Building a head of steam towards decarbonisation
Why the UK’s industrial areas could be in the vanguard of the carbon capture revolution
The UK could be on the verge of a carbon capture revolution, and the opportunities are incredible – if the right levels of collaboration can be found to progress them.
The UK Government plans to select at least two sites, known as clusters, to be set up in the UK by the mid-2020s for carbon capture and storage (CCS).
Selected clusters will have a phenomenal opportunity to attract investment, to develop infrastructure and to build skills over the next decade and beyond.
Womble Bond Dickinson strongly supports the cluster selection process across the UK and, like other clusters in the UK, Scotland has a robust case to be chosen as one of those sites. Its existing infrastructure puts it in a good position to be a part of this exciting initiative.
However, the development of CCS clusters is new territory and there are several barriers that must yet be overcome: finalising the legal and regulatory framework, delivering the technology and infrastructure on an industrial scale and securing the huge investment required to take it forward.
What is carbon capture?
CCS or carbon capture, utilisation and storage (CCUS) is the process of capturing and storing carbon dioxide (CO2) before it is released into the atmosphere. An effective carbon capture process can prevent up to 90 per cent of CO2 that is typically released by the burning of fossil fuels from reaching the atmosphere.
Once the carbon dioxide has been captured, it is compressed into liquid state and transported by pipeline, ship or road tanker, and is eventually pumped underground to be stored in depleted oil and gas reservoirs, coalbeds or deep saline aquifers, where the geology is suitable.
Naturally, with the UK’s extensive North Sea oil and gas infrastructure already in place, there is a great opportunity to use that network for CO2 disposal.
Given the potential of carbon capture in Scotland, a Back the Scottish Cluster campaign has been set up by NECCUS, a cross-sector group of Scottish industrial CO2 emitters and the Acorn CCS and hydrogen project partners.
The aim of NECCUS is to unify Scottish industries, communities and businesses, to drive the collaboration needed so that CCUS, hydrogen and other low-carbon technologies can enable the decarbonisation of Scottish industry.
Latest state of play
The UK Government is pushing on with its selection of industrial clusters which are most ready for CCUS networks.
The plan is to select at least two clusters as a priority for ‘Track 1’, and to have them operational by the mid-2020s. A further number of clusters will then be identified as ‘Track 2’, to be operational between 2027 and 2030.
The government has kicked off a CCUS supply chain mapping exercise, together with a ‘Fit for CCUS’ programme to help UK companies to position themselves to win CCUS work.
The government will also develop a skills plan to ensure that the UK can provide a sustainable CCUS skills base and it is reviewing the financial support available to UK companies for accessing global CCUS work opportunities.
The mid-2020s deadline is an interesting one, mainly because it is looming fast. The Prime Minister’s ‘ten point plan’ talks about approximately 10m tonnes of carbon being captured by 2030.
But it almost certainly will take the best part of a decade for the whole cluster ecosystem to be completed and for the processes and technology and delivery to be shown to be delivering on an industrial scale.
The regulatory model also needs to be finalised: we need to know how it will map into business structures and commercial arrangements. This does mean that the clusters which are chosen for ‘Track 1’ will be pioneering the process and will be expected to identify best practice from which future schemes can learn.
This will give us a refined model for progressing with future clusters.
Unlocking private investment
Attracting investment is the other major hurdle: we need to show that these projects can work and that they are deliverable. We are not going to get many investors coming in on a wider scale unless they have seen that there are projects off the ground, catalysed by government funding, and that they are successful over a period of time.
Also important for investors, as we have seen with the Contract for Difference (CfD) scheme in offshore wind, is revenue support for these types of projects.
The CfD scheme broadly means that there is always a minimum level of income for investors, regardless of what the price of electricity is at any given point. It guarantees stability and has helped move the offshore wind landscape on immeasurably.
The same applies for CCUS: if you are an investor, you want to come into a project knowing that there is a minimum level of revenue. The government is therefore proposing revenue support schemes for CCUS which are not dissimilar to the CfD system.
As for the type of investor that will get involved, we consider that CCUS projects may not be of obvious interest to private equity-type investors who typically will want to exit after a short timespan (perhaps three to five years); this is for those investors seeking a longer-term investment such as pensions funds – which look at projects knowing that they will get regular revenue from it – or those with longer term strategic aims, such as oil and gas companies moving towards net zero and energy transition.
Collaboration is key
Some industry observers have suggested that there is a risk of the current cluster sequencing process creating an impression of the various UK candidate clusters competing with each other.
In actual fact, our experience is that the candidate clusters are keen to collaborate and share best practice.
Membership of the clusters is not exclusive – the same stakeholders often appear in two or more of the clusters.
The developers behind each cluster are aware that, if their cluster is selected, they are going to need a dependable supply chain to get the infrastructure built, so they may want to collaborate to co-ordinate the work across the selected clusters.
That also links to the fact that the next wave of clusters needs to benefit from the lessons which have been learned in ‘Track 1’.
On one specific issue in Scotland, the continuing delay to the launch of a selection process for green ports (the Scottish version of Freeports south of the Border) is not going to help with the rapid development of a Scottish cluster.
This delay continues to be a source of acute frustration for Scottish businesses that can see the investment that is already being ploughed into Freeport areas in England. It is critical that the Scottish Government works through the politics of the situation quickly so that inward investment is not lost and that energy infrastructure projects such as the Scottish CCS cluster are not hindered.
Richard Cockburn, partner and head of energy at law firm Womble Bond Dickinson.
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