The Correct Contextual Economic Argument for Direct Air Capture

The topic of direct air capture (DAC) has previously been discussed here, here and here.

Since the last time DAC was discussed on this blog it has received more attention including a report issued by American Physical Society. Unfortunately, yet not surprisingly, most of these discussions have focused on the economics of developing and deploying such a system over technical/feasibility discussions. Most would argue that the economic element is critically important in the modern capitalistic world as almost all decisions revolve around economics and affordability. Also efforts to reduce costs should aid in the technical development of the overall process. While both these statements are true, the problem is that most of the economic analysis is not being conducting from the proper perspective.

For example most estimates place the cost of removing 1 ton of CO2 from the atmosphere, regardless of specific design, between $450-600. Relate this cost back to the fact that CO2 has traded in the European Trading Scheme rather consistently at $20-30 per ton (meaning that it costs $20-30 dollars for a participant to emit 1 ton of CO2) and clearly application of current DAC models is too expensive.

Compounding the problem is that it is reasonable to conclude that these estimates only calculate the costs associated with capturing 1 gross ton of CO2 because these estimates do not include the CO2 emitted to provide the energy required to capture the CO2 from the atmosphere, thus the costs now are even higher than those stated above. Overall most DAC proponents agree that this cost is too high and believe that through the additions of carbon taxes and trade programs and reductions in technical and development costs due to scale up will lower these costs significantly. Also proponents believe that finding a marketplace for the captured carbon will also narrow the cost gap.

This desire for a marketplace is where the economic argument begins to breakdown relative to the environmental nature of DAC. The principle rationality behind pursuing DAC is to reduce the amount of CO2 in the atmosphere in order to lessen the detrimental effects of global warming, not make money. Unfortunately the two most cited methods for making money from a DAC system are in contradiction to this principle rationality. The first means of ‘funding’ DAC is to use the captured CO2 in enhanced oil recovery (EOR). The problem with this strategy is obvious. The point of recovering more oil is to burn it in some industrial process or use it for transportation. Thus there is no significant decrease in atmospheric CO2. With the most optimistic scenario such a system could be viewed as a CO2 neutral. Unfortunately such a system then simply wastes energy (energy that is used to extract the CO2 and the oil) and further pollutes the environment (recall that refining and burning oil releases other pollutants in addition to CO2).

The second means of ‘funding’ DAC is to use the captured CO2 as a basis for a ‘carbon neutral’ hydrocarbon or biologically-based fuel. Earlier in the thought process the idea was to create a hydrocarbon-based fuel, but that idea was complicated because such a process typically required high purity streams of CO2 and hydrogen (most sources of hydrogen are currently drawn from fossil fuel combustion). Now this idea has evolved into using CO2 as a highly concentrated feedstock for algae and extracting bio-fuel from the algae. However, the problem with this strategy is the same as using the CO2 for EOR, at its best as long as the fuel produced by the algae is being consumed and the end-products released into the atmosphere, it is another closed CO2 neutral system.

Also again like above, due to the other externalities (infrastructure and transportation of inputs and outputs) involved, the overall system should add CO2 and other greenhouse gases to the atmosphere. Also the fuel issue is somewhat irrelevant as well because of the advent of electrical vehicles which could be powered in the future by electricity from trace emission sources (nuclear, solar, geothermal, etc.). If society did not have the technology required to transition away from fossil fuels to electrical vehicles for another couple of decades such a carbon neutral fuel idea may be applicable, but that is not the case. Thus, such a closed loop carbon neutral system seems to have no real benefit and only results in wasted energy and resources.

The waste is especially pertinent to trace emission energy generation if that generation comes from either wind or solar due to limited economically available amounts of various rare earths. Basically if only a certain number of solar panels could be created then there is no reason to waste any by attaching them to a closed-loop system which provides no net benefit. The same argument can be made for water as current DAC designs demand significant water consumption. Other ideas surrounding funding are extremely small potatoes like selling the captured CO2 to beverage companies. Clearly there is a market for pure CO2 to beverage companies, but not a 7-gigatons of CO2 per year market.

So if there is no viable market for captured CO2 that is also in accordance to the principle reason for establishing a DAC network, then what is economic argument? The response is adjusting how one looks at the economic issue. The economics of DAC is not profitability, but prevention. For example does Person A eat broccoli on a regular basis because Person B pays them a sum of money to do so? No, Person A either consumes broccoli because they like it or because it is a healthy food. There is reason to believe that the consistent consumption of broccoli will result in reduced probability of various diseases and ailments in the future relative to a person who does not consume broccoli (all other elements being accounted for). Thus, any economic benefit to consuming broccoli is derived from lower future costs associated with healthcare and perhaps a reduction in lost wages due to less work missed versus immediate short-term payment.

No reasonable person disputes the fact that global warming will increase the probability and severity of future extreme weather events and will also change general weather patterns which will result in environments receiving much more or much less rainfall leading to an increase in flooding or drought probability. After simply looking at the overall economic damage associated with extreme weather events and floods/droughts in 2010 and 2011 alone a reasonable person would come to the conclusion that it is important to lessen the probability impacts of global warming as much as possible.

Also such a reduction would result in the savings of billions of dollars in the short-term (10-20 years from now) and trillions of dollars in the long-term (20-50 years from now). Therefore, similar to the broccoli example, the above prevention model is how proponents of the DAC should sell their technology instead of trying to make it short-term profitable. The profitability comes from the money saved in the future by reducing the probability of extreme weather associated with global warming.

Based on this mindset proponents and designers of DAC systems should not be looking towards venture capitalists to fund the development and deployment of DAC systems as acquiring the necessary funds (billions of dollars) will be nearly impossible, unless said venture capitalists are young and have large stockholdings in insurance companies. In a just world every major company in the world would have to pay into a ‘carbon remediation and mitigation’ fund as a consequence to their past actions resulting in a significant percentage of the total amount of human-derived CO2 emitted in the atmosphere. Money from this fund could then be used to reduce human-derived emissions as well as fund DAC.

Unfortunately it is quite obvious that the world is not just; therefore, the argument of self-preservation must be applied and governments must bear the burden of development, a difficult reality due to the general financial crisis that currently exists. From a self-preservation standpoint China and India probably should be first in line with funding because both countries are high on the list of ‘going to have their environments significantly and detrimentally changed due to global warming’, costing them trillions in future economic damages.

Overall the whole point of pursuing DAC is to reduce the probability of detrimental effects from global warming by reducing the amount of CO2 in the atmosphere. The sheer amount of CO2 that needs to be removed from the atmosphere is tremendous, so much that no CO2 market could be created to absorb anywhere near the amount that needs to be removed. So those looking to try to justify developing DAC under a ‘money in the pocket now’ economic model should fail unless one abandons the point of pursuing DAC in the first place, which then calls into question why one pursues DAC at all. Therefore, proponents must argue not from a viewpoint of how the captured CO2 will be utilized, but from the viewpoint of how much money will be saved when embarking on the program vs. failing to do so when discussing the economics of CO2.