As a buyer I would challenge this a bit. Many CDR are more like donations where price is just a datapoint that perhaps could tell you something about how efficient the company is, but it could also just be an indicator about how early the tech is. What we do in the Milkywire Climate Transformation Fund is pay the cost of removal plus some reasonable profit margin, buying from companies that we think will be cost-efficient in the future.
Compliance market CDR will be a commodity, but there may be some room in the CDR VCM for different prices from different projects also in the future.
Thanks! Reposting here what I had written in Reply on X/Twitter:
I agree, I probably should have illustrated the point better: the purchasing rationale of some VCM customers is to seed the market with a high price per ton purchase of a VERY early stage tech - at low volume.·
Conversely, the method with the highest volume of deliveries the past two years - biochar - is near the low end of the price per ton spectrum, and has a (relatively) low tech risk.
Thanks! Reposting here what I mentioned on X/Twitter:
I agree, I probably should have illustrated the point better: the purchasing rationale of some VCM customers is to seed the market with a high price per ton purchase of a VERY early stage tech - at low volume.·
Conversely, the method with the highest volume of deliveries the past two years - biochar - is near the low end of the price per ton spectrum, and has a (relatively) low tech risk.
Joe, Thank YOU!!! The relationship between the supply, demand, price, and value of CO2 is contorted and overwhelmed by incredibly well lobbied policy that virtually obliterates any chance for CCS to take hold in the US marketplace.
We can consider the categories for getting paid for CO2 to be a) EOR (enhanced oil recovery), b) 45Q tax credits, or c) all other applications.
45Q subsidizes the first $60/ton for CO2 supplied to the oil industry for the express use of oil production and an additional $25/ton to cover transportation and storage if CO2 can’t be transported to an oil well for $25/ton. This policy eclipses the equilibrium of market supply and demand.
The second category of EOR requires more scrutiny for the marks of politics. In broad terms only 1/3 of oil reserves can be recovered without CO2. This means the value of CO2 for EOR is almost exactly the value of the incremental oil recovered from mature, paid-up wells. The value of oil has averaged $75/barrel for the last 10 years, and the DOE variously reports averages of 1.9 to 3.5 barrels of oil per ton of CO2. This fixes the value of CO2 to the oil industry at $140-260/ton. Why does the oil industry pay only 10% of its value? That’s where it gets political. Whereas the IRS pays out tax dollars for CO2 sequestration, it does not collect taxes for the undoing of sequestration.
Myriad calculations inform us that transportation of captured CO2 by pipeline would cost about what the oil industry happens to pay to transport tax exempt CO2 released at virtually no variable cost. Although unsequestered CO2 does not enter the atmosphere, it competes with CCS, lowering the value of carbon capture expenses to one tenth of their value to oil producers. Again, CO2 has high value to the oil industry, but policy protects its low price for the exclusive use of the industry that has by far the greatest need for it. It could be argued that the tax exemption for the release of fossil CO2 not only foils CCS and COP but is a $6-12 billion per year subsidy supporting oil consumption.
The third category of CO2 revenue, all other applications, tellingly pays more than $300/ton for CO2. Why so much? Two things. Policy denies them access to tax exempt CO2 released at no cost from geological reserves, and they do not have approved pipelines to their doors.
We should remember that although the oil industry is served by hundreds of miles of CO2 pipelines without incident, hypothetical safety concerns preclude permitting of CO2 pipelines for GHG abatement.
What does all this portend? Until either the demand for oil outstrips the supply of fossil CO2 or policy favors carbon capture over carbon release, there can be no market for CCS.
What policy would logically support GHG policy? Simply tax the release of fossil CO2 at the marginal rate for DAC, say $1000/ton for now.
Thanks for this post!
As a buyer I would challenge this a bit. Many CDR are more like donations where price is just a datapoint that perhaps could tell you something about how efficient the company is, but it could also just be an indicator about how early the tech is. What we do in the Milkywire Climate Transformation Fund is pay the cost of removal plus some reasonable profit margin, buying from companies that we think will be cost-efficient in the future.
Compliance market CDR will be a commodity, but there may be some room in the CDR VCM for different prices from different projects also in the future.
Thanks! Reposting here what I had written in Reply on X/Twitter:
I agree, I probably should have illustrated the point better: the purchasing rationale of some VCM customers is to seed the market with a high price per ton purchase of a VERY early stage tech - at low volume.·
Conversely, the method with the highest volume of deliveries the past two years - biochar - is near the low end of the price per ton spectrum, and has a (relatively) low tech risk.
Thanks! Reposting here what I mentioned on X/Twitter:
I agree, I probably should have illustrated the point better: the purchasing rationale of some VCM customers is to seed the market with a high price per ton purchase of a VERY early stage tech - at low volume.·
Conversely, the method with the highest volume of deliveries the past two years - biochar - is near the low end of the price per ton spectrum, and has a (relatively) low tech risk.
Joe, Thank YOU!!! The relationship between the supply, demand, price, and value of CO2 is contorted and overwhelmed by incredibly well lobbied policy that virtually obliterates any chance for CCS to take hold in the US marketplace.
We can consider the categories for getting paid for CO2 to be a) EOR (enhanced oil recovery), b) 45Q tax credits, or c) all other applications.
45Q subsidizes the first $60/ton for CO2 supplied to the oil industry for the express use of oil production and an additional $25/ton to cover transportation and storage if CO2 can’t be transported to an oil well for $25/ton. This policy eclipses the equilibrium of market supply and demand.
The second category of EOR requires more scrutiny for the marks of politics. In broad terms only 1/3 of oil reserves can be recovered without CO2. This means the value of CO2 for EOR is almost exactly the value of the incremental oil recovered from mature, paid-up wells. The value of oil has averaged $75/barrel for the last 10 years, and the DOE variously reports averages of 1.9 to 3.5 barrels of oil per ton of CO2. This fixes the value of CO2 to the oil industry at $140-260/ton. Why does the oil industry pay only 10% of its value? That’s where it gets political. Whereas the IRS pays out tax dollars for CO2 sequestration, it does not collect taxes for the undoing of sequestration.
Myriad calculations inform us that transportation of captured CO2 by pipeline would cost about what the oil industry happens to pay to transport tax exempt CO2 released at virtually no variable cost. Although unsequestered CO2 does not enter the atmosphere, it competes with CCS, lowering the value of carbon capture expenses to one tenth of their value to oil producers. Again, CO2 has high value to the oil industry, but policy protects its low price for the exclusive use of the industry that has by far the greatest need for it. It could be argued that the tax exemption for the release of fossil CO2 not only foils CCS and COP but is a $6-12 billion per year subsidy supporting oil consumption.
The third category of CO2 revenue, all other applications, tellingly pays more than $300/ton for CO2. Why so much? Two things. Policy denies them access to tax exempt CO2 released at no cost from geological reserves, and they do not have approved pipelines to their doors.
We should remember that although the oil industry is served by hundreds of miles of CO2 pipelines without incident, hypothetical safety concerns preclude permitting of CO2 pipelines for GHG abatement.
What does all this portend? Until either the demand for oil outstrips the supply of fossil CO2 or policy favors carbon capture over carbon release, there can be no market for CCS.
What policy would logically support GHG policy? Simply tax the release of fossil CO2 at the marginal rate for DAC, say $1000/ton for now.