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

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(Bloomberg) — The UK has again committed to major investment in carbon-saving technologies even as rising costs mean only a fraction of the carbon emissions released from industrial sites will be captured compared to previous estimates.

The government has said it will spend up to £21.7 billion ($28.5 billion) over 25 years to capture and store CO2 emissions from two industrial sites in Britain. It fulfills a promise made by former Chancellor of the Exchequer Jeremy Hunt last year, but promises funding for just three of the eight projects shortlisted for the scheme after supply chain costs have risen sharply in recent years.

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

Carbon sequestration will be a key technology to achieve the government’s goal of a clean grid by 2030. This technology can also be used to cut pollution from heavy industries, such as cement or fertilizer production. In July, the National Audit Office warned about the UK’s reliance on CCS to meet its net zero targets as the potential costs mount. Previous failures to develop carbon capture over the past two decades in Britain mean the technology remains untested.

The plan is to develop clusters that will allow different carriers to share exhaust pipelines and storage facilities. The first two locations in Track 1 are the East Coast Cluster, which includes projects from BP Plc and Equinor ASA, in the east of England and HyNet which will provide sites in the west of England and Wales.

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

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The funding from the government will be sufficient to build a transport and storage network for both clusters, as well as imaging technology at three production sites.

Those projects will remove 3 million tons of CO2 per year, according to data compiled by Bloomberg. That would be far below the previous government’s target of capturing and storing between 20 and 30 million tonnes of CO2 per year by the end of the decade.

If those were the only projects supported by this grant, they would represent costs of around £300 per tonne of CO2, almost eight times the current UK carbon price. The decision follows Bloomberg reporting earlier this year that the government is considering delaying some CCS projects due to rising costs.

Although company executives from the projects praised the announcement, there is no clear indication of when the final investment decisions will take place.

Projects are behind schedule. Investment decisions were scheduled to be made by the end of last year, a target that has since been delayed until at least September, according to the NAO report. If the deadline passes, the suspended contracts may need to be renegotiated with suppliers at even higher costs.

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“Slow progress on developing Track-1 means DESNZ will struggle to meet its 2030 carbon capture ambitions,” the NAO warned in a July report.

Within the clusters, the previous government identified eight projects in March of last year that they considered ready to proceed with discussions about the carbon capture business model that will ensure the final investment decisions. The UK negotiated with each project the level of funding required. In each case it will be paid for each metric ton of CO2 taken, according to the planning documents.

The funding provided by the government will help achieve these three areas. That includes a power plant developed by BP and Equinor, a waste-to-energy plant and a project to generate hydrogen from natural gas.

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