This is a House of Commons Committee Special Report
The Scottish Affairs Committee published its Sixth Report of Session 2022–23, Hydrogen and carbon capture in Scotland (HC 83) on 10 March 2023. The Government response was received on 24 May 2023 and is appended below.
1. The UK and Scottish Governments have clear strategies and appropriate aspirations for hydrogen, with significant commonality in their ambitions. Overall relations between the UK and Scottish Governments in this area appear to be good with effective official-level and ministerial cooperation.
We agree that both UK and Scottish Government have clear strategies and ambitions for hydrogen. Developing a hydrogen economy requires a UK-wide approach, with potential to produce and use low carbon hydrogen right across the Union. Hydrogen offers local economic benefits, in support of UK and devolved administration net zero plans.
The UK Government views the strategic approach set out in the Scottish Government’s Hydrogen Policy Statement and the Hydrogen Action Plan, including its 5GW production ambition by 2030, as a complement to the actions set out in the UK Hydrogen Strategy.
The UK and Scottish Government engage regularly on hydrogen policy developments at both official and ministerial level.
2. The UK and Scottish Governments have different net zero target dates of 2050 and 2045 respectively. We recommend the UK and Scottish Governments respond to this report explaining how they will work together to ensure respective targets will be met. The Scottish Government should demonstrate how it is engaging with UK Government in reserved areas to ensure net zero is reached in Scotland five years earlier than the rest of the UK.
The Net Zero Strategy highlighted areas of joint co-operation and commitment to UK-wide emission reductions. There is much to be gained from working together and sharing learnings where possible for the benefit of people and businesses across the UK.
The UK Government is working with the Devolved Administrations on tackling climate change and delivering net zero, collaborating at all levels to achieve our shared goals. We engage regularly with the Devolved Administrations on reducing their carbon emissions and meeting our UK-wide climate targets, including through the Net Zero, Energy and Climate Change Inter-ministerial Group to discuss matters pertaining to the net-zero transition. This Group is supported bythe official-level Net Zero Nations Board.
3. The UK and Scottish Governments arrived at their respective 10GW and 5GW by 2030 low carbon hydrogen production targets independently of each other, and we are unclear how the two targets align and whether either is achievable. Clarity on this is vitally important given the targets must be reached in just seven years’ time. We recommend that the UK and Scottish Governments, in response to this report, explain how they arrived at their respective 10GW and 5GW by 2030 low carbon hydrogen production targets and how the two targets align. Furthermore, the two Governments should provide us with a proposed timeline setting out key milestones on the road towards the respective targets to assist us and our successor committees in judging progress and evaluating the achievability of Scotland’s hydrogen production targets.
Delivering up to 10GW of low carbon hydrogen production capacity by 2030, subject to affordability and value for money, is a stretching but deliverable ambition for the UK, building on our strong track record of delivering cost reductions and large-scale deployment of offshore wind and solar power. This ambition is based on our detailed understanding of the pipeline of projects that could come forwards during the 2020s, and is considerate of the challenges, constraints and costs involved in delivering this. As recommended by the Independent Review of Net Zero, we will be developing a hydrogen production delivery roadmap to show how hydrogen production can be scaled up over the coming decade, to be published by the end of the year.
Projects in Scotland have always been considered within the UK-wide production ambition, including both the UK’s 5GW ambition (which was set in the 10 Point Plan in 2020) and the increased 10GW ambition (which was announced in the Energy Security Strategy in 2022). The decision to increase the UK’s ambition to 10GW in 2022 reflected the Government’s confidence in the pipeline of hydrogen production projects across the UK and complemented the parallel announcements in the Energy Security Strategy in the North Sea, renewables and nuclear sectors. The increased ambition in 2022 did not represent a change in accounting for contributions from individual nations. The UK recognises the Scottish Government’s decision to set its own ambition for 5GW of hydrogen production in Scotland, but this does not have a formal relationship to the 10GW UK-wide ambition. Projects in Scotland have the potential to play a significant role in the UK’s rapidly developing hydrogen economy.
4. We conclude that both the UK and Scottish Governments’ hydrogen strategies require interim targets to ensure that hydrogen production and net zero commitments are met. We recommend that both UK and Scottish Governments set such interim targets for hydrogen production, beyond 2030, to reach its net zero targets planned for 2050. In particular, we recommend the Scottish Government expedite their interim target setting due to the more pressing deadline they set of 2045. By the beginning of the next Parliamentary session, the UK and Scottish Governments should set deadlines for approving a series of steps around hydrogen production and actions to stimulate demand of low carbon hydrogen, as the decisions need to be made without delay to ensure that net zero targets are met, energy security is obtained, job security is provided for workers in Scotland, and cleaner energy production and international competitiveness are realised. By the beginning of the next Parliamentary session, the UK and Scottish Governments must publish a timeline of key decisions for projects, with justification of the dates set out in the timeline, as well as interim targets for production and demand of both blue and green hydrogen, and the phasing out of grey hydrogen.
As set out in the Net Zero Growth Plan we are delivering policies to support deployment of new low carbon hydrogen production, reduce upfront infrastructure costs, and provide greater clarity and certainty around future demand and revenue streams, through our £240 million Net Zero Hydrogen Fund (NZHF) and our Hydrogen Production and Transport and Storage Business Models. Building on this progress, we will take forward the Independent Review of Net Zero recommendation to develop a hydrogen production delivery roadmap to show how hydrogen production can be scaled up over the coming decade, to be published by the end of the year.
5. We are concerned that the Scottish Government does not see more potential in Green Freeports to complement Scottish and UK hydrogen policies, despite them being a joint UK and Scottish Government initiative and the Inverness and Cromarty Firth Green Freeporthaving a hydrogenfocus.WerecommendthattheScottishGovernmentexplores how to maximise the benefits of Green Freeports for Scottish and UK hydrogen ambitions. Both the UK and Scottish Governments should work together to realise this potential and the opportunities for Scotland.
The two successful locations of the Scottish Green Freeports competition were announced in January 2023. The Green Freeport consortia are now in the process of developing a detailed business case, approval of which will grant access to a broad range of tax incentives and up to £25m capital funding. The business case will be the mechanism for Scottish and UK governments to explore how the development of Freeports as focal points for innovation, trade and investment can support Scottish and UK hydrogen ambitions, to maximise their benefits and support a just transition to a Net Zero economy.
6. We acknowledge the concerns raised by our witnesses around slippage in timings for hydrogen projects. This could delay the delivery of low carbon hydrogen projects and result in a failure to meet net zero targets. Urgency is required now; timely decision making will also mean Scotland and the rest of the UK do not get left behind with technology development and hydrogen production when compared to other countries’ hydrogen sectors. We recommend that the UK Government sets out how it will address concerns we have heard around timings of decisions for hydrogen projects, including justification for the timing of decisions and an assessment of the impact the timing of decisions will have for the delivery of low carbon hydrogen projects, net zero targets and Scotland — and the rest of the UK’s — international competitiveness in the sector.
Delivering up to 10GW of low carbon hydrogen production capacity by 2030 will involve a range of complex and challenging actions across every part of the hydrogen value chain, as set out in our 2021 UK Hydrogen Strategy. We are progressing our electrolytic and CCUS processes in line with our stated commitments and it is important to ensure a robust process to help bring forward the most suitable projects and ensure value for money for the taxpayer. In March 2023 we announced the project shortlist for inviting to due diligence for the first electrolytic allocation round, offering support from our Net Zero Hydrogen Fund (capital funding) and from the Hydrogen Production Business Model (revenue support). A second allocation round is planned for launch later in 2023 and we aim to run annual allocation rounds for electrolytic hydrogen, moving to price competitive allocation by 2025 as soon as legislation and market conditions allow. CCUS-enabled hydrogen projects have previously been invited to bid through the Phase-2 Cluster Sequencing process and in March 2023, the Department for Energy Security and Net Zero selected two CCUS-enabled hydrogen projects to proceed to negotiations for support through the Hydrogen Production Business Model. On 30 March 2023, we launched the CCUS Track-2 process.
As recommended by the Independent Review of Net Zero, we will be developing a hydrogen production delivery roadmap to show how hydrogen production can be scaled up over the coming decade, to be published by the end of the year.
7. Better training in the hydrogen project consenting process for both local authorities and private organisations is required to speed up planning decisions for hydrogen projects. We note the actions the Scottish Government has taken in recent months to streamline these planning issues, including its engagement with local authorities on hydrogen planning applications. However, the Scottish Government has an important role to play and this work should be a continuing process. As planning is a devolved matter, we would ask for an update from the Scottish Government as to how this work is progressing.
This is a recommendation for the Scottish Government on devolved matters so is not something we can comment on.
8. We recommend that, in order to speed up the planning process and make it more efficient, the Scottish Government should facilitate the necessary knowledge sharing for planning teams in local authorities and private sector organisations. This should focus on the process of obtaining planning consent for hydrogen projects, covering production sites, storage sites and pipelines and the roles different individuals play in determining process and planning outcomes. The Scottish Government should consider the establishment of a dedicated body to deliver this work and implement it as soon as possible in light of the impending 2045 targets.
This is a recommendation for the Scottish Government on devolved matters so is not something we can comment on.
9. Scotland and the rest of the UK will not be able to deliver on their net zero commitments without carbon capture and storage (CCUS): a factor that is critical to the success of the hydrogen industry in Scotland. Carbon capture and storage and hydrogen production will both be required, in conjunction with other renewables, to achieve a just transition from oil and gas.
10. Delays to decision making around cluster sequencing and the Acorn Project are disappointing. But we noted the positive comments on CCUS from the UK Minister. Furthermore, such delays lead to an even further deficit in carbon capture facilities in Scotland and the ultimate result is a prolonged period when carbon continues to be released at avoidable levels.
11. We recommend that the UK Government accelerates the deployment of carbon capture and storage in Scotland and sets out, in its response to this report, how it intends to do so. Furthermore, in Minister Stuart’s response, he stated that the Scottish Cluster project had already received “£40 million plus”. The UK Government should provide details of how precisely they have funded the Scottish Cluster so far. We hope that the UK Government provides details for funding for the Acorn Project in the upcoming Budget.
The following is a combined response to recommendations 9, 10 & 11:
CCUS is a priority for the UK Government and we are progressing at pace. The £20 billion funding package announced on 15 March 2023 is unprecedented and demonstrates our strong commitment to delivering CCUS in the UK. It will put us on track to store 20-30 million tonnes of CO2 a year by 2030 whilst helping secure long-term energy security and creating skilled jobs.
Our Powering Up Britain Plans, published on 30 March, continue UK leadership in securing the economic benefits of the energy transition, including through major investment in CCUS. We remain committed to helping all areas of the UK to decarbonise as we work to reach net zero emissions by 2050, and we are clear that CCUS will continue to play a key role in this process.
On 30 March, we launched the CCUS Track-2 process and at this stage are seeking to identify two transport & storage (T&S) systems. We announced Acorn T&S system as one of the leading contenders for Track-2. We are testing our view that Acorn (alongside Viking) is best placed to deliver on the objectives for Track-2, by allowing other T&S systems the opportunity to express an interest (EoI) in being considered for Track-2. The EoI period closed on 28 April 2023 and we intend to provide an update on next steps for Track-2 in the summer.
We recognise the potential benefits of the Scottish cluster and the role it could play in industrial decarbonisation in Scotland. The cluster has been allocated over £40m in development funding by government in recent years. The breakdown of this funding is:
12. The evidence we have received demonstrates that there is vast potential for the export of low carbon hydrogen and expertise from Scotland, which could generate significant economic benefits to the economy. We welcome some recent policy updates and note the UK Government’s focus on domestic decarbonisation as it strives towards net zero. However, if Scotland—and the UK as a whole—is to become a significant exporter of hydrogen, both governments need to work together.
The UK’s primary ambition is for up 10GW of low carbon hydrogen production capacity by 2030, subject to affordability and value for money, to decarbonise vital UK sectors and contribute to our legally binding carbon budgets. This increased ambition, as set out in the British Energy Security Strategy, also opens up the opportunity for exports. The UK Government agrees that close working between our governments will be key to realising benefits from exports, and we are actively engaging Scottish Government officials on the export of UK hydrogen and related goods, services and expertise.
13. We recommend that the UK and Scottish Governments work more closely to ensure the achievability of their respective ambitions for hydrogen exports, and that the economic benefits are realised. In its response to this report, the UK Government should continue to update this committee on progress over its timeframe for securing an export market and current progress in assessing the opportunities and risks, as well as addressing the challenges we have described, including around infrastructure and balance between export and domestic consumption. As international trade is reserved, we recommend that the UK Government outlines what it is doing to make hydrogen export more commercially attractive and how the UK Government plans to bring in investors while engaging with the Scottish Government and hydrogen industry.
The UK Government recognises the opportunities for UK businesses presented by the growing global hydrogen economy and is actively engaged with trade associations and potential exporters to build a comprehensive picture of those opportunities, barriers and risks to UK trade in hydrogen, and associated goods and services. As global trade develops, we expect the UK to play a role in exporting hydrogen and we will update our position in line with wider global developments in hydrogen demand.
The UK Government has committed – through its Sector Development Action Plan, published in July 2022 – to update its expectations for investment in the UK’s hydrogen economy. Please see the ‘Hydrogen net zero investment road map’, published in April 2023 - https://www.gov.uk/government/publications/hydrogen-net- zero-investment-roadmap.
In developing this investment profiling work we will continue to engage investors, wider hydrogen industry and the Scottish Government.
14. Furthermore, we recommend that the UK Government publish modelling to quantify in more detail the long-term investment required to secure an export market and the potential economic benefits that could accrue to the UK, from such a market. The Government must identify markets and establish a presence within them before other countries do.
The opportunities for investment in UK hydrogen are set out in the UK Hydrogen Investment Roadmap, first published in April 2022 and updated in April 2023. The UK Government will continue to work with investors, industry, finance providers and others, to update the investment profile set out in the Sector Development Action Plan as it evolves to demonstrate where further investment will be required to support future hydrogen production scale up, including for potential export.
The UK Government is actively engaging industry, investors and potential exporters to showcase UK hydrogen investment destinations, identify export opportunities, and understand what further actions government can take to unlock the flow of private capital into the UK hydrogen economy. As global trade in hydrogen develops in the longer term, we expect the UK to play an active role in the international trade of hydrogen. We are therefore exploring opportunities to export hydrogen, including from the UK to continental Europe. The resulting intelligence is being shared across government to promote a policy, trade and regulatory ecosystem that supports rapid hydrogen scale-up.
15. We recommend that the UK Government highlight its potential for export to overseas markets immediately. This is to ensure that companies in Scotland can benefit from global hydrogen export markets and opportunities and not be left behind.
The UK Government is actively engaging overseas markets and potential offtakers to scope demand and opportunities for the export of UK hydrogen. We will continue to engage colleagues in the Scottish Government to ensure that companies in Scotland can take advantage of these opportunities as they develop and grow.
16. With the vast renewable energy resources it has available, Scotland can play a vital role in green hydrogen production for the UK and for export to Europe. However, secure hydrogen storage is essential to ensure hydrogen can become central to the energy mix of the UK. Without robust hydrogen storage infrastructure, Scotland will not be able to meet its hydrogen production potential.
17. We recommend that the UK Government alongside the Scottish Government moves quickly to develop hydrogen storage, to meet increasing demand, help Scotland and the rest of the UK enhance energy security and meet net zero targets.
The following is a combined response to recommendations 16 & 17:
The UK Government sees hydrogen storage, along with transport infrastructure as a critical component of system architecture in the emerging hydrogen economy that will enable the UK to enhance its energy security and help meet its net zero targets.
More broadly, hydrogen storage infrastructure is envisaged to be a strategic asset within a fully decarbonised, net zero economy. In the British Energy Security Strategy, we committed to designing a hydrogen storage business model (HSBM) by 2025, to support the growth of the hydrogen economy [and have introduced amendments to the Energy Bill to enable this]. 2025 is an ambitious but achievable timeline for designing complex business models, which will need to provide both investor certainty and value for money for UK government to support critical storage projects.
18. The UK Minister told us that the UK Government’s preference is for the private sector to lead the development of storage infrastructure. For businesses to lead the way in such a crucial aspect of Scotland and the UK’s net zero and energy security ambitions, a clear set of regulatory conditions and economic incentives will be required to encourage development at the pace needed. Therefore, we recommend that in response to this report the UK Government establish an action plan to identify and address economic and regulatory barriers for hydrogen storage to ensure that, once large-scale hydrogen production becomes possible, appropriate storage is in place.
In line with UK Government’s commitment to design a HSBM by 2025, we published a consultation in August 2022 seeking stakeholder views on barriers to investment in both hydrogen transport and storage, and subsequent design options to help unlock private sector investment. We are taking the views of respondents into account as we design the HSBM, to ensure that the model addresses the identified technical and market barriers to investment faced by industry.
The consultation also considered the suitability of the non-economic regulatory framework across the hydrogen value chain, including storage. We will continue to use the UK Hydrogen Regulators Forum, and engagement with industry, to identify and address regulatory barriers to storage – in keeping with our Hydrogen Strategy ambitions.
We will provide a government response to this consultation by the end of Q2 2023.
19. We recommend that the UK Government should examine how storage of low carbon hydrogen could be made a national infrastructure asset as this could help guarantee energy security for the UK.
The UK Government recognises the important potential role for hydrogen storage in providing broader energy security. Our commitment to designing a hydrogen storage business model will support the development of hydrogen storage infrastructure which will in turn strengthen our energy security. Alongside this, we will continue to consider whether further regulatory or other interventions are required to support hydrogen storage, including its role in providing energy security.
20. Scotland is in a very strong position compared to many other countries wanting to develop their hydrogen industry, in part because it already has a large relevant skills base in the oil and gas sector that has the potential to be redeployed. The work the UK and Scottish Governments have been doing on skills and jobs for people to work in the hydrogen sector should be applauded, but further progress needs to be made urgently to ensure that Scotland continues to provide vital workers for the low carbon energy industry. The industry needs to take a leading role in working with both governments to identify gaps in the workforce and the skills that are needed as well as deciding how to transition and re-train people.
21. We recommend that the cooperative approach between the UK and Scottish Governments on skills training and jobs continues, not least because of the mixture of reserved and devolved competencies when it comes to energy, education and skills. On at least a biannual basis, the UK and Scottish Governments should jointly set out work they are undertaking to ensure that colleges, training providers and businesses within the hydrogen and CCUS sectors are able to offer appropriate routes into employment and training, and providing this information should be viewed as a priority. Incorporated into this analysis, both the UK and Scottish Governments should also provide regular updates on progress against their estimated jobs forecasts in the medium term.
22. We recommend that the UK and Scottish Governments work in tandem with industry in identifying the jobs and skills gaps in the existing workforce. Industry should work in cooperation with the UK Government to ensure their policies and initiatives are complementary. Industry alongside the Scottish Government should develop and implement a clear plan for transition and re-training its workforce – in light of the Scottish Government’s presumption against further oil and as exploration and no nuclear in Scotland – and this could be supported by organisations such as Hydrogen UK.
The following is a combined response to recommendations 20, 21 & 22:
The UK Government is committed to supporting green jobs, skills and industries. The UK Government will enable workers, places and sectors to transition and develop a skilled workforce through support of the North Sea Transition Deal. A key commitment of the North Sea Transition Deal is to support the transition of existing parts of the oil and gas workforce to ensure that people and skills are transferable across the wider energy sector.
To achieve this, Government has supported the development of an Integrated People and Skills Strategy, which was published by the skills body OPITO in May 2022 following wide engagement across the offshore energy sectors. It creates a joined-up approach to people and skills right across the offshore energy industry and sets out how the workforce’s skills and capabilities can be redeployed to benefit the UK’s decarbonisation efforts.
Ensuring there are the right skills and capabilities will be critical to achieving our hydrogen ambition. The Hydrogen Sector Development Plan (2022) sets out the government’s aim to work with industry and education providers to understand the skills landscape and build the workforce of the future.
As set out in the Government Response to the Net Zero Review, Government and industry also continue to engage with all aspects of the CCUS supply chain, through the CCUS Council Supply Chain working group chaired by Lord Hutton. The CCUS Council’s supply chain activity will support the UK to develop a CCUS supply chain that utilises the UK’s skills and delivers a high proportion of UK jobs, delivering significant benefits to regional economies in the UK’s industrial heartlands.
23. We recognise there is a mix of evidence on the role hydrogen can play in the decarbonisation of domestic heating and there is still a substantial amount of work being done that will determine its eventual use. However, in the meantime, the evidence in favour of mandating hydrogen-ready boilers in all suitable properties at the earliest opportunity is convincing, no matter what decision is eventually made on the blend of hydrogen in the system, or whether the system becomes a 100% hydrogen gas network. Assurances from the largest four boiler manufacturers indicate that hydrogen-ready boilers will be the same price as standard boilers, removing a key obstacle in rolling them out across UK households. It means millions more properties would be ready and able to switch to hydrogen sooner rather than later and with lower conversion costs, if required, should the UK Government opt for a low carbon hydrogen-based gas network.
24. We recommend that, in anticipation of a decision around the use of hydrogen in heating by 2026, the UK Government should mandate hydrogen-ready boilers for all suitable new or replacement installations as soon as practicable and at least introduce that decision, with clear timescales, into the statute book by the end of the next parliamentary session.
The following is a combined response to recommendations 23 & 24:
The Government has recently consulted on proposals to require that from 2026 all newly installed domestic-scale natural gas boilers be hydrogen-ready, on the assumption that the following conditions can be met:
We are currently analysing responses to the consultation and will issue the Government response in due course.