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Inflation is the enemy of direct air capture

Of note: Occidental Petroleum just upped their estimate of the cost of carbon capture from $0.8-$1 billion to $1.1 billion for its first plant.


This in itself is not a surprise - inflation as a whole has been on a tear. However, Occidental's ability to profit from its carbon capture is indexed in part to the Inflation Reduction Act, which does not index to inflation until 2027. Thus any inflation associated with its cost to build will be reflected in higher depreciation costs through its life, and thus lower profit.


The California Low Carbon Fuel Standard is indexed to inflation, and this represents over half of the income that Occidental might expect, so inflation-related costs are not devastating. But they are a concern, especially if they are coupled to interest rate increases that dramatically change the company's working average cost of capital. Interest rate increases are perhaps the greatest concern here: A rise in rates of a few points could easily turn a $200/ton project into a $250 or $300/ton project... or turn a $300/ton project into something uneconomic.


The problem with interest rates is one that is broadly true of all renewable energy projects as well - solar, wind, and batteries are all high in capex relative to opex. The biggest barrier to reducing carbon quickly may not be technical, but macroeconomic.

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