similarly, in July 2021, Fink urged the World Bank and IMF to absorb the risks associated with investing in decarbonization, including potential losses from stranded assets.
From 2016 to 2018, the six largest U.S. banks committed over $700 billion to fossil fuel financing. In 2022, financing from the world’s largest banks for fossil fuels reached $673 billion. Major insurers also held substantial investments in fossil fuels, and the largest asset managers have increased their stakes in carbon-intensive industries by 20% over the last three years.
This approach effectively allows asset managers to transfer the liability for stranded assets to the World Bank and IMF, while privatizing the benefits of new energy infrastructures and associated revenues.