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By Carolyn Seto, Ph.D., Thomas Watters, and Viviane Gosselin


This article, by S&P Global Ratings and S&P Global Commodity Insights, is a thought leadership report that neither addresses views about individual ratings nor is a rating action. S&P Global Ratings and S&P Global Commodity Insights are separate and independent divisions of S&P Global.

Key Takeaways

Despite being a mature and scalable technology, CCS remains at early stages of deployment due to the nascent markets for carbon and decarbonized products in which these capital-intensive and long-lived projects are expected to operate.

Financing these capital-intensive projects is often a significant undertaking for companies and investors alike. Government support can incentivize CCS projects and help to reduce the capital at risk.

Key provisions of the US Inflation Reduction Act incentivized clean energy efforts, including CCS, although uncertainty about possible changes to those provisions is a potential hurdle.

Nevertheless, the role of CCS in global decarbonization has broadened significantly, and CCS is making steady progress. It has the potential to significantly contribute to meeting global emissions goals.

Secure access to affordable and sustainable energy is crucial for continued global economic prosperity. Despite concerns about the effects of global warming from the burning of hydrocarbons, and government initiatives to mitigate them, fossil fuels will continue to play an essential role in the global energy landscape for decades to come (Figure 1), albeit with a reduced share of the overall energy mix.

The challenge for many companies in the burning of fossil fuels is balancing uncertain climate regulations and reducing their carbon footprint while generating sufficient returns for their investors. Carbon capture and sequestration (CCS) offers these companies a promising strategic choice; however, it faces significant hurdles, which we outline in this report.

CCS — A viable technology that has been slowly deployed

Many companies are looking to CCS as an essential technology to decarbonize their operations and meet net-zero emissions targets. According to the S&P Global Commodity Insights Base Case Inflections Scenario estimates, 2,678 million metric tons of CO2 (MMtCO2) per year will be captured by 2050. (See Footnote 1)

CCS is a mature and scalable technology for decarbonizing hard-to-abate sectors. However, despite over 50 years of operations, CCS remains at early stages of deployment — only 34 active large-scale projects (see Footnote 2) corresponding to a capture capacity of 59.6 MMtCO2 per year are currently in operation. Moreover, many of these projects are in support of enhanced oil recovery (EOR). For CCS to play a meaningful role in addressing climate change, this level of CO2 capture capacity will need to scale up by at least 50 times.

Increasing sustainability commitments from governments, coupled with supportive industrial policies, have spurred a flurry of CCS project announcements over the past few years, with widespread interest across all global regions (Figure 2). However, only 6% of these projects have progressed to an advanced stage, and a significant component of the project pipeline remains at risk.

Why has CCS been slow to adopt?

So why the slow development and adoption? CCS is capital intensive, and the long-lived nature of these types of projects (i.e., long lead times for capture system design and fabrication, and transportation and storage site selection; 15- to 25-year operational lifespans; long-term site monitoring commitments to ensure permanent storage of injected CO2) creates challenges, especially when factoring in uncertain market, policy and regulatory conditions, inflationary cost pressures, project economics and project complexity. These are among the many reasons cited for the lack of movement in CCS development and the cancellation of some projects. The current environment, which creates further uncertainty on both the cost and revenue sides, may result in even less appetite for large-scale, complex projects.

Funding/capital risk

Effective and feasible government regulatory and economic policies are necessary to address the hurdles of attracting and raising capital. Moreover, financing these capital-intensive projects is often a significant and challenging undertaking for companies and investors alike. Several CCS projects that were under construction were either canceled or suspended due to misunderstood risk, murky regulation and nascent end markets, resulting in difficulties securing third-party capital. Consequently, most completed projects to date have been financed by companies themselves or through equity and off-takers rather than banks. To make the sector “bankable,” the challenge has been understanding the key risks and liabilities associated with these projects and how these risks can be mitigated, managed or shared.

Some of the key risks include scaling of the technology; having long-term offtake agreements with quality counterparties; established markets; carbon credit risks; site risks; sourcing and transport of CO2; and most importantly, the underlying economics. Below are some examples of projects that experienced those challenges.

The environment has also changed for large industrial projects. The shift in recent market dynamics — along with uncertainties surrounding tariffs, regulatory approvals and incentives — has heightened construction risks. As a result, engineering, procurement and construction (EPC) contractors may be less willing to bear the risk of cost increases through EPC contracts.

On the revenue side, many clean energy tax credits were significantly enhanced through the US Inflation Reduction Act (IRA), with higher multipliers and extended terms. For carbon capture, the IRA enhanced the 45Q national tax credit program by extending its term, revising the base credit and providing attractive bonuses if certain labor conditions are met. Prior to the IRA, tax credits offered through 45Q were often inadequate to incentivize carbon capture. The US government offered $50 per metric ton for carbon captured or sequestered, which was insufficient to make these projects surmount break-even hurdles. The passage of the IRA effectively raised the 45Q tax credit for carbon capture for geologic storage from $50 per metric ton to $85 per metric ton, while the credit for captured carbon being reused is $60 per metric ton. It also increased the tax credit for direct air capture — which is very expensive to construct — from $50 per metric ton to $180 per metric ton. These credits are within range to cover the carbon capture costs for most industries, making investment in such projects more attractive to investors.

Still, as of the publication of this report, there remains a great deal of uncertainty regarding the tenets and certain provisions of the IRA legislation. The Trump administration has favored the development of fossil fuels and has enacted numerous legislation aimed at promoting fossil fuels while deemphasizing efforts to lower greenhouse gases (GHGs). While we do not believe the administration will rescind the IRA given that many Republican-leaning states are developing climate change projects based on the IRA provisions, the administration could make changes to the provisions. This uncertainty could be causing firms to delay capital expenditures on GHG reduction technologies such as CCS. We will continue to monitor any changes the administration may implement regarding the 45Q provisions.

Another key tenet of the IRA was providing direct pay and transferability options for developers claiming the credit. The transferability of those credits was also a new factor, with the entities being able to transfer to a third party for cash. The 45Q margins are typically thin, and allowing developers direct pay and the ability to monetize the credit expands the pool to developers that may not have significant tax liabilities to offset with a tax credit. (See Footnote 3) It also allows the developer the ability to transfer the credit to investors who can utilize the credit in exchange for project financing. (See Footnote 4)

Another key IRA provision that made CCS projects more financeable was the provision that significantly lowered the upfront CO2 tonnage capture thresholds. For a pre-IRA CCS facility to become eligible for a 45Q tax credit, it had to meet a CO2 capture and sequestration tonnage threshold. This requirement raised investor concerns about the timing of receiving the tax credit as well as actually qualifying for the tax credit. It was quite possible investors would garner no returns in any given year if a CCS facility did not meet the required CO2 tonnage threshold. (See Footnote 5)

This uncertainty, on both the costs and revenue sides, is creating additional hurdles for companies to reach a final investment decision on CCS projects. Companies may elect to invest their capital in less complex projects with a more certain return on investment. This is especially true for power producers, which are looking at expanding their baseload dispatchable generation given the current positive secular environment for power.

The highlighted challenges are also an impediment to raising funds through a project finance structure. Given that project finance structures only have access to the cash flows associated with the project to repay the debt, having good visibility on returns is crucial to raise sufficient capital for both equity owners and lenders alike.    

Economic risk

Economics, more than technology, is the key issue in adopting CCS to manage CO2 emissions. Because CCS is a high-cost endeavor, driven by company commitments to Scope 1 and 2 emissions reduction efforts and expectations of a heightened market demand for greater sustainability, it is seen as a cost to operations, particularly where and when there is no beneficial offtake. For some industries that generate low margins or returns, it becomes difficult to justify its deployment. While government incentives are available to support its deployment, they are not at adequate levels to justify its deployment.

CCS costs are dependent on various project-specific factors, such as pipeline distance between the emissions source and storage site, the number of injection wells and process conditions. Capture is the most expensive stage of a CCS project because it is the most process-intensive phase, as the emissions must be chemically altered to produce a CO2 stream of acceptable quality for transport. An S&P Global Commodity Insights cost analysis of a representative portfolio of large-scale operating CCS projects found capture accounting for approximately 60%-70% of the project cost, while transportation and storage range from 15%-30% and 10%-15%, respectively. (See Footnote 6)

Emissions from concentrated sources like ethanol plants or natural gas processing are on the lower end of the spectrum of capture costs because there is little additional process equipment to create a pipeline-ready stream. Dilute streams with multiple impurities, such as steel production or thermal power generation, are at the higher end of the cost spectrum (see Figure 3, which shows the range of capture cost of select industrial CO2 streams, relative to the 45Q tax credit).

Furthermore, recent inflationary pressures have increased costs to levels where key policy supports may no longer be sufficient. S&P Global Commodity Insights expects an 8%-20% increase in critical equipment costs (e.g., heat exchangers, pumps, compressors) driven by demand from adjacent sectors such as LNG project activity and data center power demand, as well as higher engineering and management costs. (See Footnote 7) Supply chain strategies (such as advanced equipment commitments to lock in equipment prices; signing long-term supply contracts to incentivize equipment providers to invest in measures to increase production capacity; or project phasing with other activity in the region to reduce peak demand on resources in areas of high project activity) can help mitigate some of these pressures.

Uncertainties about tariffs, particularly the 25% tariffs on steel and aluminum, are expected to significantly increase production costs for US manufacturers reliant on imported raw materials for production of critical equipment. Higher production costs could lead to price increases, reducing project profitability.

New technologies are being developed to increase capture efficiency and provide step-change cost reductions in the capture stage. The S&P Global Commodity Insights CCUS Innovation Tracker follows over 160 new capture technologies being developed by startups and industrial firms and finds several promising technologies. However, many of these innovations are still early in their technology development life cycle and will require time for validation and scaling. These early-stage technologies are not expected to become commercial within the 5- to 15-year time frame.  

An analysis of sanctioned projects tracked by the S&P Global Commodity Insights CCUS Projects and Hubs Tracker finds developers are opting to use mature, proven capture technologies to reduce the technology risk as the industry focuses on project execution. Due to the tenuous economics of CCS, cost control is critical in managing the profitability of these projects. Near-term project execution strategies are prioritized as project developers favor deployment and capability development over structural cost reduction.

Commercial risk

Lack of a mature market for CO2 creates uncertainty in developers’ ability to recover their CCS investment over the life of the project. While captured CO2 is used in applications such as enhanced oil recovery, urea production and the food and beverage industry, the scale is dwarfed by global CO2 emissions — in 2022, CO2 demand was just 270 MMt, compared to nearly 37 billion metric tons of global CO2 emissions. (See Footnote 8) The low-carbon product enabled by CCS (e.g., blue hydrogen, low-carbon baseload thermal power) provides another revenue stream. 

To incentivize deployment, governments have implemented a number of policy tools of sufficient scale and duration to generate the returns needed, which recognize both the capital intensity and long-lived nature of CCS projects. The S&P Global Commodity Insights Low-Carbon Incentives Tracker identifies 42 active or pending policy mechanisms, in 13 jurisdictions, supporting CCS project development.

To address the capital intensity issue, government support in the form of grants, loans and investment tax credits also helps to reduce the capital at risk for CCS developers and advance these early infrastructure projects that will be foundational to expanding a CCS industry. Table 2 lists noteworthy capital programs advancing recently sanctioned CCS projects.

To create a robust market for captured CO2, effective policies are needed to create the market for captured CO2, and to provide investors the assurances needed for a stable market. Governments are taking various approaches to create the market needed to advance this technology. These can come in the form of production tax credits or penalties, carbon intensity standards, penalties or a contract for difference. Table 3 lists selected policies stimulating CCS deployment.

The voluntary carbon market (VCM) offers another promising revenue stream for qualifying CCS projects. While this appears to be a potentially lucrative revenue stream, the VCM applies only to a small set of CCS projects, mostly centered around carbon removal from biogenically derived industrial emissions (e.g., ethanol, bioenergy, pulp and paper) before entering the atmosphere, rather than carbon reductions. The S&P Global Commodity Insights CCS Projects and Hubs Database identifies only 6% of CCS projects, corresponding to 31.1 MMt of carbon removal capacity, that could potentially qualify for the revenues under the VCM.

The S&P Global Commodity Insights Engineered Carbon Dioxide Removal Purchases Tracker follows engineered carbon removal credit activity, capturing purchases by technology pathway, volume and price (when disclosed). While the CCS-enabled carbon dioxide removal (CDR) projects constitute a small number of contracts on VCM registries, these types of projects provide an outsized contribution to the market for available engineered CDRs, reflecting the scalability and technical maturity of this CDR pathway relative to others (e.g., direct air capture, enhanced mineral weathering; see Figure 4). The durability and verifiability of CCS-enabled offsets create market differentiation relative to other lower-cost offsets (e.g., biochar), commanding a price premium. (See Footnote 9)

When allowed, the ability to stack incentives can create a compelling revenue stream for CCS investment. For example, an ethanol producer in the US Midwest that installs CCS on its operations can leverage the 45Q tax credit to enable the production of low-carbon ethanol that can be sold in California, qualifying for the Low-Carbon Fuel Standard credit. If the project is certified by a third-party registry, because the CO2 is of biogenic origin, the sequestered CO2 can generate CDR credits.

Regulatory risk

A supportive and clear legal and regulatory regime is crucial for successful implementation of CCS. Well-defined legislative frameworks establish the rights and responsibilities of project developers, while the designation of a regulator establishes accountability for CCS activities, avoiding project delays and cost increases that can negatively impact the profitability of a CCS project. Table 4 lists the critical regulatory issues surrounding CCS development and their responses. 

While CCS-specific legislative frameworks were lacking in many jurisdictions, these details surrounding how to safely develop and operate a project are increasingly being resolved as regulations mature to support a CCS industry.

Execution risk

While CCS is based on a mature set of technologies from the oil and gas as well as process industries, there is limited experience integrating these technologies for CCS purposes. The first large-scale CCS project has been operating since 1972, and 26 large-scale projects have been brought online since then. However, this set of large-scale operating projects has effectively been first-of-a-kind deployments, with little opportunity for CCS to establish a track record for predictable execution and performance outcomes. 

The value chain nature of CCS — capture, transport, storage — requires all components to be operational for a CCS project to generate value. Lack of availability in any part of the value chain will have a negative impact on project profitability. To ensure high operational performance, interests across the value chain must be aligned. Several approaches are being utilized as a safeguard. These include formation of a joint venture (JV) company for the CCS project, where all stakeholders have an ownership in each component of the value chain (e.g., Jubail CC Hub is a JV among Saudi Aramco, Linde and SLB); the transportation and storage developer leverages its own facility as the anchor emitter (e.g., emissions from Shell’s Polaris project will be managed by the Altas Carbon Hub, a JV between Shell and ATCO EnPower); or partnering with long-standing customers (e.g., emissions from Linde’s Beaumont blue hydrogen facility will be managed by ExxonMobil; ExxonMobil and Linde have a long history of collaborating on hydrogen projects). Third-party stakeholder concerns at any part of the CCS value chain can disrupt the ability to provide a fully functioning value chain, create lengthy delays and potentially put a project at risk. Developers are taking various approaches to minimize exposure to this type of risk. These approaches include minimizing the complexity of their projects (e.g., short transportation distance between emission sources and storage site to minimize the number of jurisdictions being traversed; securing large sequestration leases to reduce the number of negotiations with landowners for pore space and surface access), early engagement with the local community, and selecting a project in regions familiar with similar types of injection projects.

CCS is an integrated solution comprising multiple processes spanning a range of technologies and capabilities, interacting with a variety of different stakeholders across the value chain. Because all components must be operational for a CCS project to generate value, close and early coordination among participants is essential.

Harvestone Blue Flint CCS project: A success story

While a number of uncertainties test the bankability of CCS projects, these are not insurmountable. Through careful project choices, risks of financing these types of projects can be alleviated. Harvestone Low Carbon Partners’ Blue Flint Ethanol CCS project, which closed a $205 million tax equity financing deal with Bank of America in September 2023, is one example. In November 2023, the Blue Flint Ethanol CCS project in Richardson, North Dakota, began injection operations, becoming the first CCS facility to operate under the Inflation Reduction Act. Key factors mitigating project risks are summarized in Table 5.

Steady progress toward becoming a solution for industrial decarbonization

CCS is making steady progress as a global solution for decarbonization, underpinned by improving policy incentives and maturing regulatory frameworks. The advancements are helping to align CCS with net-zero commitments from governments and the private sector.

Over the past five years, the role of CCS in decarbonizing the global economy has broadened significantly, moving beyond its traditional applications in the oil and gas sector to tackle emissions in diverse industries such as cement production, pulp and paper, and metal processing. 

Additionally, the power market is experiencing shifts driven by increasing demand from data centers, hyperscalers as well as increasing electrification of various sectors (e.g., mobility, commercial and residential property). These changes are reshaping energy consumption patterns. CCS is poised to play a vital role in this evolving landscape given its ability to provide baseload decarbonized electricity.

While CCS may not be at a dramatic inflection point, its steady progress cannot be overlooked. The potential for CCS to contribute significantly to a sustainable future is substantial and its continued development will be essential in meeting global emissions goals.


Appendix: Footnotes

Footnote 1: S&P Global Commodity Insights Energy and Climate Scenarios 2024 Inflections Energy Dataset, July 11, 2024.

Footnote 2: Large-scale projects are defined as those having a capture capacity equal to or greater than 0.4 MMtCO2. CCS project status and capacities are sourced from the S&P Global Commodity Insights Upstream Transformation CCUS Projects and Hubs Database.

Footnote 3: The Clean Air Task Force, Aug. 22, 2022.

Footnote 4: The Clean Air Task Force, Aug. 22, 2022.

Footnote 5: The Clean Air Task Force, Aug. 22, 2022.

Footnote 6: S&P Global Commodity Insights Strategic Report, “The state of CCUS technology development: A drive toward reducing costs,” March 10, 2021.

Footnote 7: S&P Global Commodity Insights Upstream Transformation Service, “North America CCUS Strategy: Drivers, issues and challenges,” Oct. 30, 2024.

Footnote 8: S&P Global Commodity Insights, “Yes, CO2 is a commodity,” March 2025.

Footnote 9: Attributes of permanence, scalability and technology maturity are reflected in the wide range of prices for engineered CDR solutions (ranging from $100/metric ton of CO2 for biochar to over $900/metric ton of CO2 for direct air capture).