America is becoming a DAC powerhouse

Texas and Louisiana emit more greenhouse gases than any other region in the US. Now they have a chance to be the world’s biggest hub for negative emissions, using Direct Air Capture (DAC)

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TLDR:

• The US Department of Energy is doling out $1.2B to two Direct Air Capture hubs on the Gulf Coast

• While the funding is generous, money alone isn’t enough — execution is vital

• The skills of Gulf Coast firms and people — construction, chemical engineering, and geology — are crucial for making DAC hubs a successful reality

• American industrial policy has had big failures, but I’m optimistic about these DAC hubs because of the co-location of skills, storage, and great companies

As I wrote a few weeks ago, the best places to build the first large Direct Air Capture plants (DAC) are near empty oil and gas wells. The American Department of Energy (DOE) agrees. Last week, the DOE granted $1.2B to two Direct Air Capture groups that will capture and store carbon dioxide along the Gulf Coast — the spiritual and commercial home of the American oil and gas industry.

The differences between the two projects are fascinating. The Cypress plant will use two different DAC technologies — air-based from Climeworks and limestone-based from Heirloom — and a web of partnerships:

The South Texas DAC Hub couldn’t be more different. An oil and gas giant, Occidental Petroleum (Oxy), is taking point, relying on a single technology, liquid-based DAC, from newly-acquired Carbon Engineering:

What we’re looking at in Oxy is the first DAC player that is integrated end-to-end, with technology development, plant design, financing, and marketing all under one roof:

So there are big differences between Cypress and South Texas, but these plants do have a a lot in common:

• Scale: Each plant will capture (up to) 1M tons of carbon dioxide per year. That’s >100x the scale of the largest DAC plants operating today

• Geography: Texas and Louisiana are right next to each other, and both projects are close to the coast of the Gulf of Mexico

• A lot of geologic storage potential: A recent study of the Gulf Coast Miocene, a thin layer of geology along the coast, found 125 billion tons of potential CO2 storage¹ — that’s enough storage for three years of global emissions at 2023 levels. There is certainly more.

As important as storage is, America is full of good sites — by one estimate, the Lower 48 has 5x more storage than all of Europe². The DOE didn’t need to pick one, let alone two, projects in the Gulf Coast. It had a whole continent to choose from. So what’s going on here?

I think the DOE doubled-up on the Gulf Coast area not only because of its geology, but because of its people.

GOOD PEOPLE ARE AT A PREMIUM

Building these big DAC facilities will require a lot of people, with a few key skills at a premium:

• Industrial construction for the basic infrastructure to get the plants operational

• Chemical engineering to manage and improve DAC processes

• Geology to develop and monitor storage sites

All of these skills are present in droves in Texas and Louisiana from 150 years of oil and gas and petrochemical operations.

And these DAC hubs should have no problem hiring, because there appears to be a cultural shift happening. Many folks with traditional oil and gas backgrounds are looking to make a transition into greener industries — I have met some younger folks myself³, but this is larger than a few individuals. Many early researchers in carbon capture (and especially storage) had long O&G careers before pivoting to carbon capture.

The thing that’s exciting about DAC is — unlike windmills or solar panels — it has enough in common with oil and gas that motivated folks at all levels can make the transition. This is particularly true for storage:

… storing CO2 is the ‘mirror image’ of extracting oil from the ground, according to carbon capture expert Howard Herzog. Liquid CO2 behaves a lot like the hydrocarbons that are the basis for crude oil, which means that many of same skills involved in extracting oil — geology, fluid dynamics, chemical engineering — will propel CO2 storage too.

I like this attempt by the DOE to convert human capital from fossil fuel creation to emissions destruction. It’s worth remembering that in the 2000s and 2010s the industrial belt of the Midwest was hollowed out by competition from China and Germany. While this meant cheaper goods from abroad, it also contributed to a weak recovery from the 2008 financial crisis and the polarization of the American political system.

The Biden Administration is trying to avoid a similar fate in the Gulf Coast energy belt. As fossil fuel jobs slowly ebb away from Texas and Louisiana, they can be replaced by DAC jobs.

The timing matters too. We don’t want these skills to degrade over the next ~15 years, only to find that in 2040 we need to start putting a massive amount of CO2 underground immediately. Now is the best time to start teaching the next generation of geologists the ins and outs of the empty wells in Texas and Louisiana.

It’s worth noting that the DOE could have taken a more partisan approach to these grants. The Gulf Coast is ground zero for global warming, with Texas alone emitting as much greenhouse gases as Italy and France combined. Left-leaning environmentalists would have preferred that the administration nix applications for this region, or lock out oil and gas companies altogether.

But the DOE is better than that. There’s something poetic and optimistic about giving the biggest emitting region in the world the opportunity to become the leading hub for negative emissions.

$1.2B IS A LOT, AND YET…

It’s very easy to confuse big dollar figures with progress. Cypress and the South Texas DAC Hub combined are promising to capture up to 2 million tons of CO2 per year. It’s reasonable to question whether this will actually happen, partly because scaling is hard, and because government policies might get in the way.

American industrial policy has had its share of problems. Recent problems with CHIPS, the big semiconductor package, show that it’s not as simple as throwing money at a problem and expecting results. To take a climate tech example, there’s Solyndra, which took half a billion dollars in loan guarantees from the DOE in 2009, only to fail two years later.

There are a few ways industrial policy can go wrong:

• Governments ignore skill gaps

• Governments are bad at picking winners and letting go of losers

• Projects lack focus

• Other countries retaliate, creating a ‘subsidy war’

Industrial policy will have a huge impact on the early development of DAC, so I plan to cover this in more detail in another article. In brief, I’m a lifelong skeptic of industrial policy, but I have to admit that DAC, at least in America, is a good candidate for funds. It’s a worthy goal, and an industry that can’t really get off the ground without some government investment.

DAC is also less likely than other industries to suffer from the standard policy pitfalls:

• Skill gaps: The reason I wrote this article is to applaud the Department of Energy for paying close attention to what skills are needed to do DAC well, and then choosing the Gulf Coast because it is full of folks with those skill sets. I doubt this will look like CHIPS, where semiconductor manufacturing companies are complaining about a shortfall of ~90,000 workers, with minimal chances for skilled workers to emigrate.

• Picking winners and losers: The DOE is not putting all its eggs in one basket. They have picked three DAC technologies (air, water, and limestone-based). And they have also picked two different business models, with Oxy’s end-to-end integration vs. Battelle, Climeworks, Heirloom, and others partnering.

• Lack of focus: This is where I’m most worried. This region has a history of using incendiary political tactics to delay carbon capture projects. And the DOE is packing many goals alongside capturing CO2. Job creation, diversity, and community engagement are all good things, but they have real tradeoffs. They will cause delays. Getting ‘community engagement’ is important, but in our litigious society this process often squashes big projects before they break ground.

• Retaliation: This is an extremely rare case where American policymakers should welcome retaliation. It would mean more countries investing in DAC, so America would have to shoulder less of the burden of taking CO2 out of the sky. We all share the same atmosphere.

FINAL THOUGHTS

I’m optimistic that these grants will accelerate DAC. There are just so many winning factors here — a worthy goal, geologic storage, skilled professionals, and great companies. All of this should lead to real-world progress, even if the projects run into engineering or NIMBY obstacles.

And, even though I am a skeptic of industrial policy, I recognize that if you add government dollars to other winning factors, it can pay massive dividends. People like to forget that EV pioneer Tesla was part of the same loan guarantee program as Solyndra.

Businesses and individuals are beginning to realize that DAC produces the highest quality carbon offsets. DAC providers may not be able to meet a new wave of demand without these large plants. Perhaps a spark of supply from the government will lead to a bonfire of consumer demand. Maybe not, but it’s a risk worth taking, even with hard-earned tax dollars.

Perhaps this is just the beginning of government investment. Barring major setbacks, these grants will lead to between 1 and 4 million tons of CO2 captured per year, way more than has been captured with DAC so far. But this is also <0.01% of annual global emissions. We’re going to have to take out not millions of tons, but tens of billions to make a dent.

No matter how fast demand for DAC carbon offsets grows, governments in big economies — America, EU, China, India, and others — will play a crucial role in developing scaled and cheap carbon removal.

I predict that one of these countries will launch something like an Apollo Program for carbon removal⁴ by the mid-2030s. It will be expensive. But cutting our emissions to 0, the other strategy for stopping runaway global warming, is unrealistic.

1. Gulf Coast Carbon Center

2. Potential for US Competitiveness in Emerging Clean Technologies; Breakthrough Energy, Third Way, and BCG

3. Sneaking into classes at the Yale Forestry School when I was a graduate student in business

4. This program will likely include some geoengineering as well — controlling the sun’s rays to cool parts of the Earth

The opinions in this article are my own and do not reflect the views of my employer, Bain & Co.