Carbon Capture's Sequencing Challenge Requires Infrastructure Investment First

Northern Lights is spending $700 million to expand CO₂ storage capacity before most capture facilities even exist. Bayou Bend is developing storage for a billion metric tons of CO₂ with no capture projects currently connected. This isn't irrational exuberance—it's the counterintuitive reality of carbon capture deployment economics.

Understanding the Fundamental Sequencing Challenge

The carbon capture industry faces a fundamental sequencing challenge that threatens deployment timelines: transport and storage infrastructure must be developed before capture investments make economic sense. This creates a classic chicken-and-egg problem where emitters won't invest in capture without guaranteed storage access, while storage developers need committed CO₂ volumes to secure financing.

The economics are stark. Capture costs vary dramatically across applications—from €50/ton at Yara's ammonia plant to €120-150/ton at Norcem's cement facility with €350 million in capital costs. But without somewhere to send that CO₂, even the cheapest capture technology becomes worthless.

This paradox has led to the emergence of infrastructure-first "hub" models, where transport and storage networks are developed ahead of widespread capture technology deployment. The European Union projects that a CO₂ transport network of 15,000-19,000 km will be needed by 2050 to meet climate goals. The question isn't whether to build this infrastructure, but how to finance it when the capture facilities that would use it don't yet exist.

Northern Lights Model: European Government-Backed Infrastructure

Northern Lights is creating a new commercial framework to overcome this sequencing challenge through a "transport and storage as a service" model. The project is expanding its CO₂ transport and storage capacity from 1.5 million to a minimum of 5 million tonnes per year with a significant investment of 7.5 billion NOK (approximately $700 million).

This translates to approximately $140 per ton of storage capacity created—a critical benchmark for infrastructure investors evaluating similar hub models. When combined with capture costs ranging from €50-150/ton, the full-chain economics remain challenging without policy support, explaining why 80% government funding was essential for first-phase development.

What makes this approach work? First, substantial government risk-sharing—the Norwegian government covered 80% of the first phase costs. Second, standardized commercial agreements that provide certainty to both sides. Northern Lights has secured a 15-year deal with Stockholm Exergi for 900,000 tons annually and an agreement with Yara for 800,000 tons from their Netherlands ammonia plant.

Most tellingly, Northern Lights' initial phase of 1.5 million tons per year is fully booked before becoming operational. This suggests that when storage infrastructure is available, capture projects will follow—but not before.

Bayou Bend Approach: Market-Driven Storage Development

Across the Atlantic, Bayou Bend is taking a different approach to the same sequencing challenge. The project encompasses nearly 140,000 gross acres with potential storage capacity exceeding one billion metric tons of CO₂. It's strategically located near major industrial corridors in the Texas Gulf Coast region, which collectively emit approximately 100 million metric tons of CO₂ annually.

Unlike Northern Lights' heavy government backing, Bayou Bend leverages U.S. policy mechanisms—particularly the 45Q tax credit, which was increased to $85/ton for CCS and $180/ton for direct air capture. This market-driven approach still follows the infrastructure-first sequencing, but with different risk allocation.

These contrasting approaches to the same fundamental sequencing challenge—government-backed in Europe, market-driven in the US—create different risk-return profiles for investors across the carbon capture value chain.

Strategic Investment Timing Across the Value Chain

For institutional investors, this sequencing creates distinct entry points: infrastructure funds should position now for transport and storage assets backed by regulatory frameworks, while venture capital focused on capture technology should target facilities with confirmed storage access. Private equity faces the most complex timing decision—too early risks stranded assets, too late misses premium returns from early-mover advantages.

The UK is pioneering a regulated asset base (RAB) model for CO₂ transport and storage infrastructure to optimize cost and risk allocation between project developers and the state. This model allows Transport and Storage Companies to charge customers a regulated revenue, including a reasonable return on capital investment.

Key components include:

• An Economic Regulatory Regime determining allowed revenue
• A Revenue Support Agreement providing additional revenue during shortfalls
• A Government Support Package mitigating high-impact risks

These mechanisms create more predictable returns for infrastructure investors, addressing the fundamental challenge of building capacity before demand materializes.

Accelerating Deployment Through New Commercial Frameworks

The integration complexity varies dramatically across industrial sectors. Cement facilities like Norcem face significant operational disruption during retrofit installation, while ammonia plants like Yara's benefit from relatively straightforward process integration. This creates a natural deployment sequence where low-integration-complexity facilities will connect to hubs first, followed by more complex industrial applications as costs decline and implementation expertise develops.

The Petra Nova facility, once the largest carbon capture project, failed to meet its carbon storage targets and was subsequently shut down. This failure has raised concerns among institutional investors about the viability of CCS projects and highlights the challenges of ensuring adequate storage access.

New commercial frameworks are emerging to bridge the gap between infrastructure development and capture deployment. The EU's Net Zero Industry Act is mandating oil and gas producers to contribute to 50 million tons of CO₂ injection capacity by 2030, creating a regulatory push alongside market-based approaches.

For investors, the key insight is that carbon capture deployment depends more on infrastructure development than technological breakthroughs. The projects that will succeed are those that solve the sequencing paradox through innovative commercial frameworks, regulatory models, and financing structures that align incentives across the value chain.

The counterintuitive truth is that to accelerate carbon capture deployment, we must build the pipes before the plants.