Carbon capture usage and storage: third time lucky? Contents

2Ambitions and least cost decarbonisation

CCUS and climate change

7.The vast majority of witnesses to our inquiry emphasised the critical role that CCUS is expected to play in achieving the UK’s climate change targets, and doing so cost-effectively, including both Greg Clark MP, Secretary of State for Business, Energy and Industrial Strategy, and Claire Perry MP, Minister of State for Energy and Clean Growth.23 CCUS is a particularly useful technology in tackling carbon emissions, because it can be applied to many different areas of the economy. It can decarbonise waste gases from power stations and industrial facilities; help to produce clean hydrogen fuel from natural gas; and remove greenhouse gas emissions from the atmosphere via bioenergy with CCS (BECCS) or direct air CCS (DACCS).24 Whilst CCUS is not necessary to decarbonise all of these economic activities,25 witnesses to our inquiry could not suggest any routes to decarbonise the entire economy without it. We heard repeatedly from industrial organisations that CCUS is often the least cost, and in some cases only option to decarbonise industrial processes, and as such it is essential to extend the lifetime of heavy industry in the UK.26 CCUS is also a critical enabling technology for low-carbon hydrogen, which is gaining traction in and outside Government as a potential route to decarbonise heating and parts of the national gas grid (discussed further on page 14).

CCUS targets

8.The Government’s current aims for CCUS were set in the 2017 Clean Growth Strategy and reiterated in the CCUS Action Plan in November 2018. They are less ambitious than the aims set by previous Governments (summarised in Chapter 1) and commit:

Delivering CCUS

9.We welcome the Government’s intention to retain CCUS as a potential tool to decarbonise the economy, but the lack of specificity in the ambitions set in the Clean Growth Strategy and the CCUS Action Plan does not indicate a commitment commensurate with the widely-agreed importance of this technology. We heard witnesses’ concerns that the lack of clarity on the meanings of ‘at scale’ deployment and ‘sufficient’ cost reductions makes it difficult for investors to assess the conditions under which Government might choose to pursue CCUS, and provides leeway should Ministers later decide to withdraw support, even if significant cost reductions have been achieved. This risks a repetition of previous experiences, whereby the Government has set high ambitions for CCUS only to withdraw these after substantial public and private sector investment (discussed in more detail in Chapter 5). We explore the need for more specific targets in the following.

‘Sufficient’ cost reductions

CCUS costs

10.Arguments against the use of CCUS have often focussed on the expense of the technology—and it is costs concerns that led to the cancellation of the UK’s two previous competitions in 2011 and 2016. CCUS imposes additional operational costs on the facilities in which it is adopted. In the case of carbon capture and storage this provides a service which—in most cases—is not adequately valued to recoup these additional costs. For example, running CCS processes is estimated to increase the energy consumption of coal and gas power stations by between 11%–40%.29 It also requires substantial upfront expenditure: the estimated capital required for the preferred projects under the previous competitions was between £1 billion and £2.5 billion to install CCUS at a coal- or gas-fired power station.30 Cost estimates have fallen in recent years, however, both as result of international deployment and associated economies of learning,31 and a new focus on applying the technology in industrial settings, which is often cheaper than its application at a power plant (see Figure 2).32 CCUS developers told us that UK projects would now be much cheaper than under the previous competitions, with individual project costs well under £500 million.33

11.There are different ways of thinking about the costs and benefits of CCUS, and whether the technology offers value for money in its own right. Traditionally CCUS has been envisaged as an appendage to coal and gas power stations, leading to comparisons between the cost of generating electricity at a fossil fuel power station equipped with CCUS and one without, or with generation at other low carbon plant such as renewables and nuclear. For example, the 2012 competition was projected to require a Contracts for Difference ‘strike-price’ of £170 per megawatt-hour (MWh), substantially more than the £92.50/MWh awarded to Hinkley Point C34. More recent estimates have fallen to £80–90/MWh for CCUS at power stations.35 An alternative approach is to consider CCUS costs and benefits in terms of carbon abatement—a service essential to meeting the UK’s climate change targets. Analysis by the Global CCS Institute indicates that CCUS installations at power plants are more expensive than at other industrial facilities, when compared on the basis of carbon savings. First-of-kind CCUS at a gas-fired power station is estimated to cost around £80–160 per tonne of carbon dioxide stored (TCO₂), but much cheaper opportunities are available in industrial activities such as fertiliser production (£23-£33/ TCO₂) and natural gas processing (£20–27/TCO₂) (see Figure 2). We encourage the Government to view CCUS primarily as a tool for decarbonisation, rather than as an extra cost on power generation. Deployment should be prioritised because CCUS presents an opportunity to reduce the overall cost of meeting the UK’s emissions reduction targets.

Figure 2: First of kind CCS costs in different industries.

Source: Adapted from Global CCS Institute.36

Cost reductions

12.Witnesses were optimistic about the potential for CCUS costs to fall further across all applications, but emphasised that deployment, rather than further R&D, will be critical: according to the Energy Technologies Institute the first three installations of CCS at gas-power stations could drive down costs by as much as 45% owing to increased scale and simplification, whereas technical innovation has the potential to reduce costs by a further 5–10% in the subsequent installations.37 Additional opportunities for cost reductions include risk-sharing, development of CCUS in clusters (with shared infrastructure), focussing on ‘least regrets’ projects, R&D, and the creation of market and fiscal incentives to spur uptake and innovation.38 We discuss cost reduction opportunities further in Chapter 4.

13.Despite the potential to lower costs, witnesses expressed widespread scepticism about the practicality and effectiveness of requiring ‘sufficient’ cost reductions. Academics, developers, trade and professional bodies emphasised the complexity of setting appropriate and equitable expectations for reductions, due to the large cost disparities across different types of industrial facility, CCUS’ existing status as the cheapest carbon abatement solution in many industries, and the fact that in some industries there are no alternative carbon-removal solutions against which costs could be benchmarked.39 Instead, they called for policy to be designed to encourage developers to bring forwards projects at least cost.40 The Minister was unable to clarify the meaning of ‘sufficient’ cost reductions in either oral evidence or subsequently in writing, despite us pressing on this point for the benefit of investors.41 Instead she addressed a different issue, arguing that the demand for cost reductions is “the wrong question” and that there is no cost target on which funding support for CCUS is contingent.42 She further expressed a willingness to identify price reduction potential through industry dialogue and to agree acceptable project costs on a case-by-case basis.43 It appears that the Minister has departed from the stated Government policy on this issue, and we welcome her pragmatism. However, the conflict between policy documents44 and the Minister’s explanation of policy creates confusion about the Government’s aims and requirements, exacerbating the effects of a decade of ambivalent and volatile policy messaging on CCUS. We question why the Government has departed from its written policy so quickly.

14.Whilst we strongly support cost minimisation, we disagree with the CCUS Action Plan’s stipulation that deployment ‘at scale’ should be supported only if ‘sufficient’ cost reductions are achieved. Such vague terminology gives no certainty to investors and does little to ensure that CCUS can contribute to meeting the UK’s overarching climate change targets at least cost, given its existing status as the cheapest—or only—decarbonisation option in many industrial applications. We recommend that Government revise its formal aims in light of the Minister’s more nuanced position and prioritise the development of clear ambitions that will bolster its renewed efforts to kick-start CCUS. We further recommend that the Government commits to supporting CCUS where and whilst it remains the cheapest route to decarbonisation, notably in industrial applications. Rather than seeking unspecified cost reductions, the Government should set out plans to ensure that projects are brought forwards at least cost.

15.Enabling least cost CCUS may require the Government’s timetable to be brought forward. The Acorn and HyNet NW projects, in North East Scotland and Merseyside, both intend to make use of redundant oil and gas pipelines and are aiming to be operational as early as 2023.45 Repurposing assets offers substantial cost savings: Acorn alone is projected to save £548 million by avoiding the cost of constructing new build pipelines.46 However, these avoided costs depend on swift progress, as many offshore assets are expected to be decommissioned in the early 2020s.47 The Government has announced it will work with the Oil and Gas Authority, industry and the Crown Estates to identify existing oil and gas infrastructure that could be repurposed for CCUS during 2019.48 We welcome this initiative, as well as the Secretary of State’s confirmation that he would be willing to bring forward the Government’s timeline for deployment of the first CCUS facilities if this enabled delivery at lower cost.49 We recommend the timetable for policy delivery is accelerated to enable CCUS commissioning from 2023, to avoid the additional cost of recommissioning disused oil and gas pipelines after they have been decommissioned.

Deployment ‘at scale’

16.We have noted that widespread deployment of CCUS is expected to be necessary to keep the UK on track to meet its climate change targets as cheaply as possible. However the Government’s intentions for the scale of CCUS roll-out are far from clear. We received advice from the Minister that the current ambition for ‘at scale’ deployment could mean storing anything between 0.1% of the UK’s current carbon dioxide emissions (400,000 tonnes) and 49% (180 million tonnes)—a definition so broad it is meaningless.50 The Committee on Climate Change has recommended an initial CCS cluster should be operational by 2026, enabling 10 million tonnes of carbon dioxide (MtCO₂) to be sequestered each year by 2030, and at least 20 MtCO₂ per year by 2035, respectively equivalent to 2.7% and 5.5% of current UK emissions.51 This is broadly in line with the estimates of necessary scale we received from witnesses, although less ambitious than the Netherlands’ target to store 20 MtCO₂ every year by 2030.52 Our view is that the Government should be both ambitious and clear. We recommend the Government sets a specific target to store 10 million tonnes of carbon by 2030, and 20 million by 2035, to keep the UK on track to meet its 2050 climate change targets, as recommended by the CCC.


17.The Clean Growth Strategy identifies hydrogen as a key potential route to meeting the UK’s 2050 climate change targets.53 Use of hydrogen could also enable the UK to achieve greater emissions reductions than without it—an option that will be particularly important if the UK adopts a net zero target.54 Production of low carbon hydrogen at scale will depend on the deployment of CCUS.55 The Committee on Climate Change has recommended that “significant volumes” of low carbon hydrogen should be produced at a CCUS industry cluster by 2030.56

18.One major area of interest is the option of injecting hydrogen into the national gas grid. Combined with hydrogen boilers or hybrid heat pumps, this would provide a means to decarbonise heating in buildings connected to the grid.57 However the scope for trials of this technology is limited by existing law:

19.The Government is considering options to amend the gas safety regulations, subject to satisfactory safety demonstrations, but witnesses are concerned the necessary changes may not happen quickly enough.60 The new RIIO-261 price controls for gas networks will begin in 2021 and will last until 2026. If gas regulations are not changed beforehand, this could prevent large-scale demonstrations throughout the control period.62 We recommend the Government expedites safety demonstrations, and—assuming these are satisfied—brings forwards amendments to the Gas (Safety Management) Regulations and the Gas (Control of Thermal Energy) Regulations as a matter of urgency to enable large-scale demonstrations of hydrogen injection into the gas grid.

23 Q147; Q157; oral evidence taken on 6 February 2019, HC (2018–19) 604, Q401; Global CCS Institute (CCU0025); Energy Safety Research Institute (CCU0530); Energy Technologies Institute (CCU0244); Grantham Institute, Imperial College London (CCU0358); Professor Jonathan Gibbins (CCU0614); Scottish Carbon Capture & Storage (CCU0499); Tyndall Centre for Climate Change Research (CCU0041); Joint submission by the UCL Institute for Sustainable Resources and the UK Energy Research Centre (CCU0504); Drax Group plc (CCU0464); Peel Environmental (CCU0485); Equinor ASA (CCU0496); Progressive Energy Ltd (CCU0529); Bright Blue (CCU0315); Pale Blue Dot Energy (CCU0029); Pöyry Management Consulting (CCU0051); National Grid, Gas System Operator (CCU0500); Tees Valley Combined Authority (CCU0045); Ian Temperton (CCU0032); Institution of Chemical Engineers (IChemE) (CCU0090); Institution of Mechanical Engineers (CCU0503); The Royal Society and Royal Academy of Engineering (CCU0497); The Geological Society (CCU0492); REA (CCU0502); Carbon Capture and Storage Association (CCU0493); Energy UK (CCU0491); Mineral Products Association (CCU0360); Oil & Gas UK (CCU0489); Anglo American Platinum (CCU0070); Aberdeenshire Council (CCU0050); Carbon Connect (CCU0613); Durham (University) Energy Institute (CCU0600); Pietro Goglio (CCU0136)

25 For example, emissions from power can be cut with renewable technologies, nuclear and batteries.

26 National Grid, Gas System Operator (CCU0500); Pale Blue Dot Energy (CCU0029); Mineral Products Association (CCU0360); NP11 (CCU0637); Tees Valley CA (CCU0629), Q1; Q10

29Carbon capture’s energy penalty problem”, Reuters, 7 October 2014

31 Costs to install second-of-kind CCS projects have also fallen substantially, with a follow-up facility to the 2015 Boundary Dam coal power CCS plant expected to be 30% cheaper than the original project, and a follow-up to Shell’s 2014 Quest hydrogen CCS plant expected to be 20–30% cheaper. Pöyry Management Consulting (CCU0051); Global CCS Institute (CCU0025)

35 Pöyry Management Consulting (CCU0051)

36 Global CCS Institute (CCU0025)

37 CATCH (CCU0640)

38 Centre for Energy Policy, University of Strathclyde (CCU0036); Energy Technologies Institute (CCU0244); Professor Jonathan Gibbins (CCU0614); Joint submission by the UCL Institute for Sustainable Resources and the UK Energy Research Centre (CCU0504); Drax Group plc (CCU0464); Peel Environmental (CCU0485); low (CCU0462); Institution of Chemical Engineers (IChemE) (CCU0090); The Geological Society (CCU0492); Energy UK (CCU0491); Mineral Products Association (CCU0360); Energy Networks Association (CCU0575); Oil & Gas UK (CCU0489); Cambridge Carbon Capture Ltd (CCU0295)

39 Q235 [Pete Whitton]; Joint submission by the UCL Institute for Sustainable Resources and the UK Energy Research Centre (CCU0504); Scottish Carbon Capture & Storage (CCU0499); Global CCS Institute (CCU0025); Dr Niall Mac Dowell (CCU0480); Professor Jonathan Gibbins (CCU0614); Scottish Carbon Capture & Storage (CCU0499); Tim Kruger (CCU0046); Joint submission by the UCL Institute for Sustainable Resources and the UK Energy Research Centre (CCU0504); Equinor ASA (CCU0496); Progressive Energy Ltd (CCU0529); Pale Blue Dot Energy (CCU0029); Pöyry Management Consulting (CCU0051); Tees Valley Combined Authority (CCU0045); Institution of Chemical Engineers (IChemE) (CCU0090); Carbon Capture and Storage Association (CCU0493); Professor Geoffrey Hammond (CCU0425)

40 Institution of Chemical Engineers (IChemE) (CCU0090); Tim Kruger (CCU0046); Joint submission by the UCL Institute for Sustainable Resources and the UK Energy Research Centre (CCU0504); Pöyry Management Consulting (CCU0051)

41 Qq158–162; Appendix

45 Cadent, HyNet North West, accessed 22/3/19; Qq210–211

47 Cadent (CCU0642); Cadent one-pager; Oil & Gas Authority, Decommissioning Strategy, 2016

49 Oral evidence taken on 6 February 2019, HC (2018–19) 604 Q399

50 Percentages calculated from storage figures in tonnes, provided by the Minister, against 2017 UK net emissions of carbon dioxide of 366.9 million tonnes (Mt) as estimated by BEIS. Appendix; DBEIS, 2017 UK Greenhouse Gas Emissions, Provisional Figures, March 2018.

51 CCC, Reducing UK emissions 2018 Progress Report to Parliament (June 2018); percentages calculated against 2017 UK net emissions as above.

54 CCC, Hydrogen in a low-carbon economy (November 2018)

55 As above

56 CCC, Hydrogen in a low-carbon economy (November 2018), p 13

57 CCC, Hydrogen in a low-carbon economy (November 2018); Carbon Connect (CCU0613); The Energy and Utilities Alliance (CCU0044)

59 As above

61 RIIO (Revenue = Incentives + Innovation + Outputs) is Ofgem’s performance-based framework to set price controls for energy network companies. RIIO-2 is the second phase of RIIO, which will take effect from April 2021 for gas networks. Ofgem has decided that the default length of price controls will reduce from eight years (as currently) to five years, startin with RIIO-2. Ofgem, RIIO-2 Framework Decision: Our approach to setting price controls for GB gas and electricity networks (2018)

Published: 25 April 2019