Referral of the proposed Industrial Carbon Capture (ICC) and Waste ICC schemes by the Department for Energy Security and Net Zero

The Subsidy Advice Unit (SAU) has accepted a request for a report providing advice to the Department for Energy Security and Net Zero (DESNZ) concerning its proposed schemes for Industrial Carbon Capture (ICC) and Waste ICC business models.

From:
Competition and Markets Authority
Published
3 October 2024
Case type:
SAU referral
Case state:
Open
Market sector:
Energy
Opened:
3 October 2024

Administrative timetable

Date Action
13 November 2024 SAU’s report to be published
16 October 2024 Deadline for receipt of any third-party submissions
3 October 2024 Beginning of reporting period

Request from DESNZ

3 October 2024: The SAU has accepted a request for a report from DESNZ concerning the proposed CCUS ICC and Waste ICC schemes. This request relates to Subsidy Schemes of Particular Interest.

The SAU will prepare a report, which will provide an evaluation of DESNZ’s assessment of whether the schemes comply with the subsidy control requirements (Assessment of Compliance). The SAU will complete its report within 30 working days.

Information about the schemes provided by DESNZ

The Industrial Carbon Capture (ICC) and Waste ICC business models (the Schemes) aim to incentivise the deployment and operation of Carbon Capture, Usage and Storage (CCUS) technology by industrial users and residual waste management facilities, which often have no viable alternative to achieve deep decarbonisation. The budget for the Schemes is up to £8,349,000,000 (See explanatory note below).

The Schemes form part of a suite of measures aimed to deploy CCUS at the scale or the pace needed to reach Carbon Budget 6 and Net Zero by 2050.

At present, the costs to industrial and waste emitters of constructing and operating CCUS are greater than the costs that they incur by emitting carbon dioxide (CO2) into the atmosphere (i.e. emitters of CO2 are required to incur emission costs through the UK Emission Trading Scheme (UK ETS)) – as such, emitters do not face a sufficient market incentive to deploy CCUS. In addition to this cost gap, there are also additional risks (e.g. cross-chain risks and first mover disadvantages) that need to be overcome for emitters to be incentivised to deploy CCUS.

The Schemes incorporate:

  • a private law contract of up to 15 years (a 10-year initial period with possible annual extensions for up to a further 5 years) that provides the emitter with revenue support through a payment per tonne of captured CO2. This is intended to cover operational expenses; CO2 Transport and Storage (T&S) charges; and repayment of, and a rate of return on, capital investment (Capex) in carbon capture equipment. For ICC projects only, the contract will also include protection of UK ETS Free Allowances revenues to reduce risk to emitters and minimise risk of distortions. The contract is based on a Contract for Difference style framework

  • capital grant co-funding for a portion of the capital cost of CCUS projects. Its primary objective is to fill any financing gaps from projects, to reduce overall subsidy to industry and improve affordability and value for money for government

The revenue support contracts will be funded from the exchequer through the Industrial Decarbonisation and Hydrogen Revenue Scheme and the capex co-funding via the CCUS Infrastructure Fund.

The full form contracts for ICC and Waste ICC were published in October 2023:

These formed the basis for negotiation with projects. We aim to award the first contracts to ICC and Waste projects in 2024.

Applicants to the Schemes need to have been selected via the Track-1 Phase 2 Cluster Sequencing Process, which ran in 2021. To be eligible to enter the Track 1 Phase 2 Cluster Sequencing process, they had to meet several eligibility criteria, including:

  • being located in the UK

  • having access to a T&S solution

  • meeting specific project timeline requirements

  • being an industrial facility

  • deploying eligible CCUS technology

  • meeting performance criteria

Explanatory note on total budget of the Schemes

The total budget (expressed in real 2021 terms) is the best estimate possible for Track-1 deployment of the ICC and Waste schemes, given the various uncertainties around the number and technical specification of projects that may be proposed during its duration. A number of major assumptions have been made including assuming that no future users join the CO2 T&S network to remain compliant with HMT green book principles. Therefore, there is scope for the cumulative amount awarded under the Schemes to be significantly lower in reality, especially with respect to reduction of T&S costs. The total budget figure is a hypothetical maximum in a high-cost scenario for the whole life of the subsidy schemes including any additional projects, calculated in accordance with the Subsidy Control Regime Statutory Guidance. It should not be read as an expected budget or create any legitimate expectation of spend.

Information for third parties

If you wish to comment on matters relevant to the SAU’s evaluation of the Assessment of Compliance concerning the proposed CCUS ICC and Waste ICC, please send your comments before 5pm on the date stipulated in the timetable above. For guidance on representations relevant to the Assessment of Compliance, see the section on reporting period and transparency in the Operation of the subsidy control functions of the Subsidy Advice Unit.

Please send your submissions to us at SAU-CCUS-ICC2024@cma.gov.uk, copying the public authority: ICCbusinessmodels@energysecurity.gov.uk.

Please also provide a contact address and explain in what capacity you are making the submission (for example, as an individual or a representative of a business or organisation).

Notes to third parties wishing to make a submission

The SAU will only take your submission into account if it can be shared with DESNZ. The SAU will send a copy of your submission to DESNZ together with its report. This is to allow the public authority to take account of the submission in its decision as to whether to make or modify the schemes or its assessment. We therefore ask that you provide express consent for your full and unredacted submission to be shared. We also encourage you to share your submission directly with DESNZ using the email address provided above.

The SAU may use the information you provide in its published report. Therefore, you should indicate in your submission whether any specified parts of it are commercially confidential. If the SAU wishes to refer in its published report to material identified as confidential, it will contact you in advance.

For further details on confidentiality of third party submissions, see identifying confidential information in the Operation of the subsidy control functions of the Subsidy Advice Unit.

Contacts

Updates to this page

Published 3 October 2024
Contents