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The good, the bad, and the hedge
America’s largest oil and gas company just secured the missing elements for it to become one of the nation’s most powerful players in the nascent carbon capture and storage industry.
ExxonMobil announced last week that it was purchasing Denbury Inc., giving it access to an extensive network of pipelines for transporting carbon dioxide and land holdings for injecting the pollutant underground. The nearly $5 billion all-stock sale is the biggest “carbon management” deal yet.
Carbon management is an emerging industry premised on constructing a labyrinth of factories and pipelines to capture emissions from the smokestacks of industrial facilities, and also directly from the atmosphere, and pump them into the Earth’s crust. Exxon has espoused its work on carbon capture for years, but the company’s investments have never matched its rhetoric, fueling accusations of greenwashing. Now, it suddenly seems to be positioning itself to become this carbon maze’s lead architect.
What does it all mean? The Biden administration and many clean energy researchers believe carbon capture may be the only way to reduce emissions from certain sectors like chemical manufacturing, steel making, and cement production — at least in the near term. Some argue that a company like Exxon has the expertise and capital to build this infrastructure, and that carbon management presents a new potential business model for the company. But the idea is controversial among many climate advocates who worry that it will serve solely to give Exxon and others license to continue digging up and selling fossil fuels.
Of course, it’s impossible to know Exxon’s intentions without being in the boardroom. But when I spoke to experts about what the acquisition of Danbury signaled, three theories emerged about the company’s motivations.
Exxon has claimed to be a leader in carbon capture for years, but until recently, the company’s only U.S. project consisted of a single site in Wyoming where Exxon processes natural gas. The carbon collected there was sold to other fossil fuel companies, including Denbury, to inject into depleted oil wells in order to squeeze more crude out of the ground — a technique known as enhanced oil recovery.
But the company has been under increased shareholder pressure over the last several years to do more to reduce its emissions and invest in clean industries. Exxon has long lagged its peers in even disclosing its carbon footprint, let alone setting targets to reduce it. But after activist investors won three seats on Exxon’s board in 2021, the company launched a Low Carbon Solutions business focused on carbon capture, clean hydrogen, and biofuels.
In just the past year, the new outfit has made deals with a handful of industrial emitters throughout the Gulf Coast to manage their carbon dioxide emissions. Exxon has announced contracts to haul off the carbon captured from an ammonia plant in Louisiana — the largest greenhouse gas emitter in the state — as well as a steel plant owned by Nucor and a yet-to-be-built hydrogen plant in Baytown, Texas. It also formed a partnership with Mitsubishi Heavy Industries, which has developed a leading solution for capturing carbon from industrial smokestacks.
The deal with Denbury will significantly speed up the company’s ability to deliver on those agreements. It gives Exxon access not only to 1,300 miles of carbon dioxide pipelines, but also to underground storage capacity estimated at 2 billion metric tons of CO2 — close to a third of what the U.S. emitted in 2021.
To Neil Quach, a former oil and gas analyst for Citigroup and UBS who now works at the think tank Carbon Tracker, the deal shows that Exxon is taking the low carbon future seriously — at least more seriously than its peers like Chevron. He recently authored a paper criticizing Exxon’s strategy, arguing that the company’s oil and gas portfolio was “highly vulnerable to the energy transition.”
“I’ve been arguing that they have to get into transition businesses in a more material way, and this is one step toward that,” he told me. At the same time, though, he noted that the $5 billion deal was still only a drop in the bucket — Exxon turned a $56 billion profit last year and is valued at $400 billion.
Though Exxon appears to be starting to build out a material carbon capture business, to some observers, the key question is, to what end?
“I’m not too enthralled with this purchase,” Dennis Wamsted, an energy analyst at the Institute for Energy Economics and Financial Analysis, and frequent critic of carbon capture, told me. “I see it as a way for Exxon to harvest subsidies from the U.S. government,” he said. “I don’t see this as a legitimate business effort by Exxon to lower its impact on the climate going forward.”
Wamsted was referring to tax credits for carbon capture that were recently juiced by the Inflation Reduction Act. Companies can now earn up to $85 for every metric ton of CO2 they collect from the smokestacks of factories and sequester — making it a potentially profitable endeavor for the first time.
There’s no question that Biden’s signature climate policy is a key motivator for Exxon and also Denbury. Previously, Denbury’s business model centered on using carbon dioxide for enhanced oil recovery. But the company has recently been scooping up acreage in Alabama, Louisiana, Mississippi, Texas, and Wyoming — 10 sites in all — for pure carbon sequestration.
This is what the tax credits were designed to do — otherwise, why would Exxon or Denbury bother spending money to bury carbon when it’s free to dump it into the atmosphere and profitable to use it to extract oil?
I asked Wamsted what would constitute a legitimate effort and whether it matters if Exxon is “harvesting subsidies” if the result is to lower emissions. But he’s not convinced the efforts will actually lead to climate-relevant results. Wamsted acknowledged that it’s challenging to cut emissions from certain industries like steelmaking in other ways, but he’s skeptical that carbon capture will ultimately be the best way to do it. In the case of Nucor, for example, Exxon’s project won’t fully eliminate the emissions produced by the steel plant.
“If there are things that work in five years I’ll give them credit for it,” Wamsted said, “but we have a very short timeframe here to try to get our carbon emissions under control.”
Many of Wamsted’s concerns, like of the safety and security of storing carbon underground, are shared by communities that live near Exxon’s potential injection sites, which could be a hurdle for the projects as they unfold. Many in the environmental justice movement fear that carbon capture will extend the life of polluting plants they would rather see shut down, and could even amplify the risks of living near these sites.
“In the real world, this is an experiment,” Beverly Wright, the executive director of the Deep South Center for Environmental Justice, told The Washington Post. “And this experiment is going to be conducted on the same communities that have suffered from the oil and gas industry.”
If there are two potential futures — one where the world allows the production of fossil fuels for decades to come, and one where production is forced to wind down — perhaps Exxon is just trying to prepare for both scenarios.
“When I looked at the Exxon investment in Denbury, I was curious if it actually signaled a change in how the company was thinking about the future,” Andrew Logan, the senior director of oil and gas at the sustainable investing nonprofit Ceres, told me. “Is it actually thinking the world is going to proceed toward decarbonization, and investing accordingly? Or is this just a way to cover the bases in case things don’t go as they expect?”
Since the Inflation Reduction Act completely changed the economics of carbon capture, Exxon doesn’t have to have had some big change of heart about the energy transition to see it as a good bet. And there’s no indication the company is slowing down its fossil fuel business. CEO Darren Woods announced in early June that he aimed to double the amount of oil Exxon fracks in the U.S. in the next five years. The acquisition of Denbury also comes with significant oil production capacity, including a new enhanced oil recovery project called the Cedar Creek Anticline expected to produce 12,500 barrels per day by late 2024. But in taking over Denbury’s pipelines, Exxon is also better positioned to grow its carbon capture business if it makes sense to.
One of the reasons deciphering all this is so hard is that for a long time the promise of carbon capture technology was used as a way to slow progress, and now it could actually bring about real world emission reductions. But that still depends on how it’s implemented, and whether or not it enables the continued use of fossil fuels.
“In a way, it makes it more complicated because you’re actually gonna see stuff built in a way that we haven’t for the last two decades,” said Logan. “But it still does not remove the need to take much more ambitious steps to bring down emissions elsewhere in the industry.”
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Did a battery plant disaster in California spark a PR crisis on the East Coast?
Battery fire fears are fomenting a storage backlash in New York City – and it risks turning into fresh PR hell for the industry.
Aggrieved neighbors, anti-BESS activists, and Republican politicians are galvanizing more opposition to battery storage in pockets of the five boroughs where development is actually happening, capturing rapt attention from other residents as well as members of the media. In Staten Island, a petition against a NineDot Energy battery project has received more than 1,300 signatures in a little over two months. Two weeks ago, advocates – backed by representatives of local politicians including Rep. Nicole Mallitokis – swarmed a public meeting on the project, getting a local community board to vote unanimously against the project.
According to Heatmap Pro’s proprietary modeling of local opinion around battery storage, there are likely twice as many strong opponents than strong supporters in the area:
Heatmap Pro
Yesterday, leaders in the Queens community of Hempstead enacted a year-long ban on BESS for at least a year after GOP Rep. Anthony D’Esposito, other local politicians, and a slew of aggrieved residents testified in favor of a moratorium. The day before, officials in the Long Island town of Southampton said at a public meeting they were ready to extend their battery storage ban until they enshrined a more restrictive development code – even as many energy companies testified against doing so, including NineDot and solar plus storage developer Key Capture Energy. Yonkers also recently extended its own battery moratorium.
This flurry of activity follows the Moss Landing battery plant fire in California, a rather exceptional event caused by tech that was extremely old and a battery chemistry that is no longer popular in the sector. But opponents of battery storage don’t care – they’re telling their friends to stop the community from becoming the next Moss Landing. The longer this goes on without a fulsome, strident response from the industry, the more communities may rally against them. Making matters even worse, as I explained in The Fight earlier this year, we’re seeing battery fire concerns impact solar projects too.
“This is a huge problem for solar. If [fires] start regularly happening, communities are going to say hey, you can’t put that there,” Derek Chase, CEO of battery fire smoke detection tech company OnSight Technologies, told me at Intersolar this week. “It’s going to be really detrimental.”
I’ve long worried New York City in particular may be a powder keg for the battery storage sector given its omnipresence as a popular media environment. If it happens in New York, the rest of the world learns about it.
I feel like the power of the New York media environment is not lost on Staten Island borough president Vito Fossella, a de facto leader of the anti-BESS movement in the boroughs. Last fall I interviewed Fossella, whose rhetorical strategy often leans on painting Staten Island as an overburdened community. (At least 13 battery storage projects have been in the works in Staten Island according to recent reporting. Fossella claims that is far more than any amount proposed elsewhere in the city.) He often points to battery blazes that happen elsewhere in the country, as well as fears about lithium-ion scooters that have caught fire. His goal is to enact very large setback distance requirements for battery storage, at a minimum.
“You can still put them throughout the city but you can’t put them next to people’s homes – what happens if one of these goes on fire next to a gas station,” he told me at the time, chalking the wider city government’s reluctance to capitulate on batteries to a “political problem.”
Well, I’m going to hold my breath for the real political problem in waiting – the inevitable backlash that happens when Mallitokis, D’Esposito, and others take this fight to Congress and the national stage. I bet that’s probably why American Clean Power just sent me a notice for a press briefing on battery safety next week …
And more of the week’s top conflicts around renewable energy.
1. Queen Anne’s County, Maryland – They really don’t want you to sign a solar lease out in the rural parts of this otherwise very pro-renewables state.
2. Logan County, Ohio – Staff for the Ohio Power Siting Board have recommended it reject Open Road Renewables’ Grange Solar agrivoltaics project.
3. Bandera County, Texas – On a slightly brighter note for solar, it appears that Pine Gate Renewables’ Rio Lago solar project might just be safe from county restrictions.
Here’s what else we’re watching…
In Illinois, Armoracia Solar is struggling to get necessary permits from Madison County.
In Kentucky, the mayor of Lexington is getting into a public spat with East Kentucky Power Cooperative over solar.
In Michigan, Livingston County is now backing the legal challenge to Michigan’s state permitting primacy law.
On the week’s top news around renewable energy policy.
1. IRA funding freeze update – Money is starting to get out the door, finally: the EPA unfroze most of its climate grant funding it had paused after Trump entered office.
2. Scalpel vs. sledgehammer – House Speaker Mike Johnson signaled Republicans in Congress may take a broader approach to repealing the Inflation Reduction Act than previously expected in tax talks.
3. Endangerment in danger – The EPA is reportedly urging the White House to back reversing its 2009 “endangerment” finding on air pollutants and climate change, a linchpin in the agency’s overall CO2 and climate regulatory scheme.