UK spending review: funding boost for carbon capture projects

The UK government has said it will provide funding for the Acorn project in Scotland, the Viking project in Humberside, and the expansion of two previously funded carbon capture, usage and storage (CCUS) clusters across the UK.

The £9.4 billion of funding, announced as part of the government’s most recent annual spending review, follows a previous commitment to invest up to £21.7 billion over 25 years to support the implementation of the two ‘track 1’ CCUS clusters in the UK.

This first tranche of funding was allocated between HyNet in North West England and the East Coast Cluster in Teesside. The government designated the Acorn and Viking projects as track 2 CCUS clusters, but further funding was required to enable these projects to go forward and be deployed in line with the UK’s target to reduce its greenhouse gas emissions to net zero by 2050.

Earlier this year the government’s climate change advisory body identified carbon capture and storage and low-carbon hydrogen as key routes to reducing UK greenhouse gas emissions.

Investment in the Acorn and Viking projects follows through on the government’s earlier commitment to allocate additional funding for track 2 clusters. The Acorn project – a joint venture being developed by Storegga, Shell UK, Harbour Energy and North Sea Midstream Partners – is expected to store at least 5 million tonnes of carbon dioxide per year by 2030 and create more than 10,800 direct and indirect jobs as construction activity takes place. A further 4,700 long-term jobs will be required to maintain the project’s operations.

In March, business leaders and organisations including the Confederation of British Industry and the Scottish Chambers of Commerce signed a letter urging the chancellor to back the Acorn project, arguing it was a vital opportunity for Scottish industry to decarbonise.

Rachel Reeves, UK chancellor, said the funding for the Acorn project would “support Scotland's transition from oil and gas to low-carbon technology”, as she announced the annual spending review to parliament.

Harbour Energy, which is developing Viking alongside BP, said the project could unlock up to £7bn in investment and create over 10,000 jobs during construction.

Stacey Collins of Pinsent Masons said the government’s announcement showed its ongoing commitment to these types of projects amid market uncertainty. “The CCUS sector went into the spending review with a degree of nervousness,” he said. “Despite the strong progress that has been made in recent months, there were concerns about whether the Labour government would stand by the prior government’s commitment to develop at least four CCUS clusters. In that context it is great news to see £9.4bn in capital budgets committed to support the expansion of the two track 1 clusters.”

However, Collins cautioned that the announcement spelled “mixed news” for the track 2 clusters. “It’s not clear what the development funding will look like, and the future of track 2 is to be decided at a later date,” he said. “In some respects, it’s a pretty unconvincing message to the potential track 2 projects, although it sounds a bit like the government is challenging track 2 to ‘make its case’ over the coming months.”

The CCUS funding follows an announcement earlier this week by the government that it plans to fund a major expansion of its nuclear programme, which is expected to generate 10,000 jobs, including 1,500 apprenticeships, and support thousands more across the UK supply chain. All of these funding commitments align with the government’s Clean Power 2030 Action Plan to develop clean power, create jobs and boost energy security.

“The focus on carbon capture storage (CCS) impact in terms of jobs, energy security and clean power in the CSR shows how it fits well with the government’s wider priorities, and CCS remains a sector where the UK can still be a leader and reap the benefits accordingly,” said Nick McDonald of Pinsent Masons. “Those would not just be in terms of the direct advantages which would arise from a domestic CCS sector – significant though those are – but also in terms of the UK’s ability to export skills and technology, and to import carbon dioxide for storage.”

It is estimated that there may be as much as 78 billion tonnes of potential carbon dioxide storage capacity under the UK continental shelf. Following the spending review, McDonald said the government must not miss the opportunity to forge ahead with its commitment to helping create a Europe-wide carbon dioxide storage market. “As well as clarity on the today’s announcements mean for progress on UK projects, we also need to see continued progress on linking the UK and EU emission trading schemes and removing regulatory barriers which will allow a European storage market to come forward.”

During the recent UK-EU summit in London, negotiators agreed on making steps to link EU and UK emissions trading schemes and maximise cooperation on clean energy technologies, including hydrogen, CCUS and decarbonised gases.