Special thanks to Chris Carson, Managing Director of BioCarbonics Ltd, founder of Carbonic Solutions BV and Rich Gottwald, President & CEO of the Compressed Gas Association (CGA).
Carbon Dioxide (CO2) is one of the top-5 industrial gases with global consumption of about 235 million tons (Mt) annually, primarily going into the fertilizer industry for urea manufacturing, the oil sector for enhanced oil recovery, and food and beverage processing (via merchant CO2 suppliers). Demand continues to grow due to its unique/versatile properties resulting in many different applications such as carbonation, chilling/freezing, pH control, fire abatement, and much more. However, CO2 is also regarded as the leading climate issue for its role in accelerating global warming. It is produced by the burning of fossil fuels (coal, oil or natural gas) to generate electricity and for transportation purposes, as well as in various manufacturing process such as cement or steel production. So, CO2 is a critical component in the production of many products today, but on the other hand, emissions of CO2 is targeted for significant reduction for the foreseeable future. As a result, we’ll take a deep dive into the business of CO2 starting with its past history, discuss current trends/challenges/trade-offs, and conclude with an outlook and forecast for this space.
The Past
The history of CO2 goes back centuries, but the official discovery was made by Scottish scientist Joseph Black in 1754. A few years later, British scientist Joseph Priestley produced the first carbonated beverage in 1767 and documented how to produce sparkling water in 1772 by infusing water with CO2. Beer which contains some “natural carbonation” as part of its processing from a fermentation step that generates CO2, was produced much earlier, possibly as early as 5000 B.C. Additional carbonation, which gives a glass of beer more fizz and a “head,” started being added many years later, but shortly after Priestley’s discovery. The most common theory is that additional carbonation was first added to beer production by the English in the early 1800s. Throughout the century CO2 demand continued to grow in its use for carbonation, but perhaps the most significant innovation came in 1886, when American pharmacist J.S. Pemberton created the iconic taste of Coca-Cola…. which was followed shortly thereafter by Pepsi Cola.
In the early 1900s, “dry ice” was discovered and first entered commercial production, where it was extensively used for refrigeration and freezing of foods. Virtually every ice cream parlor in the world used dry ice for keeping ice cream frozen, until electric refrigeration became more affordable and efficient.
Ammonia started being commercially produced in large quantities in the mid-1900s, using the Haber-Bosch process which produced CO2 as a byproduct. Historically, most ammonia manufactured around the world ended up in fertilizer, and the byproduct CO2 was sold to Merchant CO2 producers. Ethanol was in high demand during World War II because of fuel shortages, but it wasn’t until the 1970s when ethanol growth exploded when petroleum-based fuel became expensive and environmental concerns began rising. Carbon dioxide is also produced as a byproduct during ethanol manufacturing (fermentation) process, similar to what occurs in the beer making process. As the number of plants increased the amount of CO2 produced has also grown, although only a small percentage of these plants capture CO2 and sell it to Merchant producers. In the 1970s, CO2 also began to be used for Enhanced Oil Recovery (EOR) which helps “squeeze out” oil in wells with declining production. The CO2 was sourced from naturally occurring CO2 wells in the southern and western US and due to the large volumes was transported via pipeline to the oil fields. Since then, over 4500 miles of pipelines have been constructed to deliver CO2 for this application.
Around the same time there was rising international focus on the environment. The United Nations (UN) convened its first panel on Climate Change in 1989, followed by the first Earth Summit in 1992. During this time, it was found that CO2 was one of the greenhouse gases (GHG) whose growing concentration in the earth’s atmosphere contributed to global warming. Then in 1997, the first UN conference was held, which attempted to secure legally binding CO2 emissions reductions from countries around the world, and after nearly 20 years in 2015 the Paris Climate Accord (PCA) was signed, providing the impetus that moved several countries forward to establish formal strategies supporting their PCA commitments. Since then, CO2 emissions reductions legislation had been gradually expanding around the world.
The Present
Ironically, while senior business leaders have been dealing with growing GHG legislation to help reduce the amount of CO2 emitted to the atmosphere, end-users have suffered from CO2 supply shortages and have had to look for alternative supply solutions to meet their needs. These challenges, in addition to the macroeconomic and geopolitical backdrop, have contributed to 2022 being one of the more challenging years in recent history for the CO2 industry. The pain was felt on most every continent to some degree except for maybe Australia, all tied to similar root causes. In the US, it was both maintenance shutdowns of CO2 plants (at ethanol and ammonia facilities) along with contamination concerns at the Jackson Dome carbon dioxide well which has since been resolved. In the UK and continental Europe, the unprecedented rise of Natural Gas costs forced the largest Ammonia producers (which also produce CO2 for the merchant market) to curtail production or shut down. In October of last year, Norway-based Yara International, the world’s second largest producer of ammonia, stated that their ammonia utilization capacity was down to 35% and cited the “record high price of gas” as the main issue. Similar scenarios have occurred in Mexico, all across Europe, New Zealand, Korea and many countries around the world where their CO2 is tied to the reliability of another industrial commodity.
The signing of the Inflation Reduction Act (IRA) in August 2022, boosted the federal tax incentives for carbon capture utilization and storage projects in the US. This legislation has provided a potentially more financially attractive alternative for companies producing byproduct CO2. They are able to get paid by the government to sequester while lowering their GHG emissions, in lieu of selling it to Merchant CO2 producers. The Act increased the amount of the tax credit, eased the requirements for qualifying for the credit, and provided developers with more options for monetizing the credit. As a result, it has spurred a variety of carbon capture projects with the most visible being 3 unique pipeline projects in the upper Midwest of the U.S. from Navigator CO2, Summit Carbon Solutions and Wolf Carbon Solutions. These projects tie many of the ethanol and ammonia producers together, capturing their CO2 emissions and sequestering them underground. And as you would expect, there are many legal and right-of-way challenges that would need to be overcome for any of these to be a reality. Nonetheless, this upgrade in US legislative incentives for carbon capture projects, has also encouraged other regions of the world to also enhance their specific schemes, whether renewable energy incentives or even carbon tax based options, to better encourage industry and keep them on-track for achieving 2030 GHG reduction goals.
The signing of the Inflation Reduction Act (IRA) in August 2022, boosted the federal tax incentives for carbon capture utilization and storage projects in the US. This legislation has provided a potentially more financially attractive alternative for companies producing byproduct CO2. They are able to get paid by the government to sequester while lowering their GHG emissions, in lieu of selling it to Merchant CO2 producers. The Act increased the amount of the tax credit, eased the requirements for qualifying for the credit, and provided developers with more options for monetizing the credit. As a result, it has spurred a variety of carbon capture projects with the most visible being 3 unique pipeline projects in the upper Midwest of the U.S. from Navigator CO2, Summit Carbon Solutions and Wolf Carbon Solutions. These projects tie many of the ethanol and ammonia producers together, capturing their CO2 emissions and sequestering them underground. And as you would expect, there are many legal and right-of-way challenges that would need to be overcome for any of these to be a reality. Nonetheless, this upgrade in US legislative incentives for carbon capture projects, has also encouraged other regions of the world to also enhance their specific schemes, whether renewable energy incentives or even carbon tax based options, to better encourage industry and keep them on-track for achieving 2030 GHG reduction goals.
Approximately 70% of the world’s Merchant CO2 is being used by the Food & Beverage market, and since product availability continues to be constrained more frequently in recent years, alternative CO2 sources are gaining greater visibility.
One alternative source, Biogenic CO2, has been around for some time, and due to its “ecofriendly and green” nature it has been revitalized. It is produced from the decomposition, digestion or combustion of biomass or biomass-derived products such as crop waste/residues, animal waste, wastewater treatment or municipal solid waste, as well other waste streams. These facilities are generally small but produce a steady stream of biogas that is 40-45% CO2 dependent upon the waste utilized. The waste stream then proceeds through a multi-step process to remove all unwanted residues and impurities from the CO2, producing a product of quality and purity suitable for use in a variety of industries. The known challenge for this source, or any new source, is that it has a completely different set of impurities (as compared to ammonia or ethanol sources) and needs to be tested and validated prior to use. As a result, the adoption of this type of alternative CO2 source has been impeded, because many leading food and beverage producers (in particular) have only accepted liquefied CO2 from a source they have analyzed and proven themselves. Acceptance will take some time… Nonetheless, the EU appears to be the leader with over 19,000 biogas plants in operation (with a growing fraction of these with CO2 recovery), with funding available and policies in place to support this industry.
Due to the length and severity of the CO2 supply shortages over the past 24 months, users of CO2 are starting to become more accepting of CO2 recovered from alternative CO2 sources such as biogas. The key for us as a CO2 supplier from these types of sources is to understand and manage them effectively, so that the production and distribution chains are “fit for purpose” and meet the quality and food safety requirements demanded by the CO2 users in the food & beverage industry.
Chris Carson, Managing Director of BioCarbonics Ltd, founder of Carbonic Solutions BV
Merchant CO2 producers have been impacted by a variety of challenges, most notably increased production and supply chain costs, due to rising natural gas, fuel and labor costs. Another impact is the negative image that CO2 has gained, due to its linkage to GHG emissions. On the one hand, with the size of the Merchant CO2 market being a fraction of the amount of CO2 emissions being released to the atmosphere (<<1%), one would think it is not a big deal, however, it has a negative perception. One of the industry trade associations, the Compressed Gas Association (CGA), which historically has been focused on developing safety standards for industrial gas products and providing them to the end-users of the product, has been shifting over recent years to advocating and educating (in partnership with the industrial gas manufacturers) legislative officials and policy makers on the positive aspects of industrial gases versus the perceived negative aspects. Recent examples include the CO2 shortage at the beginning of the pandemic as US ethanol plants were shut down as transportation dropped, the criticality of medical oxygen in certain “hot spots” during the pandemic, and the importance of helium as a critical mineral as the Federal Helium Reserve is wound down. In all cases it took a collaborative effort between industry and policy makers to make needed changes, and it appears that the challenges with CO2’s perception could benefit from a similar approach.
The negative perception of CO2 is a challenge we have encountered before with other industrial gases. We have a plan underway that will use an industry coalition made up of key players from the industrial gas companies as well as from the end-user markets. The Coalition will focus on educating policymakers on the value that both CO2 and this industry at large provide to the economy and society.
Rich Gottwald, President & CEO of CGA
The Future
The consensus growth forecast for CO2 is in the range of 2-3% over the next 3-5 years, which is at or slightly below core industrial gas growth. The major drivers of growth are the Food & Beverage market, industrial manufacturing, as well as emerging and recently developed applications and end-markets, while the primary headwind is the impact of GHG emission reductions that will drive sequestration of CO2.
The multi-trillion-dollar global Food & Beverage market is forecasted to grow in the mid-single digits over the medium term (3-5 years), with some areas growing faster depending upon the geography and the market segment. Growing consumption of plant-based substitutes, increasing demand for more sustainable ingredients, and increased use of frozen/chilling environments to extend the supply chain or shelf-life all bode well for growing CO2 usage.
There are three well-known emerging opportunities for CO2 that have significant growth potential – CO2 enrichment in cannabis production, carbon-cured concrete and sustainable aviation fuels. With increasing legalization of cannabis and rising acceptance of its use for medical purposes for treatment of various chronic conditions, the global market is expected to expand at a compound annual growth rate in the low double digits over the next 5-10 years, with CO2 demand growth to this segment at similar levels. The high growth rate has attracted many players, so the CO2 producers/suppliers will need to both be disciplined and patient as the number of players are rationalized as the market develops and matures.
Another emerging opportunity is the increasing usage of CO2 in concrete processing due to the fact that the production of concrete is responsible, by some estimates, for as much as 10 percent of global carbon dioxide emissions. One solution from Canadian company Carbon Cure, integrates with a concrete plant’s existing batching system and injects CO2 into ordinary ready-mix concrete, chemically bonding to it, reducing its net carbon footprint, while at the same time increasing its compressive strength. Carbon dioxide growth in this segment will be tied to growth in the construction markets, and the market’s willingness to deliver sustainable solutions to the end-users…which will require some government and industry incentives.
Aviation travel contributes only about 2% of global GHG emissions, however, it has grown faster in recent decades than road, rail or shipping transportation areas. One of the solutions for constraining or even reducing its growth is the increased use of Sustainable Aviation Fuels (SAF) or sometimes called “advanced biofuels.”
SAF can be produced from a wide range of feedstocks, including forestry and agricultural waste, used cooking oil, and others, and some feedstocks require CO2 as part of the processing. Currently commercial sale of sustainable aviation fuels (SAF) is subject to blending limits, but with 100% SAF flights recently completed and further trials ongoing, the sale of 100% SAF is expected soon. The IEA is forecasting growth in SAF use from less than 0.1% of all aviation fuels in 2021 to around 10% by 2030 to stay on track with emission goals. Again, CO2 would benefit from this growth depending on the type of SAF produced.
Offsetting some of this growth will be the impact of CO2 sequestration. It is still early but it is expected that legislative incentives will convince many companies across a variety of industries to monetize their waste CO2 streams. In North America and Europe, there is strong legislative support and carbon capture is viewed as critical to meeting medium and long term GHG emission goals. As a result, carbon capture and storage projects (CCS) increased by 44% in 2022 per the Global CCS Institute, and the International Energy Agency (IEA) is forecasting nearly 200 Mt of captured CO2 annually by 2030, which is up from 27 Mt of captured CO2 today (~28% CAGR). This growth in CCS will impact the Merchant CO2 market in the short to medium term with continued product shortages, upward pricing pressure, and some end-users forced to pursue alternatives to CO2 such nitrogen or mechanical refrigeration.
In many geographies, we are already seeing CO2 supply restrictions due to the shift of ammonia production and refinery operations to regions with lower energy costs. Carbon sequestration appears to be the next challenge to the CO2 supply. In North America, you have the enhanced incentives for underground sequestration of CO2 in the Inflation Reduction Act, and in Europe you have the incentive to avoid carbon taxes of the ETS. Both of these programs are likely to divert the CO2 from many of the large CO2 sources which supply the majority of the Merchant CO2 Industry into underground reservoirs, causing even more shortages of merchant CO2 in the future.
Chris Carson, Managing Director of BioCarbonics Ltd, founder of Carbonic Solutions BV
The Inflation Reduction Act makes it more profitable for companies to sequester their waste CO2 rather than selling it for clean-up and purification to the Merchant market. However, what is not fully understood by policymakers (yet) is the impact that decision will have on the entire CO2 value chain, especially to food and beverage end-markets, as well as to other critical end use applications. We intend to make sure they understand the impact of this decision.
Rich Gottwald, President & CEO of CGA
In Closing
CO2 has become a top-5 industrial gas product that is critical to a variety of end-markets. But at the same time, it is also a major GHG contributor and targeted for significant emissions reductions for the foreseeable future. This dichotomy for CO2 has to be navigated in a thoughtful fashion, leveraging both the recent CO2 applications that lower the carbon footprint of the customer’s final product (i.e., carbon cured concrete), as well as supporting and contributing to emissions reductions. The solutions are not simple, and probably multiple in nature, clearly meeting the needs of all the parties involved. Only time will tell if we are successful….
