UK to Spend £22 Billion on Carbon Capture Sites as Costs Rise

(Bloomberg) -- The UK recommitted to a major investment in carbon-saving technology even as rising costs mean it will only be possible to capture a fraction of the emissions released from industrial sites compared to previous estimates. 

The government said it will spend as much as £21.7 billion ($28.5 billion) over 25 years to capture and store CO2 emissions from two industrial areas in Britain. It delivers on a promise made by the previous Chancellor of the Exchequer Jeremy Hunt last year, but pledges funding for just three of the eight projects shortlisted for the program after supply chain costs rose sharply in recent years. 

“Today’s announcement will give industry the certainty it needs – committing to 25 years of funding in this groundbreaking technology – to help deliver jobs, kick start growth, and repair this country once and for all,” Prime Minister Keir Starmer said in a statement.

Carbon capture will be an essential technology to achieve the government’s goal of having a clean grid by 2030. The technology can also be used to cut emissions from heavy industries, such as cement or fertilizer production. In July, the National Audit Office warned about the UK’s reliance on CCS to reach its net zero goals as potential costs escalate. Previous failures to develop carbon capture over the past two decades in Britain mean the technology remains relatively untested.

The plan is to develop clusters that would allow various emitters to share pipelines that transport emissions and storage sites. The first two areas in Track 1 are the East Coast Cluster, including projects from BP Plc and Equinor ASA, in the east of England and HyNet that would serve sites in the west of England and Wales. 

Along with £8 billion of private investment, the carbon capture plans will directly create 4,000 jobs, according to a government statement.

The funding from the government will be enough to build the transport and storage networks for both clusters, as well as capture technology at three emitting sites. 

Those projects will remove 3 million tons of CO2 per year, according to data compiled by Bloomberg. That would fall far short of a previous government target to capture and store between 20 million to 30 million tons of CO2 per year by the end of the decade. 

If those are the only projects supported by this funding, it would represent a cost of about £300 per ton of CO2, roughly eight times the current UK carbon price. The decision follows reporting by Bloomberg earlier this year that the government was considering delaying some CCS projects due to rising costs. 

While company executives from the projects hailed the announcement, there’s no clear indication when the final investment decisions will happen. 

The projects are already behind schedule. Investment decisions were originally planned to be made by the end of last year, a target that was then delayed to at least September, according to a report by the NAO. If the deadline slips further, tentative contracts could need to be renegotiated with suppliers at an even higher cost. 

“Slower progress with getting Track-1 up and running means that DESNZ will struggle to achieve its 2030 ambitions for carbon capture,” the NAO warned in a report in July. 

Within the clusters, the previous government identified eight projects in March last year that it deemed ready to proceed to negotiations on the carbon capture business model that would underpin final investment decisions. The UK has been negotiating with each project on the level of subsidy required. In each case it will be paid out for each metric ton of CO2 captured, according to planning documents. 

The funding allocated by the government will help realize three of the sites. Those include a power plant under development by BP and Equinor, an energy to waste plant and a project that will create hydrogen from natural gas. 

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