The remarkable rise of offshore wind in the UK over the last decade is something of an obsession for many supporters of carbon capture, usage and storage (CCUS) – a climate-change mitigation technology of very different fortunes. As recently as five years ago, CCUS-backers could point to the generously subsidised electricity contracts secured by offshore wind plants as more than enough to launch their own projects, but dramatically falling costs in the wind sector have left them only wondering what might have been.

However, at an event hosted by industry group the Carbon Capture and Storage Association (CCSA) in London last month, offshore wind served also as a cautionary tale, in which a lack of government strategy has allowed foreign manufacturers to dominate the sector.

The message from the revamped campaign for CCUS is centred on this policy-friendly theme of jobs, communities, and economic value to the country – billed as a technology with the potential not only to retain existing industry in the UK, but to launch a thriving new offshore sector for storing CO2 in the North Sea.

There is a hopeful mood in the CCUS community, with all major political parties seeming to recognise that deployment of the technology is a nut that must be cracked, and oil and gas companies circling with interest.

Since the UK government proclaimed its renewed CCUS ambitions to the world at a high- profile ministerial meeting in Edinburgh last year, there have been a couple of key developments. Perhaps most significantly is the UK’s binding commitment in June this year to reach net-zero emissions by 2050. At the CCSA event, a speaker from the Committee on Climate Change – which in 2020 will be setting out possible pathways to the target – emphasised that no plausible scenario could do without carbon capture.

The only question remaining is how to make it happen, and the answer to this too is beginning to take shape, with the June release of a report from the UK CCUS Advisory Group on market frameworks for driving investment, followed by a government consultation on the same issue.

As has been thought likely for several years, the preferred model is to develop an entirely separate business for transporting and storing CO2, which will be run as a regulated asset with fixed returns for investors.

Emitting industries, grouped together in ‘clusters’, will pay to use this network and be compensated for the extra cost through subsidies paid via taxes or by consumers. For power plants, the established ‘contracts for difference (CfD)’ system of guaranteed power prices – so successful at driving offshore wind – is still the weapon of choice, but with a few tweaks. In recognition of these plants intended role as ‘mid-merit’ generators, which will cycle according to variation in wind output and demand, there could be a ‘dispatchable CfD’ which pays partly for capacity and partly for generation and other operating costs – essentially geared to ensure it is dispatched ahead of unabated gas plant.

Decarbonising manufacturing industries such as steel, cement, and chemicals is now portrayed as the primary role for CCUS in the UK, but there is more uncertainty around possible business models for these sectors, given their exposure to international competition. The Advisory Group’s report suggests that government covers a portion of the capital cost for early projects, as well as any operational cost shortfall after sales of unneeded CO2 allowances in the EU Emissions Trading System.

The oft-heard idea of a product standard that would limit levels of embedded carbon was also raised during the event, but a representative from the Teesside industrial cluster – one of the more advanced CCUS prospects – protested that this would only harm their ability to compete on international markets.

Capturing CO2 from hydrogen production is the other cornerstone of the UK’s vision for CCUS, with the aim of decarbonising the gas grid, and this may also be run as an entirely regulated industry.

There was much discussion over how to promote a culture of co-operation between CCUS projects and clusters, while also ensuring sufficient levels of competition to help drive down costs. Once again, the offshore wind industry was held up as an exemplar of this balancing act, which is ultimately linked to the degree of regulation in the sector. The oil and gas players likely to lead the deployment of CO2 infrastructure are used to a more cutthroat, high-stakes business, but in the context of this new industry, knowledge sharing may be just as essential to cost reduction as competition.

A week after the CCSA event, prospects for the technology were given a further boost as prime minister Boris Johnson announced £800 million in funding for CO2 transport and storage infrastructure. The UK government is also likely to make a feature of its ambitions for CCUS at the COP climate change meeting it will host in Glasgow next year.

Nevertheless, some stakeholders at the event cautioned against getting too carried away, pointing out that it will remain an industry grounded in liability rather than profit, with potentially limited appeal for investors. As a speaker from the North-East CCUS Alliance – a prospective industrial cluster in Scotland – put it, the emerging industry must make its case well, or CCUS may not become the UK’s next offshore wind, but its next fracking.

Potential UK CCUS clusters and carbon dioxide storage sites (source: UK CCUS Cost Challenge Taskforce Report, July 2018). The current preferred model for getting CCUS happening in the UK envisages that emitting industries would be grouped together in clusters and would pay to use CO2 transport and storage networks, with the extra costs compensated through subsidies paid via taxes or by consumers. CO2 transport and storage would be developed as an entirely separate business, run as a regulated asset with fixed returns for investors

Author: Toby Lockwood IEA Clean Coal Centre