Guidance

Energy Security Bill factsheet: Carbon dioxide transport and storage regulatory investment model

Updated 1 September 2023

The Climate Change Committee (CCC) has described Carbon Capture, Usage and Storage (CCUS) as a ‘necessity, not an option’^{[footnote 1]} for the transition to net zero.

Why are we legislating?

CCUS will be essential to meeting the UK’s 2050 net zero target and will support the UK’s global climate commitments.

CCUS is the process of capturing carbon dioxide and permanently storing it, deep underground where it cannot enter the atmosphere. Carbon dioxide (CO2) transport and storage networks will act as the enabling infrastructure for carbon capture and storage from a range of sources, including power plants, industrial facilities, low carbon hydrogen production and potentially direct air capture.  

For CCUS deployment in the UK to be successful, it is essential that there are sustainable funding models that can attract private finance at a cost that represents value for money to taxpayers and consumers. This Bill establishes a framework of economic regulation for the transport and storage of CO2, following consultation on commercial models to pull through the investment needed to deploy CCUS at scale, and building upon improved understanding from previous competitions to mitigate the risks and technical and commercial challenges involved in deploying CCUS across the UK. These proposals will continue to cultivate the UK’s system of strong economic regulation, which has successfully provided over £450 billion in private sector investment^{[footnote 2]} to enhance our energy, water, and digital infrastructure, benefitting consumers now and for years to come.

Developing the infrastructure needed to capture, transport and store carbon dioxide will contribute to the economic transformation of the UK’s industrial regions, enhancing the long-term competitiveness of UK industry in a global net zero economy. It will help decarbonise our most challenging sectors, provide low carbon power and a pathway to negative emissions.

How the Bill will achieve this

The Bill will establish the regulatory framework and support necessary to attract private finance and remove market barriers to investment, providing long-term revenue certainty to establish and scale-up the first-of-a kind CO2 transport and storage networks.

Financial assistance: The Bill will provide the Secretary of State with powers to provide financial assistance, which may include capital investment as well as other forms of financial support for CO2 transport and storage networks. It also contains powers to designate a counterparty to manage revenue support agreements that may be in place for CO2 transport and storage operators to address market failures preventing the deployment of CCUS and the delivery of net zero objectives.

CO2 transport and storage licencing framework: The Bill establishes an economic regulation model for CO2 transport and storage, with statutory objectives and legal powers for Ofgem as the economic regulator of CO2 transport and storage. The Bill introduces an economic licensing framework under which CO2 transportation by pipeline for geological storage operations will require a licence. The framework provides for the grant of such licences, and powers for Ofgem to enforce and modify licence conditions. A licence will determine the allowed revenue which a transport and storage operator may receive, which should reflect its efficient costs and a reasonable return on its capital investment. The licence allows an operator to charge network users for delivering and operating the network. Users of the network may include power plants, industrial facilities and low carbon hydrogen production facilities who emit CO2 and then capture it to be transferred onto the network for its transport and permanent storage. The economic regulator has oversight of charges and will determine whether costs are economic and efficient. The legislation also allows for a process to appeal decisions made by the economic regulator. The economic licence allows the economic regulator to address market failures associated with the natural monopoly characteristics of this network infrastructure.

Building on examples from other infrastructure, the economic regulation model for CO2 transport and storage incorporates not just the establishment of economic regulation but also provisions for decommissioning and amendments to the insolvency regime, recognising the need to future proof the model to the changing needs of the network over time.

Funded Decommissioning Programme and asset re-use: Provisions in the Bill will ensure funds are in place for safe decommissioning of offshore CO2 transport and storage infrastructure at the end of its operational lifetime. The Bill will also look to amend certain existing powers of the Secretary of State relating to the re-purposing of oil and gas assets for CCUS, to bring them in line with current government policy.

Special Administration Regime: The Bill enables the application of a special administration regime in the event of a transport and storage company insolvency in order to support the ongoing operation of the transport and storage network, to prioritise its rescue as a going concern and to secure the ongoing safety and security of the network.

Statutory Transfer Scheme: These provisions provide step-in rights for the Secretary of State where there would otherwise be a licence termination, to secure the ongoing operation of the transport and storage network or to ensure safe decommissioning of the relevant CO2 transport and storage infrastructure where that is not possible.

Greenhouse gas removals: The Bill will also deliver on our commitment in the Net Zero Strategy to ensure that engineered removals of greenhouse gas emissions count towards our carbon budgets, by amending the definition of ‘UK removals’ within the Climate Change Act 2008.

FAQ

Is CCUS just another cost to consumers?

The CO2 transport and storage measures in this Bill do not directly create any new or additional costs to consumers. However, the costs for some users of CO2 transport and storage networks will be funded through consumer levies, and those users will pass through charges for CO2 transport and storage services to consumers.  

The business model for CO2 transport and storage is a ‘user pays’ economic regulation model; this involves the network users (power and industrial emitters) paying for the transport and geological storage of the CO2 that they produce. Ofgem, as the independent economic regulator, will have a statutory duty to protect the interests of network users and consumers, and ensure that costs are economic and efficient. The proposed CO2 transport and storage facilities supported by this Bill will establish a new CCUS industry across the UK which could support up to 50,000 jobs by 2030 and provide a total UK captured turnover of up to £8.3bn by 2050^{[footnote 3]}.

Won’t CCUS just perpetuate the use of fossil fuels?

The Climate Change Committee (CCC) has described Carbon Capture, Usage and Storage (CCUS) as a ‘necessity, not an option’^{[footnote 4]} for the transition to net zero, which will enable the UK to deliver upon its global climate commitments. CCUS has a wide range of applications which will support the net zero transition across both power and industry. A low-cost, net zero consistent system is likely to be composed predominantly of renewable sources of energy. But ensuring the system is reliable means intermittent renewables need to be complemented by technologies which provide power, or reduce demand, when the wind is not blowing, or the sun does not shine.

In the power sector, gas-fired generation with CCUS can provide flexible, low-carbon capacity to complement high levels of renewables.

CCUS and low carbon hydrogen can provide flexible energy deployment across heat, power and transport, and will be critical for achieving net zero, particularly in sectors such as steel, cement, and chemicals sectors, which lack viable alternatives to achieve deep decarbonisation and will help create world-leading low carbon manufacturing clusters.

Our exposure to volatile global gas prices underscores the importance of our plan to build a strong, home-grown low-carbon energy sector to further reduce our reliance on fossil fuels.

Moreover, in amending the definition of ‘UK removals’ within the Climate Change Act 2008, the engineered removal of greenhouse gases, through methods such as CCUS, will further support the UK in reaching its carbon budgets.

Is CCUS a viable technology?

CCUS is a proven technology, with CCUS projects operating safely globally in countries such as Norway, the US and Canada.

Research by the Global CCS Institute found that, in 2021, there were 27 large-scale CCUS facilities in commercial operation globally, capturing over 36 million tonnes of CO2 per year, with others in development and a further 71 CCUS facilities newly announced^{[footnote 5]}.

Is CCUS safe?

Yes. The safety of CCUS is underpinned by a strong regulatory framework that is in place to mitigate any risks, with BEIS being guided by the relevant expert bodies.  

No significant safety, health or environmental impacts have been documented from existing CCUS projects. The Offshore Petroleum Regulator for Environment and Decommissioning (OPRED) ensure that all offshore operations, including CCUS, comply with environmental standards and regulations.

In addition, the North Sea Transition Authority (NSTA) licence and regulate the storage of CO2 on the UK Continental Shelf. Storage site operators are under legal obligations to continue to monitor and report on storage sites, including once the sites are closed. 

Background

The government has set out a programme of work to meet the ambition of deploying CCUS at scale in line with our ambition to capture up to 20-30 million tonnes of carbon dioxide, per year, by 2030^{[footnote 6]}.

In delivering this work, government will work collaboratively with the CCUS industry to support the capital costs of strategic CCUS infrastructure through the £1 billion CCS Infrastructure Fund (CIF) for Transport & Storage networks and industrial carbon capture projects, and the Industrial Decarbonisation & Hydrogen Revenue Support (IDHRS) scheme to fund the ICC and hydrogen business models and provide ongoing revenue support for hydrogen production and ICC projects. Along with work on enduring business models, these funds will help to address the commercial barriers that have previously impacted the development of CCUS in the UK.

Further information

The following documents are relevant to the measures and can be read at the stated locations:

• Consultation response (2020)
• Consultation response (2022)
• CCUS Business Models
• CCUS Investor Roadmap

1. https://www.theccc.org.uk/publication/net-zero-the-uks-contribution-to-stopping-global-warming/ ↩

2. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1051261/economic-regulation-policy-paper.pdf ↩

3. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/845655/energy-innovation-needs-assessment-ccus.pdf ↩

4. https://www.theccc.org.uk/publication/net-zero-the-uks-contribution-to-stopping-global-warming/ ↩

5. https://www.globalccsinstitute.com/wp-content/uploads/2021/10/GSR2021_Policy-Factsheet_2021_EN.pdf ↩

6. (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1033990/net-zero-strategy-beis.pdf)[https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1033990/net-zero-strategy-beis.pdf] ↩