Exxon Makes a Long-Shot Bet on Climate Tech. Sizing Up the Costs

$Exxon Mobil(XOM)$  , whose business has been built on products that emit carbon dioxide, is now pulling that gas out of the air through a contraption that it thinks could help solve climate change.

Exxon CEO Darren Woods spoke about the invention this past Friday during the company's first quarter earnings call. It's known as a direct air capture unit and sits at the company's Baytown, Texas, refining and chemicals complex. The unit, completed late last year, works almost like a hair dryer -- pulling air through one end and pumping it out the other. In the middle are filters that capture carbon particles. Once enough carbon is captured, it can be isolated and transformed into a liquid, allowing it to be stored underground.

Unlike many of the climate-related projects Exxon is undertaking, this plant is highly experimental. Exxon has previously said that its low-carbon businesses like biofuels and lithium-mining need to make double-digit returns. Direct air capture, by comparison, is more of a space-age science experiment for now -- one that may pay off or fade away. The company isn't disclosing how much it's spending on the project.

The idea of capturing carbon dioxide emissions and keeping them from entering the atmosphere is not a new one. Historically, carbon capture has been focused on capturing carbon directly from the source of the emissions, like the smokestacks at industrial plants. After capturing and liquefying that carbon, companies have used it for various purposes, including pumping it back into the ground to force oil out. Exxon is also working on projects that capture carbon emitted by industrial plants and store it underground in rock deposits -- a process that's supported by tax credits in the Inflation Reduction Act.

Direct air capture takes the same idea but pulls the carbon directly out of the air instead of hooking it up to an industrial plant. The process is extremely inefficient, because the amount of carbon in the air is tiny -- about 420 parts per million. But companies are figuring out how to do it at a large enough scale to make a dent.

Climeworks, a Swiss company, has a carbon capture facility in Iceland that can capture 4,000 tons a year, and expects to finish a larger plant this year that can capture 36,000 tons. The plants are powered by renewable electricity, so that they don't add even more carbon in the process of removing it. Industry proponents say the technology will have to scale up to billions of tons by 2050 to achieve the world's climate goals.

The economics of direct air capture are tricky. The cost of building and powering the plants make them expensive to run, given how little carbon they are able to absorb per day. Currently, direct air capture costs $600 to $1,000 per ton, much higher than the average price of carbon in the markets where it's traded. In Europe, one of the few regions with carbon taxes and an actively traded carbon contract, the price is now around 65 euros, or $70, per ton.

Because of that price disparity, direct air capture hasn't taken off in most of the world. It's too expensive to be used to meet mandatory carbon requirements. Most of the companies buying the credits are using them to achieve self-imposed net-zero emissions targets -- so-called voluntary markets. Companies like $Microsoft(MSFT)$  , which has a goal to be carbon negative by 2030, have signed deals with Climeworks to remove and store carbon on their behalf. $Occidental(OXY)$   also bought a direct air capture company called Carbon Engineering for $1.1 billion last year, and is working on scaling up the technology.

Exxon says it is trying to solve the affordability problem, so that it can make direct air capture a feasible large-scale solution for carbon removal. The company hasn't detailed how exactly it will do that. "It's proprietary and so I'm going to keep it that way," Woods said on the earnings call.

But Karan Mistry, a partner at Boston Consulting Group who has studied the field, said one key is to decrease the energy costs associated with running the plants. At its Baytown direct air capture plant, Exxon says it is using power and heat from its larger manufacturing complex, which could help cut those energy costs. The company's goal is to cut the cost in half, "because that is a significant step change, recognizing it won't be enough," Woods said.

"This is a tough challenge to break, and I'm not pretending like we're going to be the ones to solve it, but I am confident that we will give it our all, applying our capabilities," he added.

Even if Exxon isn't the company that discovers the best design for direct air capture units, Woods expects Exxon to be involved in deploying the units around the world, given the company's expertise and scale.

"I see a role for us in the future if this nut gets cracked," Woods said. "We feel good about what we've seen so far, but we're very early into it."

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