Carbon capture faces cost hurdles despite tech breakthroughs

The economic landscape of CCS deployment remains dominated by high costs and uneven financial incentives, with adding CCS to U.S. gas plants potentially doubling power production costs by $20 to $30 per MWh. However, CCS is more economically viable at ethanol facilities due to their high CO2 concentration, where capture costs range from $15 to $35 per metric ton compared to over $100 per metric ton at natural gas-fired plants. This disparity underscores the critical role of sector-specific factors in shaping CCS commercial viability.

While the U.S. Inflation Reduction Act offers substantial tax credits—up to $85 per metric ton of CO2 for projects starting before 2033 and $180 per metric ton for carbon conversion—these incentives have yet to catalyze widespread CCS adoption in harder-to-abate sectors like steel and cement. Policy uncertainty, exemplified by the Trump administration’s cancellation of $1 billion in CCS grants, further clouds the investment climate, dampening momentum despite ongoing financial support.

Strategic investments and innovative financial mechanisms are increasingly pivotal in de-risking CCS projects and attracting capital. Mantel’s recent $18 million funding round, led by Constellation Technology Ventures and Azimut Investments, boosts its total to $50 million and exemplifies growing investor confidence in modular, systems-engineering-led CCS technologies that reduce capital intensity and operating costs by up to 97%. Similarly, Canada’s CAD $16.5 billion Pathways project leverages government-backed Carbon Contracts for Difference to guarantee future carbon prices, enhancing bankability amid market volatility.

Public financial support remains a cornerstone of CCS advancement, as demonstrated by North Dakota’s $205 million low-interest loan package for Project Tundra, which, combined with federal tax credits totaling approximately $425 million annually, significantly improves project economics. Partnerships that leverage technical expertise, like Minnkota’s collaboration with Reliant Carbon Capture & Storage, have also slashed estimated costs nearly in half, highlighting how strategic alliances and modular financing approaches—such as separating pipeline costs—can enhance commercial viability while maintaining low public financial risk.

Government policies and regulatory frameworks in the U.S. present a paradoxical landscape for CCS development, where robust tax credits—such as the $85 per metric ton credit for projects commencing before 2033 and increased incentives for carbon conversion—coexist with destabilizing actions like the cancellation of $1 billion in grants by the Trump administration. This mixed messaging has dampened investor confidence, especially as high costs and extended timelines lead major tech companies like Google and NextEra to deprioritize CCS investments, with Wood Mackenzie's Peter Findlay highlighting potential power cost doubling to $20–30 per MWh.

In Canada, while legislative measures like Bill C-15 have extended CCUS investment tax credits through 2035, providing a long-term policy horizon, the disconnect between policy enactment and the sluggish administration of programs such as the Federal CCUS ITC and Alberta's ACCIP is eroding investor confidence. Entropy's experience underscores this challenge, noting that delayed disbursements have increased financing costs and weakened the incentives' effectiveness, even as projects like Glacier Phase 2 demonstrate the potential for successful CCS deployment within existing regulatory frameworks—albeit contingent on more reliable government support.

India’s government is making a bold push to advance carbon capture technologies through a ₹20,000 crore budget allocation over five years and a comprehensive national roadmap targeting power, steel, cement, refineries, and chemicals sectors. However, while operational CCUS projects focus primarily on carbon utilization, the country is only beginning to develop the critical infrastructure and regulatory frameworks necessary for permanent underground carbon storage, a complex endeavor requiring multi-stakeholder coordination and shared infrastructure that remains largely uncharted territory.

Canada’s transition from policy uncertainty to execution in CCS is exemplified by the July 2026 trilateral Memorandum of Understanding between the federal government, Alberta, and the Oil Sands Alliance, which sets ambitious targets to transport and store 6 million tonnes of CO2 annually by the mid-2030s. This agreement integrates financial mechanisms like investment tax credits, Alberta’s TIER system, and the Carbon Contract for Difference to de-risk investments by guaranteeing future carbon prices. Yet, despite this strong governmental backing, skepticism persists about the economic sustainability of projects like Pathways without ongoing public subsidies, especially given their linkage to fossil fuel infrastructure such as the proposed West Coast oil pipeline.

Project Tundra exemplifies the transformative potential of modular, offsite-manufactured carbon capture technology in retrofitting existing coal power plants, aiming for a remarkable 95% reduction in CO2 emissions and capturing up to 5 million tons annually. This initiative, backed by a robust blend of public-private financing—including $205 million in state loans, $350 million in federal funding, and $85 per ton federal tax credits—demonstrates how innovative funding mechanisms are critical to scaling CCS deployment in the power generation sector while integrating CO2 utilization through enhanced oil recovery in the Bakken fields.

Mantel is pioneering a new era in industrial carbon capture with its molten-borate technology, which operates at high temperatures to capture CO2 efficiently while converting waste heat into high-quality steam, reducing energy losses by 97% and halving the industry-average cost per tonne. This modular, systems-engineering-led approach simplifies integration into existing heavy industry infrastructure, enabling deployments across power generation, oil and gas, pulp and paper, and chemicals sectors, with projects like the TerraSpark Energy Campus targeting 98% emissions capture and Québec’s Wayagamack Mill reusing captured CO2 directly in production.

By targeting capture costs below $50 per tonne and leveraging strategic investments from energy and finance partners such as Constellation Technology Ventures and Azimut, Mantel is not only enhancing the economic viability of CCS but also positioning the technology for global scale-up. Their expansion into emissions-intensive oil and gas operations, exemplified by a steam-assisted gravity drainage project capturing 60,000 tonnes of CO2 annually while producing 150,000 tonnes of high-pressure steam, underscores the adaptability and sector-specific application of advanced CCS solutions aligned with policy incentives like the U.S. Inflation Reduction Act.

The collaboration between Aker Solutions and Microsoft marks a significant leap in accelerating CCS and carbon dioxide removal projects by integrating digital technologies, AI-driven data analytics, and advanced monitoring, reporting, and verification systems with engineering expertise. This partnership aims to reduce execution risks, improve investment readiness, and enhance project credibility, while also potentially stimulating demand for specialty chemicals and materials essential to carbon capture systems, thereby influencing commodity markets as CCS deployment accelerates.

The successful on-schedule commissioning of Glacier Phase 2's 15 MW co-generation and integrated CCS project underscores the indispensable role of robust project management and operational safety in CCS deployment. Entropy CEO Sanjay Bishnoi highlighted the team's achievement of over 250,000 work hours without a serious incident, while the project’s 15-year power purchase agreement with Advantage Energy and use of the proprietary EntropyIQ platform for real-time carbon tracking exemplify how commercial contracts and technological transparency underpin operational viability and investor confidence.

Despite technical progress, delays in government incentive program administration, such as extended review timelines and the absence of expected ITC or ACCIP proceeds, have heightened financing costs and investor uncertainty for CCS projects like Glacier Phase 2. This challenge is compounded by the necessity for projects to maintain eligibility for evolving federal incentives like 45Q throughout lengthy permitting and construction phases, making execution speed and stable policy frameworks critical risk mitigators and competitive advantages in a shifting regulatory landscape.

The $1.7 billion Project Tundra exemplifies how strategic leadership transitions and modular, offsite-manufactured technology can streamline CCS project execution and reduce risks. Reliant Carbon Capture & Storage’s takeover, combined with Minnkota’s long-term commitment and geological advantages at the Milton R. Young Station, has cut cost estimates nearly in half and advanced permitting. Furthermore, carefully structured commercial arrangements—where Reliant owns the facility and Minnkota supplies CO2 and manages storage—alongside multi-level funding including $205 million in state loans and substantial federal tax credits, illustrate the critical interplay of partnerships, financing, and policy alignment in overcoming execution hurdles.

Recognizing that CCS projects often face similar technical and commercial challenges, Aker Solutions and Microsoft have joined forces to accelerate project development by integrating engineering expertise with advanced digital technologies and AI-driven monitoring. This partnership aims to enhance execution speed and clarity from feasibility through final investment decisions, thereby reducing delays and execution risks. As Aker Solutions CEO Kjetel Digre emphasizes, stronger cooperation across the carbon-management value chain is increasingly vital to translate CCS concepts into real-world operational success amid persistent financing and policy uncertainties.

Alberta's Glacier Phase 2 project stands out as a pioneering example of scalable CCS technology, capturing over 90% of CO₂ emissions from both new and existing natural gas sources to produce low-carbon baseload electricity with a carbon intensity of just 84 kg/MWh. Despite its technological success and a 15-year power purchase agreement securing 6 MW of low-carbon electricity, the project underscores the critical challenge of policy and administrative delays that have stalled federal and provincial incentive payments, increasing financing costs and shaking investor confidence. Entropy Inc. warns that while legislative frameworks like Bill C-15 extend tax credits through 2035, the predictability and timeliness of program administration remain essential to unlocking future capital and scaling CCS deployment effectively.

India's CCS landscape currently emphasizes carbon utilization over permanent storage, with existing projects repurposing CO₂ as fuel or feedstock, leaving the more complex challenge of underground storage largely unaddressed. This gap necessitates multi-stakeholder collaboration to develop shared infrastructure and regulatory frameworks beyond the capture stage, which remains the single largest and most site-specific cost. The Indian government’s commitment of ₹20,000 crore over five years to advance carbon capture technology readiness across sectors like power, steel, and cement signals a strategic push to build the foundational capabilities needed for a comprehensive CCS value chain.

North Dakota’s Project Tundra exemplifies a strategic partnership model that leverages specialized technical expertise and local utility strengths to drive down costs and enhance operational efficiency in CCS deployment. Reliant Carbon Capture & Storage leads the $1.7 billion project using modular, offsite-manufactured technology to capture up to 5 million tons of CO₂ annually from Minnkota’s coal plant, with captured carbon either permanently stored underground or used for enhanced oil recovery in the Bakken fields. This collaboration is underpinned by robust public-private financing, including $205 million in state loans and $350 million in federal funding, and aligns environmental goals with local economic benefits such as creating 350 jobs and maintaining stable utility rates.

Canada’s multi-sectoral CCS strategy is embodied by flagship projects like the Pathways initiative and Heidelberg Materials’ cement industry CCS facility, which together illustrate the power of coordinated government-industry partnerships in scaling carbon capture infrastructure. The Pathways project’s ambitious 400-kilometer CO₂ pipeline, backed by a trilateral Memorandum of Understanding among federal, Alberta, and Oil Sands Alliance stakeholders, targets 6 million tonnes of CO₂ storage annually by the mid-2030s with an initial investment of CAD $16.5 billion. Financial instruments such as Carbon Contracts for Difference, supported by the Canada Growth Fund, provide price guarantees critical to attracting investment, while Heidelberg Materials aims to capture over 1 million tonnes of CO₂ annually by late 2026, marking the world’s first full-scale CCUS solution in cement production.