UK Carbon Capture and Storage Market: key obstacles, opportunities and policy regulations

Modern advancements in CCS technologies enable capture of CO2 for permanent storage in underground geological formations at scale. CCS provides scope to reduce significant amounts of greenhouse emissions that would otherwise be emitted into the atmosphere, particularly in sectors that cannot otherwise easily be decarbonised (such as heavy industry).

Recent history

Historically CCS infrastructure has been a start-stop development, stymied by slow regulatory approvals, complex cross-border negotiations, and drawn-out construction timelines. However the landscape looks set to improve rapidly over the next decade, as over 500 CCS projects in the development pipeline begin to break ground, and Governments catch-up with regulatory and investment models that address the key barriers that have prevented successful financing and development to date.

Considerations for United Kingdom (UK) and European Union (EU) stakeholders

• Stymied cooperation between countries and accompany regulatory frameworks: Sequestered carbon has been largely stored beneath the European seabed, often in the North and Adriatic seas, to take advantage of natural processes that redistribute CO2 across the deep ocean. But restrictions laid out by the London Protocol have made it difficult for landlocked EU countries to export their carbon for storage. A 2009 amendment allowing for the transborder export of carbon has only ratified by 10 nations—36 approvals are needed for it to become legally binding. Additionally, the CCS-Directive of the European Union has not been implemented in a number of countries, including, for example, Germany. However, this is necessary to establish the required legal framework. Energy leaders should look to capitalise on other bilateral agreements that allow for the export of CO2, such as the trailblazing pact between Belgium and Denmark that enables permanent offshore carbon storage.
• Government support and regulation in the UK: The UK’s Department for Energy Security and Net Zero (DESNZ) has selected a total of four CCS clusters (comprising a transport and storage network and initial carbon capture projects) for support under Phase-1 of Track-1 and Track-2 of its comprehensive CCS market support mechanism.  In addition, eight standalone carbon capture projects, across a mix of technologies, have been selected to proceed to negotiate support under Phase 2 of Track-1. These Phase 2 projects will connect into the existing Track-1 clusters, ensuring a resilient supply of CO2. Selection under the relevant phase enables projects to access initial capital grant funding and long-term price support, either under an economic license model (for T&S Networks) or (otherwise) government-backed Contracts-for-Difference. The UK Government is still consulting on the legislative and regulatory framework that will underpin these business models, and acceleration of that process from here will be key to realising the UK Government’s ambition to capture 20-30 Mt CO2 per year by 2030.

A solution in lockstep with clean fuel and renewables

CCS is most successful when deployed by companies with existing infrastructure for energy production and industrial processing. Its contribution to the clean energy transition will be historic, especially as the production of low carbon fuels and renewables heats up, and research into the alternative uses of carbon advances.

Take a renewable natural gas project, for example. By converting methane from agricultural use or feedstock into less potent CO2, and storing it as an injectable, some companies are now achieving negative emissions. CCUS is also playing a key role in blue hydrogen production, which uses natural gas to split hydrocarbons, generating carbon emissions that are later stored. This pairing could prove crucial to meeting the EU’s production target of 10 million tons of clean fuels by 2030.

Though investing in CCS can require significant upfront capital and time investment, it will undoubtedly play a vital role in clean energy production in the next decade and beyond.

Summary and Key Takeaways

The panel discussion focussed on the various CCS technology types, geographic barriers to the implementation of CCS, policy developments to address key risks and barriers to private sector investment,  and whether the wider regulatory environment supports or hinders private sector investment. Key take-aways were:

• The UK has geographical and regulatory advantages to CCS development, and  is keen to grow its market share. The UK government’s landmark support mechanisms show it is willing to step in and provide early-stage revenue support and also take on key uninsurable risks (eg carbon leakage), which have historically proved a barrier to successful CCS project development.
• Planning permits and consents for new CCS projects have critical timing impacts, and better coordination is required across consenting authorities to ensure technologies can be deployed as rapidly as they are being developed and in time to meet relevant Net Zero targets.
• The CCS sector needs to establish more consistent revenue streams and viable routes to market, to improve CCS bankability. This can be achieved through measures to ensure reliable and consistent international carbon pricing, carbon price support mechanisms (such as CfDs in the UK), and policies that ensure coordination and simultaneous development of the whole CCS value chain so as to minimise cross-chain risks and maximise potential revenue sources from the outset.
• The panel expect to see further identification and development of CCS technologies as the market grows, and the Oil & Gas industry will likely be at the forefront of research and development of offshore CCS as it seeks to maximise the economic potential of depleted oil and gas wells.

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Authored by Andrew Shaw and Mark Nash.