State impulses for the energy transition

When we talk about the transition to a low-carbon future, we also need to talk about the role of government and regulation. Global public spending to promote clean energy and carbon capture will exceed $500 billion in 2022. The U.S. dollar rose as more countries adopted new policies and introduced subsidies.

“Politics can be a powerful force to drive green innovation, both in the short and long term,” says Christoph Beuttler, Chief Climate Policy Officer at Climeworks, a Swiss start-up that uses its systems to suck CO2 out of the air permanently saves.

Climeworks, whose first commercial facility began operations in 2017 in Hinwil, Switzerland, captures CO2 directly from the atmosphere rather than from industrial smokestacks, where most carbon capture projects begin.

The company’s DAC+S (Direct Air Capture & Storage) technology works with fans that suck in ambient air in giant boxes the size of a shipping container. Inside the CO₂ filtered out. When the filters become saturated, the system closes the boxes and isolates them from outside air. The gas is then released again by increasing the temperature using renewable energy and dissolved in water. To store the gas, the water is pumped deep into the earth.

For Beuttler, government support is crucial for the future of DAC technologies, which the United Nations Intergovernmental Panel on Climate Change considers necessary to achieve global climate goals. He sees governments as having a responsibility to set standards for monitoring and reporting on CO₂-distance and for the quantification of the results.

Through regulation, minimum standards for reducing greenhouse gas emissions can be set for companies and other actors to ensure that the same rules apply to all sectors to achieve measurable goals. Economic incentives such as tax breaks and direct subsidies give start-ups the chance to enter the market, existing companies can invest in clean energy technologies and positive behavioral changes are initiated among companies and private individuals.

Governments can also support or participate in research and development to advance the science of clean energy and CO₂-Advance reduction. Research in climate modeling, materials science, etc. Supports breakthroughs in clean energy, batteries, carbon capture and other technologies critical to mitigating the worst impacts of climate change.

We can learn from existing legislation and its impact on innovation to develop future policies and gain insight into what works and what needs to be improved. For example, when it comes to targeted investment support, the tax relief from the US Inflation Reduction Act (IRA) from 2022 competes with EU subsidies for cleantech.

The $375 billion IRA’s incentives are so attractive that cleantech companies from outside the U.S. have set up shop in the country. Several European companies active in solar energy, wind power, batteries, carbon capture and CO₂-distance, find the IRA more attractive for developing new projects in the US than the EU’s incentives, which are more complicated and for which the benefits are much slower to materialize. What makes matters worse is that it is up to individual European countries to set rules for government investments in new projects. For example, although the EU Sustainable Finance Action Plan provides funding for more sustainable infrastructure projects, it is often left to the governments of EU member states to determine the funding allocations and the timetable – which creates bureaucracy and barriers that slow down development.

The IRA significantly increased existing U.S. tax credits for carbon capture projects. The credit for the capture and use or storage of carbon dioxide (CO₂) from industrial processes was increased from $50 to $85 per ton. For CO₂produced by direct atmospheric capture (DAC), the credit has more than tripled and is now $180 per ton.

The bipartisan infrastructure bill passed in 2021 allocated $3.7 billion for four regional DAC hubs, each of which would emit at least 1 million tons of CO₂ Every year it is separated from the atmosphere and stored permanently. This program represents a massive investment in DAC and creates new opportunities for companies like Climeworks, whose first commercial facility will be operational in Hinwil, Switzerland in 2017 and CO₂
directly from the atmosphere rather than from industrial smokestacks, where most carbon capture projects start.

The company’s DAC+S (Direct Air Capture & Storage) technology works with fans that suck in ambient air in huge boxes the size of a shipping container. Inside the CO₂ filtered out. When the filters become saturated, the system closes the boxes and isolates them from outside air. The gas is then released again by increasing the temperature using renewable energy and dissolved in water. To store the gas, the water is pumped deep into the earth.

For storing CO₂ Climeworks works with Carbfix in Iceland, where its two largest facilities are located. “The company injects our CO₂ “In the Icelandic basalt rock, where it is mineralized and stored safely for thousands of years,” explains Beuttler. “The process is fully measurable and verifiable, so we and our customers can report exactly how many tons of CO.”₂ have been permanently removed from the atmosphere.”

Climeworks is expanding in the US as part of the Regional Direct Air Capture Hubs program. The U.S. Department of Energy selects the company to develop three DAC plants in Louisiana, California and North Dakota.

For Beuttler, government support is crucial for the future of DAC technologies, which the United Nations Intergovernmental Panel on Climate Change considers necessary to achieve global climate goals. He sees governments as having a responsibility to set standards for monitoring and reporting on CO₂-distance and for the quantification of the results.

As the IRA shows, governments can also create markets for technologies and services like DAC that are essential to mitigating climate change.

“The public sector is crucial to building markets for carbon capture (CDR) so that the industry can get the volumes that climate science says are necessary,” says Beuttler. “To neutralize unavoidable or historical emissions by mid-century, the volume of carbon capture must be increased to several billion tons per year. This will create a market and an industry that will be worth billions of dollars.”

Scalability could be an issue with some of these technologies, but when many different solutions are brought together, including CO₂markets, this could give the energy transition a real boost.