Summary
Experts and policymakers agree that carbon capture usage and storage (CCUS) will be necessary to meet the UK’s existing climate change targets at least cost, and that the country could not credibly adopt a ‘net zero’ target, in line with the aspirations of the Paris Agreement, without the technology. The UK is considered to have one of the most favourable environments globally for CCUS, but the technology has suffered from 15 years of turbulent policy support, including the cancellation of two major competitions at a late stage. No commercial-scale plant has yet been constructed in the UK.
Ambitions and least cost decarbonisation
The Government has set an ambition to “have the option to deploy CCUS at scale during the 2030s, subject to costs coming down sufficiently”. We welcome the Government’s initiatives to retain CCUS as a potential tool to decarbonise the economy, but the lack of specificity in its ambitions does not indicate a commitment commensable with the importance of this technology. CCUS stakeholders are optimistic about the potential for cost reductions, but expect these to arise largely through deployment itself, and the ambition’s lack of clarity poses difficulties for investors. We heard widespread concern about the requirement for ‘sufficient’ reductions, given the technology is already the cheapest—and in some cases only—decarbonisation option for many industries. The Minister provided a more nuanced view of these challenges, stating that there is no cost target on which support is contingent. We recommend that the Government revise the formal aims of its written policy in the light of her position and prioritise the development of clear ambitions to kick-start CCUS. Rather than seeking unspecified cost reductions, the Government should aim to bring forwards projects at least cost.
The scale of deployment targeted in the 2030s is also unclear: the Government’s definition is so broad it is meaningless. We recommend that the Government provides ambition and clarity by adopting specific targets in line with the Committee on Climate Change’s recommendation.
Industrial opportunities
The UK’s expansive geological storage resource and world-class oil and gas supply chains mean that we have a unique opportunity to lead the world in the development of a new CCUS industry. We recommend that the Government prioritise the development of CCUS to benefit from growing international demand for low carbon products and services. We risk losing our early-mover advantage if the UK’s slow progress in developing CCUS continues.
CCUS can impose significant costs on industrial processes, and so will require substantial policy support to enable its adoption. However a failure to develop it could force many heavy industries to close in the coming decades, if the UK sticks to its climate change targets. The benefits of CCUS are thought to be poorly understood across Government departments, notably the Treasury. Furthermore, the exclusion of industrial CCUS from the scope of the National Infrastructure Assessment means the full potential of the technology has not been assessed at the national level. We recommend that such an assessment should be conducted, and that the forthcoming Comprehensive Spending Review should take full account of the benefits, as well as the costs, of CCUS.
Business models and funding
The greatest barriers to the development of CCUS in the UK are commercial, rather than technical. It is inconceivable that CCUS will be developed without government support. Witnesses agreed CCUS costs could be substantially lowered by separating the business model for carbon capture at individual facilities from that for carbon transport and storage infrastructure. We recommend that the Government separates the funding models for these activities, and that BEIS investigates the appropriateness of the Regulated Asset Base model.
Clusters and competition
CCUS could play a significant role in supporting productivity growth outside London and the South East, offering a route to redress some of the regional imbalance evident in the Government’s Industrial Strategy. Of the five clusters identified as well-suited to early CCUS deployment, four are in regions with below-average productivity, and witnesses from all five consider CCUS to be critical to future operations. The Government has set a target to commission the first CCUS facility by the mid-2020s. We recommend that this ambition is raised to target the development of first CCUS projects in at least three clusters by 2025, to minimise the risk of further delays to CCUS development in the event that individual projects encounter obstacles, and to ensure that the benefits for productivity accrue to industries across the UK.
The Minister told us that the Government expects to run a third competition to select the first CCUS project. We recommend the Government urgently consults on approaches to allocate funding for CCUS industry clusters, to ensure that the approach selected promotes collaboration and benefits CCUS development across the UK.
Published: 25 April 2019