Could Asia become the CCS capital of the world?
Carbon capture and storage is a key tool in helping countries meet their net-zero commitments, and the range of opportunities in Asia could draw interest from institutional investors.
The need for financing carbon capture and storage (CCS) is growing, in terms of both technological development and the construction of new facilities. But the cost of expanding current CCS, as well as carbon capture, utilisation and storage (CCUS) capabilities, is posing a considerable challenge globally.
To reach the International Energy Agency (IEA) Paris-aligned Sustainable Development Scenario, 15% of global carbon emission reductions would need to be achieved through carbon capture. This would involve a 100-fold increase in capacity by 2050 and, according to the Global CCS Institute, would require a total capital requirement of between $655bn and $1.3trn.
Some institutional investors have already begun investing in carbon capture technologies and projects. But the scale of investment required for countries to meet their emissions targets and net-zero ambitions means new opportunities are arising around the world.
Opportunities in Asia
One region in which more investors are starting to find opportunities is Asia Pacific, home to a range of large and small economies at various stages of industrial development. The Global CCS Institute added five commercial CCS projects to its database in its most recent (2021) report, including the first in Indonesia and Malaysia.
China’s ambition to reach carbon neutrality by 2060 – within 30 years of reaching peak carbon emissions – means CCS would need to play a key role in its transition. There are also investment opportunities to create CCS infrastructure in Japan, which aims to become carbon neutral by 2050, and India, the world’s third-largest carbon emitter, with the aim of becoming carbon neutral by 2070.
Elsewhere in the region, there is a growing need for investment. Last year, a report by the IEA found that Southeast Asian countries will require average investment of $1bn per year for CCS facilities between 2025 and 2030.
Kevin Chin, founder of Sydney-based investment group Arowana & Co, which invests in a range of sectors including renewable energy, said there was a “significant” investment opportunity for both CCS and CCUS in Asia.
He says: “While both are nascent across the region, momentum has been building strongly off a low base as more countries and companies operating in Asia commit to decarbonisation goals.
“It is the private sector that is particularly driving this agenda as there are relatively few government policy drivers to incentivise projects, such as CO2 emission penalties or carbon pricing.”
The primary challenge across the region remains the lack of government policy and funding support such as emission penalties or mandated carbon pricing.
Customer power
“Corporates, especially in the energy sector, are incentivised because their customers, mainly Japan and South Korea, are requiring oil and gas with a lower carbon footprint.”
One advantage Asia has over other regions for institutional investors looking to gain exposure quickly, says Chin, is the lack of stringent regulations that have slowed down developments in jurisdictions such as Australia and the EU.
Japanese and South Korean multinational companies are increasingly participating in CCUS opportunities in the region, particularly in southeast Asia, and are also funding feasibility studies for projects, he says.
“Longer term, the contribution of such groups, along with any potential subsidies and grants, can help to accelerate the growth of the CCUS industry not just in their home markets, but across the region.”
Financing challenges
Nevertheless, institutional investors will need to overcome financing challenges if they want to participate in the emerging carbon capture sector in Asia Pacific. Only Australia provides CCS incentives, in its Emissions Reduction Fund.
“The primary challenge across the region remains the lack of government policy and funding support such as emission penalties or mandated carbon pricing,” says Chin. “This is unlikely to change anytime soon, but corporates, especially multinationals operating in the region, will likely push ahead with projects.
“CCUS remains an important mechanism to meet the needs of their customers as well as their own net-zero objectives.”
