China claims 70-90% cost advantage in power plant carbon capture as European projects face costs approaching US$300 per tonne

European and UK CCUS projects suffer from the world's highest costs due to expensive energy, offshore storage requirements, and complex regulations

The global power sector faces a stark divide in carbon capture economics, with Chinese developers claiming dramatic cost advantages whilst European utilities confront prohibitive expenses that render most projects uneconomic.

European power generators face carbon capture costs upwards of US$300 per tonne that render most projects uneconomic, according to Wood Mackenzie's new CCUS and Global Power Generation analysis. Meanwhile, China claims to build equivalent facilities with CCUS costs of roughly $30-40/tCO2, creating a significant viability gap for the technology across the two regions.

The comprehensive assessment reveals that despite the power sector's 13.5 billion tonnes of annual CO₂ emissions—roughly one-third of global energy emissions—only two commercial-scale carbon capture, utilisation and storage (CCUS) projects operate worldwide. Over 50% of announced CCUS capacity for powerplants has been cancelled or delayed over the past decade.

Regional disparities highlight competitive implications

Chinese state-owned enterprises claim to complete CCUS projects in approximately 18 months, more than twice as fast as US and European equivalents. Capital expenditures claimed are 55 to 70% less per tonne captured. With five coal CCUS projects under construction compared to just two operating globally elsewhere, China's apparent cost advantage could reshape industrial competitiveness as the EU's Carbon Border Adjustment Mechanism takes effect from 2026.

"European power generators face a stark economic reality with CCUS. While the technology is technically feasible, the costs are prohibitive without considerable government support," said Peter Findlay, Director and Global Lead, CCUS Economics at Wood Mackenzie. “China's claimed 70% cost advantage in power plant carbon capture could prove as disruptive to this sector as their dominance in solar manufacturing. While the UK's DPA model shows what's possible, the scale of subsidy required raises serious questions about political and economic sustainability across Europe."

The UK emerges as Europe's sole exception through its pioneering Dispatchable Power Agreement (DPA). BP's NZT Power project represents Europe's first commercially viable power CCUS venture, demonstrating attractive returns estimated at 20.8% pre-tax IRR. However, only with government support equivalent to £319 per tonne CO₂. No other European nation has replicated this comprehensive support framework.

The AI power dilemma emerges

The data centre boom presents both opportunity and challenge for CCUS adoption. While oil majors like ExxonMobil and Chevron promote CCUS for powering AI and cloud computing facilities, hyperscalers face difficult trade-offs between sustainability goals and reliable power needs. Many see gas as a 'bridge' fuel to firm intermittent renewables and support data centres due to its uptime and reliability. However, sustainability goals must justify the green premium of CCS, which stands at US$60-95 per MWh today for a combined-cycle gas turbine in the US.

The 45Q tax credit offsets only US$20-30 per MWh of this burden, depending on timeframe and cost of capital. Google's acknowledgement that its zero Scope 2 emissions target by 2030 "is now more complex and challenging" reflects broader industry uncertainty about committing to fossil fuel infrastructure long-term.

Capacity factor trap undermines project economics

As renewable energy forces thermal plants into increasingly flexible roles, CCUS economics deteriorate rapidly. Projects require consistent, high-capacity operation to justify costs, but European gas plants increasingly provide intermittent grid balancing rather than continuous baseload power.

The challenge proves particularly acute for Europe's gas-fired fleet. Combined-cycle gas turbines produce flue gases with only 3-4% CO₂ concentration, making capture significantly more expensive than coal plants with 9-12% concentrations. CCUS adds US$35-200 per MWh to gas power costs and Europe is at the higher end of that, an unbearable burden for most electricity consumers.

BECCS emerges as viable alternative

Bioenergy with carbon capture and storage (BECCS) shows promise where fossil fuel CCUS struggles in incentive to decarbonise. Microsoft's largest-ever carbon removal deal demonstrates market appetite for premium-priced carbon removal credits at US$150-200 per tonne. BECCS projects can show internal rates of return of 16-23%, compared to negative returns for many proposed fossil CCUS ventures.

Unlike fossil fuel CCUS, which merely reduces emissions, BECCS creates negative emissions by capturing CO₂ from biomass combustion, making an attractive ‘offset’ product for companies seeking carbon removal credits.

Technology improvements may arrive too late

Wood Mackenzie projects capture costs to fall 50-60%, in real terms, by 2050 through next-generation technologies. There is upside to this if promising transformational technologies become commercial. However, these improvements require learning from multiple developments moving forward and may not arrive quickly enough to save current project economics. The analysis projects only 350 million tonnes per annum of coal and gas powerplant capture capacity by 2050—roughly 3-4% of the projected global thermal fleet at that time.

"The window for action is narrowing," said Hetal Gandhi, Lead, CCUS – Asia Pacific at Wood Mackenzie. "European utilities face a strategic choice: pursue expensive CCUS projects with uncertain returns or focus investment on alternative decarbonisation pathways that may prove more economically viable."

The CCUS and Global Power Generation analysis is part of Wood Mackenzie's Power & Renewables and Lens Carbon services, designed to help power generators, CCUS developers, policymakers and investors navigate the complex economics of power sector decarbonisation technologies.