Major investors warn utilities against carbon capture and offsets
A group of hundreds of major investors is urging electric utilities not to use offsets as part of their decarbonization efforts, and to minimize reliance on carbon capture because of its risks and high costs.
But despite the warnings from major investors, the Department of Energy continues to fund projects, begun during the Trump administration, that study carbon capture proposals at coal-fired power plants. Some of those coal carbon capture projects are also seeking loan guarantees from the Department of Energy – effectively turning to the federal government to finance projects that investors have avoided.
Meanwhile, a new study found that declining renewable energy costs undermine the case for carbon capture, particularly in the power sector and for hydrogen production.
Investors urge utilities to minimize reliance on carbon capture and not use offsets
The Climate Action 100+ group of investors published a report in October, “Investor interventions to accelerate net zero electric utilities,” which “will inform constructive engagement between investors and electric utility companies on their net zero transitions.” The Climate Action 100+ coalition includes more than 600 global investors that collectively manage assets worth more than $60 trillion, including giants like BlackRock and State Street Global Advisors which are among the top shareholders of most major investor-owned utilities in the U.S.
The investors’ report follows benchmarks that Climate Action 100+ published in March, which assessed the climate plans and performance of 159 large companies, including several electric utilities. Each of the utility companies assessed mostly failed to meet the criteria that the investors established.
The October report detailing steps that electric utilities should take to decarbonize is the latest in the Climate Action 100+ group’s Global Sector Strategies, which outline investors’ expectations of companies in key sectors such as steel, aviation, and now utilities. The report states that utilities in advanced economies such as the U.S. should “Set a company-wide emissions target for annual emissions from electricity generation reaching net zero by 2035,” and that more than half of those emissions reductions should occur by 2030 (from a 2019 baseline).
The report also advises utilities to minimize their reliance on carbon capture, avoid offsets, and “focus primarily on minimising the use of fossil fuels and particularly coal.”
Set a clear decarbonisation strategy identifying the main measures they intend to use to deliver their targets and specify the contributions they expect each to make towards those targets. Decarbonisation strategies will vary by company but should:
• Focus on measures which reduce gross emissions. Consistent with the concept of prioritising emission reductions above offsetting, power companies should focus primarily on minimising the use of fossil fuels and particularly coal.
• Minimise the reliance on CCUS (Carbon Capture Utilisation and Storage). In addition to prioritising reductions in gross emissions, the stubbornly high costs of CCUS in the power sector make it a risky and potentially expensive decarbonisation strategy. Power companies should disclose the expected contribution of CCUS to any targets and conduct and publish a feasibility study setting out its CCUS strategy.
• Not use carbon offsets to reduce generation emissions to net zero. A consistent feature of 1.5 ºC pathways as set out by the IPCC is the near full decarbonisation of electricity generation. SBTi [Science Based Targets Initiative] does not count the contribution of offsets to company emissions targets. Since cost effective sources of low carbon electricity are already available, the finite resources (land and water) required for offsets should be reserved for ‘hard to abate’ sectors.
Cheap renewable energy erodes the value of carbon capture in the power sector