29 Mar 2010 | Technology

Capturing a Cleaner Environment 

Toby Ross of Baillie Gifford’s research team visits the site of a trial that could have massive implications for the future of fuel generation, the environment, and investors.   

Sitting outside Scottish Power’s Longannet power station, a coal-fired facility on the Firth of Forth, is an unremarkable blue shipping container with a 20ft chimney. A six-inch silver pipe leads from the container into the side of the power station. It’s not immediately obvious that this is the start of a multi-billion dollar industry, but growing numbers of companies and governments think it might be. 

Inside the container is a pilot plant made by Aker Clean Carbon, which processes a small amount of the carbon dioxide (CO₂) rich flue gas produced by the power station, and uses amine solvents to separate out the CO₂. For the moment this is being released into the atmosphere from a separate chimney, which is something of an anti-climax.
 
However, Scottish Power and Aker hope that within five years they will be able to remove 4 million tonnes of carbon dioxide from the plant’s flue gas each year, and pipe this captured carbon into a depleted gas field in the North Sea, where it can remain for thousands, if not millions, of years. This process is known as carbon capture and storage, or CCS, and many people believe it is one of the technologies with the greatest ability to reduce our carbon dioxide emissions. From an investment perspective, it could also trigger the growth of a large new industry.

The two things holding up investment are the need for the technology to be proven and costs reduced; and the absence of a sustainable financing regime. Governments can help with the former. The Obama administration is providing around $1.1bn of grants for a CCS project called FutureGen in Illinois. The EU has allocated more than €1bn of stimulus funding to six CCS projects in Europe, with the expectation that host governments will match this. Perhaps most radically, the UK government is proposing a carbon capture levy of £17 on every household’s electricity bill, a move that could raise up to £9.5bn of funding for CCS projects.

As yet, there are no ‘pure’ CCS companies in which we can invest. The scale of the projects means that it tends to be the domain of large industrial companies. However, at some stage there are likely to be big beneficiaries. We’ve been watching what early innovators like Alstom, Aker Clean Carbon, and some of the industrial gas companies are doing in the field.

In addition, some of the companies we admire for other reasons are carving out what could prove to be profitable niches. A good example here is Schlumberger, the oil services company, which has expertise in geology and geophysics. It has set up a division to help companies develop safe geological storage of CO₂.

Even if it is difficult to invest in CCS directly today, we can and do invest in many of the industries and companies that will benefit from the higher carbon prices that are likely to come with it.

Aker’s blue container will eventually sail back to Norway for more tests, and the power station will look much the same as it did before. It is perhaps not wise to make precise predictions about how such an immature industry will develop, but hopefully being alert to developments can help us avoid being caught out by some of the wider implications that these technologies might have. And we should be quick to notice as investment opportunities emerge.

Author:Toby Ross
Toby graduated from Cambridge University with a BA in English Literature in June 2006, and joined Baillie Gifford that September as an analyst in the UK Investment Team.  He subsequently moved to the Global Research Group as a Researcher.