The United Kingdom’s Carbon Capture Industrial Strategy

This commentary is part of Energy Rewired, a project from the CSIS Energy Security and Climate Change Program studying the industrial strategies of major economies for the energy transition. The project examines countries’ big bets on emerging energy technologies and how these will rewire the world’s energy map.

Key Points

  • The United Kingdom considers carbon capture, usage, and storage (CCUS) an opportunity for economic growth in the country and a key part of achieving net-zero emissions. The country’s long-term strategy hopes to capture 47 million tons of carbon dioxide (CO2) by 2050.

  • The government’s strategy will invest in research and development, CO 2 transport and storage infrastructure, and demonstration projects, as well as providing incentive payments to project developers. In addition, the government has established several institutions that bring together government, industry, and academia to advance the sector.

  • CCUS is nascent in the United Kingdom, but the country is seeking to deploy enough of the technology at industrial plants and power plants to capture 20–30 million tons of CO2 per year by 2030—about 4–6 percent of the country’s emissions in 2019.

  • The government is seeking to develop industrial CCUS “clusters” in energy-intensive areas across the country. The first two selected projects plan to capture CO2 from power generation, hydrogen production, chemical production, steel production, and waste-to-energy projects in coastal areas and store it offshore.

Analysis

Vision

The United Kingdom’s strategy for carbon capture, usage, and storage (CCUS) seeks to drive cost declines so the technology can be deployed at a large scale in the 2030s. Initially, this effort fell under a broader Industrial Strategy for the country that aimed to make the country the “world’s most innovative economy.” However, in the wake of the Covid-19 crisis, the government shifted to a new Plan for Growth, which doubled down on infrastructure investments and research and development (R&D) spending, and adopted a Net Zero Strategy established in 2021.

Building on a November 2020 Ten Point Plan for a Green Industrial Revolution, the Plan for Growth pledges 100 billion ($138 billion) in infrastructure spending in 2021—a 30 percent increase from the previous year. The United Kingdom spent £13.4 billion ($18.5 billion) on R&D in 2019 and the government has pledged to increase that to £22 billion ($30 billion) per year by 2025. It is unclear how much of this will be directed toward energy, but the Ten Point Plan pledged £12 billion ($17 billion) to support green jobs. In 2019, energy received 4 percent of public R&D funding.

The Net Zero Strategy sets out four main principles that will drive the government’s decarbonization plans: there will be no mandates for consumers to replace existing products or infrastructure, the government will institute fair carbon pricing, low-income consumers will receive economic support, and the government will provide support to businesses to deploy low-carbon technology. The carbon pricing point is new to this strategy. The United Kingdom left the EU Emissions Trading System when it left the European Union, so a new UK Emissions Trading Scheme was established in 2021 covering energy-intensive industries, power generation, and some aviation. The Net Zero Strategy promises the emissions cap will be “aligned with a net zero consistent trajectory” by 2023.

The United Kingdom has also established ambitions for the deployment of CCUS. For example, the Plan for Growth set a goal to capture 10 million tons of carbon dioxide (CO2) per year by 2030, which the Net Zero Strategy increased to 20–30 million tons. This would almost double the global capture capacity operational as of 2021. The CCUS deployment target also ties into a goal set in the Ten Point Plan for a Green Industrial Revolution to establish two CCUS clusters by 2025 and another two by 2030. This cluster strategy is in line with those of other countries around the world; companies are co-locating CCUS facilities with power and industrial plants in countries such as China, Australia, and the United States.

The United Kingdom emphasizes economic opportunity in its CCUS buildout. Indeed, the government claims its deployment target could support 50,000 jobs in 2030. However, it also makes it clear that CCUS is an important tool to meet the country’s emissions goals, which pledge net-zero emissions by 2050. In 2008, the Climate Change Act created a requirement for “carbon budgets” establishing emissions-reduction targets in five-year increments. Cumulatively, the first five budgets establish a 57 percent reduction from 1990 levels by 2032. As of 2020, the country had already reached a 50 percent reduction from 1990 levels, although some of that was due to the Covid-19 pandemic and is expected to rebound. These reductions were driven by the country almost eliminating coal from electricity production, increasing industrial and building efficiency, and lowering methane emissions from fossil fuels. The latest carbon budget estimates that the United Kingdom will need to be able to capture 47 million tons of CO2 per year by 2050 to reach net-zero emissions.

Strategy

The central blueprint for the United Kingdom’s CCUS strategy is the 2018 CCUS Deployment Pathway Action Plan, which sets out priorities to address policy barriers and establish markets and market mechanisms for CCUS. This process has led to consultations with industry and outside experts, including identifying potential business models for CCUS and initiating a supply chain review. Most of the United Kingdom’s investments to date are devoted to reducing the cost of CCUS technology through research, development, and demonstration. As of the publication of the Action Plan, the government had committed £45 million ($61.2 million) to this purpose. Since then, the government has added to this with the CCUS Innovation 2.0 competition, which pledges £19.5 million ($26.5 million) in grants to new technologies or processes that reduce the cost of CCUS, and reinvigorated its £70 million ($95.3 million) international CCS research program.

In addition to innovation support, the government is planning economic support schemes for different types of CCUS projects: CO2 transport and storage, industrial projects with CCUS, and power plants with CCUS.

For CO2 transport and storage, the government is taking a “build it and they will come” approach, providing capital to first movers willing to build out the infrastructure and guaranteeing a rate of return. The £1 billion ($1.4 billion) CCUS Infrastructure Fund (CIF) will help cover capital costs for early transport and storage companies when supply is expected to outstrip demand. Then, an Economic Regulatory Regime will provide licenses to transport and storage companies, who will then be allowed to charge a user fee at a regulated rate of return.

Economic support for industrial CCUS will be similar to the support for transport and storage. Industrial plants with CCUS will be able to apply for funding from either the CIF or the Industrial Energy Transformation Fund (IETF), a £315 million ($435 million) fund to de-risk investments in feasibility studies and early deployment projects. Industries eligible for the IETF include mining, manufacturing, recovery and recycling of materials, and data centers. Ongoing economic support will come from an Industrial Carbon Capture contract between the project owner and a government-appointed counterparty. The counterparty will pay a negotiated strike price based on the expected operational costs.

Power plants with CCUS will not receive capital support for construction but can receive ongoing economic support. Power plants with CCUS will enter into Dispatchable Power Agreements with a government-appointed counterparty, which will pay an availability payment for capacity and a variable payment to make generation from plants with CCUS cheaper than from unabated fossil fuel plants.

Several institutions in the United Kingdom bring together government and industry. Prior to 2018, the CCUS Cost Challenge Taskforce worked to deliver a report on how to achieve cost reductions sufficient to scale CCUS in the 2030s. The CCUS Advisory Group was formed in 2019 following the establishment of the Action Plan. The group brought together government and industry to evaluate business models for CCUS in the United Kingdom. The CCUS Council was formed in 2018 to bring together government, industry, and academia to advise the government on policy and supervise progress toward the government’s CCUS goals. The government collaborates on research as well; overseen by the Engineering and Physical Sciences Research Council, the UK CCS Research Centre brings together universities, government researchers, and industry partners to work on carbon capture, transport, and storage technologies.

Geography

The United Kingdom’s deployment strategy for CCUS is focused on developing clusters in industrial centers across the country. A 2017 study commissioned by the government evaluated seven potential areas for industrial CCUS clusters and found that the skills, economic position, and motivation of energy industry hub Teesside made it ideally positioned for a CCUS cluster, with the other six areas at various levels of readiness.

In mid-October 2021, the government announced that the East Coast Cluster, which brings together projects in Teesside and Humber, and HyNet in northwest England had won the first phase of its cluster sequencing process and would be first considered for the economic support schemes detailed above. The Scottish Cluster has been designated a “reserve cluster” in case one of the top choices cannot reach a deal in negotiations with the government. The East Coast Cluster plans to capture carbon from fossil fuel power generation, biomass power production, hydrogen production, nitrogen production, steel production, and waste-to-energy projects in Teesside and Humber on the North Sea. HyNet plans to capture carbon from a hydrogen production plant outside Chester in northwest England and store the carbon offshore while sending the hydrogen to a network of industrial hydrogen consumers in northwest England and northern Wales.

Four of the five clusters originally deemed eligible for the program, including the East Coast Cluster project, are located primarily or totally on the North Sea. The North Sea is home to much of the United Kingdom’s oil and gas production. In March 2021, the government signed a deal with the domestic oil and gas industry to help lower carbon emissions from oil and gas production, including a commitment for the government and industry to jointly invest up to £3 billion ($4.1 billion) in CCUS projects. The commitment also includes a “checkpoint” for new oil and gas leases that are “aligned with wider climate objectives,” incorporating the presence of CCUS into its decision criteria.

Stephen Naimoli is an associate fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C.

This commentary is made possible by support from the Hewlett Foundation.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Stephen J. Naimoli