The Global Divide in Carbon Capture Economics: A Closer Look

The power sector globally stands at a crossroads in the journey toward carbon neutrality, facing stark disparities in the economics of carbon capture technologies. Findings from Wood Mackenzie, a renowned global insight business focused on renewables and natural resources, illuminate these contrasts, particularly between China and Europe.

The Cost Disparity

European power generators grapple with staggering carbon capture costs, often exceeding $300 per tonne. These prohibitive expenses create a formidable barrier, rendering most projects financially unviable. On the other hand, Chinese developments tout significantly lower costs, claiming they can execute carbon capture and storage (CCUS) projects for about $30 to $40 per tonne. This steep contrast in costs sets the stage for a dramatic viability gap, highlighting the challenging economic landscape faced by European utilities.

Despite the power sector emitting 13.5 billion tonnes of CO₂ annually—approximately one-third of global energy emissions—only two commercial-scale CCUS projects are operational worldwide. Furthermore, over 50% of announced CCUS capacities for power plants have been either canceled or delayed in the last decade, raising questions about the practicality of these technologies across regions.

Competitive Implications of Regional Disparities

The operational efficiencies claimed by Chinese state-owned enterprises are noteworthy. They assert they can finish CCUS projects in about 18 months, more than doubling the completion time of comparable projects in the US and Europe. Their capital expenditures are reportedly 55% to 70% lower per tonne captured, potentially reshaping industrial competitiveness. This is especially pressing as the EU’s Carbon Border Adjustment Mechanism is set to take effect in 2026.

Peter Findlay, Director of CCUS Economics at Wood Mackenzie, articulated the precarious situation for European power generators. “While the technology is technically feasible, the costs are prohibitive without substantial government support.” He draws parallels between the potential disruption of European power generation and China’s past dominance in solar manufacturing, emphasizing the urgency for EU initiatives.

The UK’s Unique Position

Among European nations, the UK emerges as a frontrunner in CCUS deployment, thanks to its Dispatchable Power Agreement. This framework fosters investment and has facilitated BP’s Net Zero Teesside Power project, yielding an estimated 20.8% pre-tax return—a feat made possible only with government support of approximately £319 per tonne of CO₂. Unfortunately, other European countries lack comparable frameworks, leaving CCUS projects largely unviable and underscoring the UK’s isolated but pivotal role in demonstrating the commercial viability of this technology.

The AI Power Dilemma: Opportunities vs. Challenges

The rapid growth of data centers presents both a challenge and an opportunity for CCUS adoption. Major oil companies like ExxonMobil and Chevron advocate for CCUS as a means to power AI and cloud computing facilities. However, hyperscalers (large data center operators) are faced with difficult decisions. Gas is frequently viewed as a “bridge” fuel that supports the reliability required for data centers, but it also raises questions about sustainability given its associated costs.

Presently, the green premium for carbon capture and storage stands at approximately $60 to $95 per MWh for combined-cycle gas turbines in the US. As of now, the 45Q tax credit only alleviates $20 to $30 of that burden. Google’s recent acknowledgment of the complexities involved in achieving its zero Scope 2 emissions target by 2030 highlights broader uncertainties in the industry’s commitment to long-term fossil fuel infrastructure.

The Capacity Factor Trap

With the rise of renewable energy, the traditional role of thermal power plants is evolving, often leading to decreased project economic viability for CCUS technologies. These projects are economically dependent on consistent high-capacity operation, but many European gas plants now serve as intermittent power sources for grid balancing, which deteriorates CCUS economics.

This issue is particularly acute within Europe’s gas-fired fleet. Combined-cycle gas turbines emit flue gases with a CO₂ concentration of only 3-4%, significantly complicating the capture process and driving up costs compared to coal plants, which emit at 9-12% concentrations. Ostensibly, CCUS adds anywhere from $35 to $200 per MWh to gas power costs, largely placing European entities at the higher end of this spectrum—an unsustainable scenario for electricity consumers.

The Promise of BECCS

In contrast to fossil fuel CCUS, Bioenergy with Carbon Capture and Storage (BECCS) is emerging as a viable alternative for incentivizing decarbonization. Microsoft’s landmark carbon removal deal showcases the rising market demand for premium-priced carbon removal credits, ranging from $150 to $200 per tonne. BECCS projects are yielding internal rates of return between 16% to 23%, whereas many fossil CCUS endeavors are yielding negative returns.

Notably, BECCS offers the potential to generate negative emissions by capturing CO₂ produced during biomass combustion, thus presenting an attractive product for companies seeking carbon credits.

Technology Improvements: A Future Outlook

Looking ahead, Wood Mackenzie anticipates that carbon capture costs could decline by 50% to 60% by 2050, driven by advancements in next-generation technologies. While there is hope for these transformative technologies, the timeline is uncertain, and they may not be swift enough to enhance current project economics. The analysis suggests that only 350 million tonnes per annum of coal and gas power plant capture capacity may be feasible by 2050—amounting to roughly 3-4% of the projected global thermal fleet at that time.

“The window for action is narrowing,” warns Hetal Gandhi, Lead of CCUS for the Asia Pacific at Wood Mackenzie. He emphasizes the strategic choices European utilities must confront: pursuing costly CCUS projects with uncertain economic returns versus redirecting investments toward more viable decarbonization pathways.

The comprehensive findings from Wood Mackenzie’s Power & Renewables and Lens Carbon services are designed to aid power generators, CCUS developers, policymakers, and investors in navigating the intricate economics surrounding the decarbonization of the power sector. As the clock ticks on carbon capture technologies, the choices made today will reverberate throughout the global energy landscape.