Climate, subsidies, and investment

A news report on Shell and carbon credit fraud is rolling through the news agencies. It was first released by Greenpeace and picked up in the financial papers. Then it moved to the "normal" news sites.

The main argument that Greenpeace is making is that Shell's carbon capture (utilization) and storage facility in Alberta called Quest has been receiving too many carbon credits. Two for one, in fact. That is it is paid twice for every carbon atom it sequesters.

The outrage is understandable given the narrative: Shell gets to pretend to be doing good things around CCS, the governments get to pretend that CCS is a real thing, but it is really just entirely government funded and hugely unprofitable.

What is not understandable is why this original narrative is so pervasive. Carbon Capture and Storage (CCS) is not a viable technology. This has been known for the following reasons for a long time:

• the physics do not work, you have to put more energy in to do CCS. All of the research around CCS is about increasing efficiency of the process.
• the scale can never be big enough to counter burning fossil fuels
• direct air capture is never what is being talked about (it is about reducing emissions of production)
• over 95% of the projects announced never get built or just do not work

The investment in CCS is really about utilization. That is CC U S. The technology is about making a rather dirty process less dirty.

In the case of Quest, it is a facility that acts to reduce emissions from the production of chemicals and hydrogen. Mainly intermediates to plastic production.

There are alternatives to using oil and gas to produce plastics. There are some technologies in the pipeline, but have not been useful/available/workable at scale. Some even produce these intermediates through "direct air capture" of carbon. However, these alternatives are in no way ready to replace the needed production of oil/natural gas-derived synthetic products like plastic and gas derived hydrogen.

This is the reason that CCS is so central to the IPCC climate change energy transition mix of technologies.

Canada is also the leading edge for this technology because we have committed billions of dollars to its research, development, and implementation. Partly because of our large chemical industry.

The subsidy regime for CCS is ridiculously large. It is unsustainable and results in little movement on the climate front. However, there is a point where we have to say that if CCS has to be part of the climate change response, then there is a question of how to fund it.

Part of the Greenpeace complaint is that the money is going to hugely profitable companies to implement a technology that they think undermines the move to carbon and climate sustainability. There is some truth to this argument and position. Why does an oil company with billions of dollars of profit get subsidies in the hundreds of millions to implement a technology that essentially keeps them from being shut down?

Without being too snide, the answer is that the technology of CCUS here is implemented to keep the place open. On a cost basis, the firm will not keep this plant open unless it can produce those products profitably at lower carbon emissions. It was a test bed for this technology to see if it was at all achievable.

Is this a good reason? No. But, it is the reason.

The other part to Greenpeace's report/complaints is that the subsidy came through the carbon credit system. The supposed "two for one" deal in that Shell got two credits for every one credit worth of carbon it stopped being sent into the atmosphere. The report says this is essentially fraud.

This is what I do not agree with. Not because I support carbon credits and carbon markets (I do not), but because all carbon credit and carbon markets are made-up and made-up to provide a public subsidy to carbon emitting firms. A two for one is just the same as an artificially high (and guaranteed) carbon price. It is a subsidy that someone has to pay for and that someone is the public either through taxes or increased prices.

The new investments for CCUS are along these lines too. They require a certain subsidy to make the private market system work for these investments.

Is there another way? Yes, but you will not read about it in the Greenpeace report.

There are two policy programs that should be in operation to make this transition:

1. Regulation
2. Public investment in publicly owned production

Oil and gas companies are not going to invest in unprofitable ventures to transition their production model to a more sustainable program. They are for-profit firms operating in a competitive environment and until we regulate the demand for oil, gas, and the chemicals derived from this process away and build alternatives, they are going to keep operating.

The public must realize this at some point. The economics do not work unless the public starts building, owning, and operating alternative programs and becomes the competition with the private oil and gas companies. This should be financed through broad taxes on net revenue from the oil and gas firms. However, we also need to acknowledge that it is going to cost more than the profits from oil and gas to make this transition.

Of course, we could nationalize the oil and gas companies and then build a policy framework that allows investments in transition, but that does not seem to be on anyone's radar. I recommend it, but no one listens to Marxists these days.

The reality is that the market solutions of carbon pricing put forward to support transition do not work without massive subsidies. In the current economic context these subsidies become explicit profit subsidies.

I think we need to be honest with ourselves around this if we are going to have a real conversation about transition and investment. That means putting some of the real solutions to investment on the table and talking truthfully about the terrible situation we are in with regards to how the economy is essentially powered by mythical "profit" that comes from borrowing from our future.