UK government to inject £20 billion into early stage Carbon Capture, Usage and Storage ("CCUS") deployment

What is CCUS?

CCUS involves the capture of CO2 from large emitters, such as energy generators and industrial facilities that use either fossil fuels or biomass fuel and therefore emit a large amount of CO2 into the environment.

The CO2 can be captured directly from the atmosphere and then compressed and reused in a range of applications or permanently stored underground. 

It is the core technology to enable low-cost “blue” hydrogen, an essential intermediary towards wide-scale adoption of renewable-derived “green” hydrogen for the future hydrogen economy, and in turn, for producing sustainable synthetic fuels. Finally, it is the enabler to cancel out unavoidable and historic emissions by combining with bioenergy or direct air capture (1).

Budget announcement

The Chancellor announced in his Spring Budget on 15 March 2023 that the Government will be providing £20 billion in funding for early deployment of CCUS and stated that the focus for this investment will be concentrated particularly on the East Coast and in the North West of England and North Wales. 

Track-2 clusters 

After delays to decisions in respect of the projects that will make up Track-2 of the cluster sequencing for CCUS deployment and pressure growing from Scotland for further announcements in respect of the Acorn project in North East Scotland which is currently on the reserve list for Track-1, the Government has announced it will be looking to establish two new clusters as part of Track-2. 

The Government confirmed that Acorn and Viking transport and storage systems appear to be best placed to meet the required criteria and deliver on the objectives of Track-2.

The Government its objectives in the Track-2 guidance as:

1. Select two new CO₂ clusters that together have the potential to store at least 10 megatonnes per annum (Mtpa) of CO₂ by 2030 through a range of carbon capture projects.
2. Ensure that Track-2 is affordable and represents the best possible value for money.
3. Set a foundation to grow CCUS beyond Track-2 and maintain and increase the economic value of key industries associated with CCUS.

The Government is now taking expressions of interest ("EoI") for other transport and storage systems that believe they meet the criteria set out in the Track-2 guidance. The EoI period is only open until 28 April 2023 so any other systems that believe that they meet the criteria must act quickly as submission of an EoI is a necessary condition for being considered for the Track-2 assessment and selection stage.

IPCC Report

The importance of the investment in CCUS and a fully formed strategy as to how this will be integrated into the UK's industrial capacities was brought into stark focus by the report issued recently by the IPCC. The report observed that "widespread and rapid changes in the atmosphere, ocean, cryosphere and biosphere have occurred" and that some future changes to the climate are "unavoidable and/or irreversible" but can be limited by "deep, rapid and sustained" reductions in emissions.

The report noted that carbon capture and storage ("CCS") is established in the oil and gas sectors but not so in the power sector, as well as cement and chemicals production and stated that CCS is a critical option for mitigating CO₂ emissions from these industries.

DWF's view

DWF published a report earlier this year emphasising the importance of CCUS which called on oil and gas companies, infrastructure investors, asset managers, and pension funds to invest in the industry.

Darren Walsh, DWF's Global Co-head of Energy, says “CCUS is an integral part of the energy transition in Europe, but it needs significant private investment plus sponsorship from the relevant country-level and EU-level public bodies and consenting authorities. At the moment, the current overlap of consenting regimes for cross-border and/or cluster-based CCUS projects has created a jigsaw, which does not present a cohesive picture of the region’s regulatory systems.”

The Budget announcement has reaffirmed the Government's good intentions in respect of CCUS investment and has built on the net-zero strategy which recognised the crucial role that CCUS needs to play alongside low carbon fuels in order for the UK to reach its net-zero targets, in particular the strategy highlighted CCUS being fundamental to decarbonising of industries such as chemicals, oil refining, and cement.

It is now time to see real progress and for the infrastructure and regulatory framework to be put in place and for CO₂ emitting industries to play a fundamental part in the development of a UK CCUS capability. The incentive for investors is set out in DWF's report as "CCUS can ultimately be a very big industry in its own right, and those who move fastest to develop the required skills, technology access, and partnerships will have a competitive advantage that goes beyond just capture and use."

The further funding is welcome news for the fledgling CCUS industry in the UK and builds on the £1 billion CCUS Infrastructure Fund announced as part of the net-zero strategy. The subsequent announcements in respect of the expansion of Track-1 and progress on the selection process for Track-2 projects also provide encouragement, however there is a need for a clear timeline for delivery of the Government's ambitions to ensure accountability and clarity in the cluster sequencing process and evidence that the aim of "capturing 20-30 MtCO2 across the economy… per year by 2030" is achievable.

This article was authored by Douglas Pyrke Solicitor, Tax

1. https://sites-dwf.vuturevx.com/10/4168/uploads/ccus-report.pdf
2. https://www.iea.org/fuels-and-technologies/carbon-capture-utilisation-and-storage
3. https://www.iea.org/reports/about-ccus
4. https://www.ft.com/content/6ac36f4d-6049-4de0-8e45-d32852b84557
5. https://www.gov.uk/government/news/uks-industrial-heartlands-boosted-by-next-stage-of-carbon-capture-clusters

Please read DWF's report on CCUS and contact our Energy team for more information.