Brookfield embraces carbon capture with plans to invest billions

The Toronto-based infrastructure investor, whose renewable power and transition group manages $67 billion and operates more than 6,000 power plants, recently committed $500 million to LanzaTech NZ Inc. The company’s plants convert carbon dioxide from industrial emissions into materials used in everyday products such as fuels, clothes and perfume.

Earlier this year, Brookfield invested $300 million in Entropy Inc., a developer of systems that capture carbon-dioxide emissions and store the gas underground, and pledged another $500 million to a joint venture with energy company California Resources Corp. to build storage projects in its Elk Hills, Calif., oil field. Calgary, Alberta-based Entropy is a subsidiary of Advantage Energy Ltd., a Canadian oil-and-gas producer.

Brookfield’s initial investments can rise to more than $2 billion as planned projects come to fruition, said Natalie Adomait, a managing partner in the firm’s renewable power and transition group. The commitments came from the Brookfield Global Transition Fund, which wrapped up fundraising in June with $15 billion.

The declining costs of carbon-capture projects make them more economically viable and offer a way to reduce emissions while other technologies evolve, Ms. Adomait said. She cited hydrogen fuel and direct-air capture, or extracting carbon dioxide from the air, as examples of carbon-reducing technologies still in development.

“We see an immense opportunity both from a financial perspective but also to buy us time in the carbon budget…[for] the cost of other decarbonization technologies to come down," she said. “Carbon-capture technology has been used specifically for enhanced oil recovery in the past, but it has allowed that technology to become proven and well understood so that it can be deployed in a very material way today."

Meanwhile, Ms. Adomait added, governments are making carbon emissions increasingly costly for businesses as part of their efforts to fight climate change. As example, she cited Canada’s carbon tax, which is set to increase to 170 Canadian dollars, equivalent to $123.75, per metric ton of carbon dioxide by 2030 from C$50 per metric ton today.

The rising tax will likely drive demand for Entropy’s modular carbon capture units, she said. Those systems use a proprietary solvent to “scrub" the gas from emissions before release into the atmosphere. Heat is used to separate the gas from the solvent so the CO2 can be stored underground.

“By applying and installing carbon-capture technology, they can actually avoid that carbon tax," Ms. Adomait said of emitters.

Private investment firms are pouring money into carbon-capture infrastructure operators as well as startup technology developers in the sector.

Other recent deals include TPG Inc.’s $300 million commitment to Summit Carbon Solutions LLC as it builds a project that will serve ethanol producers and other industrial companies in the Midwest. Also, Partners Group Holding AG co-led a 600 million Swiss franc, or roughly $603.3 million, investment in Climeworks AG, whose systems filter carbon dioxide from the air.

Overall, so-called carbon-tech startups received $5.6 billion in investments during this year’s first six months, or about the same as in the first half of 2021, according to research provider PitchBook Data Inc.

The U.S. Inflation Reduction Act is expected to add to the momentum, said Clio Crespy, a senior managing director at investment bank Guggenheim Securities who helped California Resources form its Brookfield joint venture. The law enacted in August raises carbon-capture incentives to $85 per metric ton from $50.

“A lot of projects that weren’t economically viable at $50 are now economically viable at $85," Ms. Crespy said.

Still, few firms so far have matched Brookfield’s bet on the sector. California Resources had difficulty finding the right partner to convert depleted wells in its Elk Hills field for storage, said Mac McFarland, chief executive of the Long Beach, Calif.-based company. While the field’s underground geology is ideal for trapping CO2, the infrastructure to capture the gas and transport it from emission to storage sites requires significant investment, he said.

“A lot of energy-transition funds want to invest in projects that are clearly defined and they want them to look like infrastructure investments. We’re not there yet," Mr. MacFarland said. “What we needed was a partner who understood development risk and how to develop projects."

The joint venture, Carbon TerraVault JV HoldCo LLC, expects to spend $2.5 billion to reach its target of storing 5 million metric tons of CO2 annually to reach a 200 million metric ton total, Mr. McFarland said. The developer aims to store 1 million metric tons per year by 2025 and generate revenue from incentives and by selling low-carbon-fuel credits in California.

This story has been published from a wire agency feed without modifications to the text