Carbon capture usage and storage: third time lucky? Contents

5Clusters and competition

The potential of CCUS for industry clusters

35.CCUS could play a significant role in supporting productivity growth outside London and the South East, through encouraging innovation, investment and collaboration. The technology is best deployed in areas with a strong industrial base, and from which subsea storage resources can be easily accessed. Four of the five industry clusters identified as well-suited for early CCUS deployment are in regions with below-average productivity (Humberside, Merseyside, South Wales, Teesside), whilst there are plans to link the fifth (North East Scotland) to industries in Grangemouth, another lower-productivity area.105 As such, CCUS offers a route to redress some of the regional imbalance evident in the Government’s Industrial Strategy, and the lack of detailed consideration of ‘places’ in the majority of sector deals agreed to date. These are issues we considered in our recent report into the Industrial Strategy, and will continue to examine in our forthcoming inquiry into regional growth and investment.106 CCUS could further serve as a cornerstone in Local Industrial Strategies for the five clusters—and adjacent areas—to help modernise industrial infrastructure and to guard against deindustrialisation.107

36.The industry clusters we heard from consider CCUS to be critical to their future operations. Stakeholders in Teesside told us that CCUS, together with the production of hydrogen, will be essential to ensure the longevity of local factories.108 Local businesses have already taken substantive measures to reduce their environmental impacts, and see limited opportunity to reduce emissions further without the technology. The interactions and interdependencies of the cluster are considered a major strength by investors, but in turn this creates a potential vulnerability, since the internationalisation of heavy industry has made local clusters more sensitive to competition abroad (discussed in Chapter 3). Businesses are concerned that any slowness to develop CCUS infrastructure in the area could lead some parent companies to (re)locate plant elsewhere, potentially undermining the viability of the remaining businesses and the cluster as a whole.109 Similar concerns have been raised by stakeholders in other regions. For example, Tata Steel has set a target to make its European business carbon neutral by 2050, a goal that is expected to rely on CCUS and/or clean hydrogen.110

37.The Government’s targets for CCUS, set out in Chapter 2, fall short of the CCUS Cost Challenge Taskforce’s recommendation that “at least two CCUS clusters [should] be operational from the mid-2020s”.111 Witnesses to our inquiry were generally supportive of the Taskforce view, although several recommended more ambitious targets, such as an earlier delivery date, three clusters spread around the country, or demonstrations of CCUS in a broad range of industrial applications.112 Progressive Energy and CATCH questioned the viability of delivering the Government’s overarching goal of ‘at scale’ deployment in the 2030s in the event that its near-term target is met with just one cluster operational by 2028, noting that project lead-times are typically between five and seven years.113

38.A more ambitious target, involving the development of CCUS clusters in multiple regions, would strengthen the Government’s strategy for developing “prosperous communities across the UK”.114 It is likely that benefits from the first clusters will spill-over into neighbouring communities, as development of CCUS infrastructure will de-risk expansion in adjacent areas.115 In particular, we heard that establishing projects with storage on both the east and west coasts would provide realistic target points for capture facilities on either side of the country to link into. Industry groups anticipate the eventual development of two mega-clusters along each coast, as CCUS facilities link up.116

39.Additional benefits of developing several projects include the confidence that a visible project pipeline would provide to investors, developers, and potential actors in the CCUS supply chain, encouraging companies to grow their capacity to deliver subsequent projects and thus putting the UK in a stronger position to deploy CCUS widely in the 2030s.117 Simultaneous development of multiple clusters would also reduce the risk of the UK’s plans being delayed in the event that a given project runs into difficulties.118 Professor Jon Gibbins called for Government to undertake an assessment of the technology’s role across the country. This could help maximise the value of early CCUS deployment by improving understanding of how individual projects can contribute to the technology’s development at the national level.119 We welcome the Government’s recognition of the cluster model for decarbonising industry and delivering industrial CCUS, but the target to deliver only a single first project will limit regional benefits and runs the risk of delaying CCUS development if major obstacles are encountered. We recommend the development and commissioning of first CCUS projects in at least three clusters by 2025 to minimise the risk of a third major delay to the technology’s development and to ensure that its benefits for productivity accrue to industries across the UK.

Selecting clusters

40.The Government’s previous attempts to develop CCUS have centred around funding competitions for a first demonstration project. We heard from the Minister that the Government expects to run a third competition, to select the first industrial project in its new drive to deploy CCUS.120 Whilst we welcome the renewed promise of funding support, we are concerned that the competition model may not necessarily be the best suited to the needs of this emerging sector.

41.We heard strong opposition in Teesside to the prospect of a third competition, mainly owing to the tension between competition and collaboration.121 Industrial and academic witnesses emphasised that promoting collaboration is essential to achieve cost reductions.122 Cooperation between first-movers and subsequent projects can de-risk investment, maximise the industry-wide benefits of learning-by-doing, and enable better targeting of R&D to industry needs. The UK CCUS community is considered to have a strong existing culture of collaboration—both within and across the five industry clusters—but we heard that this had been undermined by the previous competitions. These not only pitched projects against one another, but also expressly limited knowledge-sharing beyond project partners, in turn slowing technological progress through R&D.123 These concerns reflect the findings of our recent Industrial Strategy: Sector Deals inquiry. Stakeholders in offshore wind explained that whilst commercial competition can help to drive down prices it also causes fragmentation, creating barriers to the innovation, growth and maturation of burgeoning industries.124

42.Witnesses raised additional objections to a third competition on the grounds of historical experiences, imperfect Government knowledge and the necessity of CCUS for emissions reductions:

43.Objection to the competition model was not, however, uniform. Steve Murphy, Finance Director of Pale Blue Dot Energy explained that the design of the previous competitions had been helpful in providing certainty about the revenue model for CCUS installations,130 while Jonathan Briggs, CCS Stakeholder Manager at the Oil and Gas Climate Initiative (OGCI), noted that some sort of assessment will be necessary to ensure that the sequencing of projects is appropriate and supports long-term goals.131

44.The CCUS Cost Challenge Taskforce has recommended the use of selection criteria to assess projects and allocate funding-an approach supported by our academic and industry witnesses as a means to better promote collaboration.132 The Secretary of State told us that he would be willing to consider using an assessment process, rather than a competition, to allocate funding.133 We recommend the Government 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, including those clusters that take longer to get going. It should also seek to ensure that the scope of funding is sufficiently broad to allow consideration of all viable CCUS schemes and avoid excluding particular applications or technology-types. This consultation should be conducted as a matter of urgency and completed by the end 2019, so that there is no delay to the development of projects.

106 BEIS Committee, Seventeenth Report of Session 2017–19, Industrial Strategy: Sector Deals, HC 663; BEIS Committee, Supporting regional investment and growth inquiry, accessed 5 April 2019

108 Annex

109 Annex; Q256

111 CCUS Cost Challenge Taskforce, Delivering Clean Growth: CCUS Cost Challenge Taskforce Report , July 2018

112 Progressive Energy (CCU0634); Q220; Q257 [Peter Quinn]; Decarbonised Gas Alliance (CCU0498); Equinor ASA (CCU0496); Institution of Mechanical Engineers (CCU0503); Pale Blue Dot Energy (CCU0029); Peel Environmental (CCU0485); Joint submission by the UCL Institute for Sustainable Resources and the UK Energy Research Centre (CCU0504)

113 Progressive Energy (CCU0634); Q221 [Geraint Evans]; Q225 [Pete Whitton]

115 Q212; Q225 [Professor Gibbins]; Q254; Tata Steel (CCU0631); Tees Valley CA (CCU0629)

116 Progressive Energy (CCU0633); Q225 [Professor Gibbins]; Q254

117 Q225 [Pete Whitton]

118 Q228; Q252; Tees Valley CA (CCU0629)

121 Q225 [Professor Gibbins]; Q228; Q253 [Pete Whitton]

122 Qq217–218; Q225 [Professor Gibbins]; Q233; Q253 [Pete Whitton]; Energy Networks Association (CCU0575); Cadent Gas (CCU0569)

123 Qq217–218; Q225 [Professor Gibbins]; Q233; Q253 [Pete Whitton]

124 BEIS Committee, Seventeenth Report of Session 2017–19, Industrial Strategy: Sector Deals, HC 663, pp 19–20

126 Q210; Q225 [Professor Gibbins]; Q255

127 Progressive Energy (CCU0633)

129 Q253 [Pete Whitton]

133 Oral evidence taken on 6 February 2019, HC (2018–19) 604, Q400

Published: 25 April 2019