Moved by Lord Callanan That the Grand Committee do consider the
Carbon Dioxide Transport and Storage Revenue Support (Directions
and Counterparty) Regulations 2024. The Parliamentary
Under-Secretary of State, Department for Energy Security and Net
Zero (Lord Callanan) (Con) My Lords, I beg to move that these
regulations, which were laid before the House on 15 April this year
under the affirmative process, be approved. I will also speak to
the draft Carbon...Request free trial
Moved by
That the Grand Committee do consider the Carbon Dioxide Transport
and Storage Revenue Support (Directions and Counterparty)
Regulations 2024.
The Parliamentary Under-Secretary of State, Department for Energy
Security and Net Zero () (Con)
My Lords, I beg to move that these regulations, which were laid
before the House on 15 April this year under the affirmative
process, be approved. I will also speak to the draft Carbon
Capture Revenue Support (Directions, Eligibility and
Counterparty) Regulations 2024. To save a considerable amount of
time, I will hereafter refer to these regulations as the CO2
transport and storage regulations and the carbon capture
regulations.
These regulations are part of a series of secondary legislation
made under powers in the Energy Act 2023, a landmark piece of
legislation, which received Royal Assent on 26 October; I am
grateful for the support that noble Lords gave me in getting that
important legislation through. I will first provide some
important background on the UK's carbon capture landscape before
turning to the rationale and the details of the regulations.
Carbon capture, usage and storage, commonly known as CCUS,
supports the UK's legally binding commitment to reduce greenhouse
gas emissions to net zero by 2050. In 2021, HyNet and the East
Coast Cluster were announced as the UK's first CCUS clusters,
where CO2 will be captured from a range of sources to support the
low-carbon economic transformation of our industrial regions. The
CO2 transport and storage network—the T&S network—is
essential for building that CCUS capability, as it is the
enabling infrastructure for captured CO2 to be transported to
permanent, offshore storage.
To facilitate the development of T&S infrastructure, the
Energy Act 2023 makes provision for revenue support to be
available to any eligible transport and storage company,
abbreviated to T&SCo. Revenue support is part of the broader
T&S regulatory investment model, or TRI model.
Under the TRI model, an allowed revenue will be determined for
transport and storage companies, and exposure to revenue gaps,
which refer to instances where annual revenue from user charges
is less than a T&SCo's allowed revenue, will be mitigated.
For example, where a revenue gap arises beyond a T&S
company's control, such as where a network user is late joining
the network, a shortfall in allowed revenue may arise. In those
instances, T&S companies can increase charges across the user
base up to a cap.
Should the increase in charges across the user base up to the cap
be insufficient, we are proposing that T&SCos be entitled to
revenue support as a last resort mechanism, funded by the
Government, enabling T&SCos to recover shortfalls through a
revenue support agreement—hereafter shortened to RSA. Without
this, there would remain a significant barrier to investment in
T&S infrastructure in the early stages of development of the
CCUS sector.
I turn to the detail of the transport and storage regulations.
RSAs will be offered as a contract between a T&S company and
a counterparty, which will be done under a direction of the
Secretary of State in accordance with Section 60 of the Act. To
maintain integrity of RSA allocation, the first aspect of these
regulations places requirements on the Secretary of State's
directions and sets out circumstances in which a direction ceases
to have effect, including where the Secretary of State revokes a
direction before a T&S company accepts a contract in
writing.
Secondly, the counterparty will be responsible for publishing
each RSA contract, as well as for establishing and maintaining a
public register of key project information. Ensuring transparency
of these contracts is essential for encouraging greater
understanding of the level of support for, and confidence in,
this critical but nascent sector.
To be clear, the regulations allow sensitive information to be
redacted by the Secretary of State, ensuring that any sensitive
commercial information—for example, information that constitutes
trade secrets—or personal data is removed before documents are
made public. The statutory instrument's final measure will
require the counterparty to promptly notify the Secretary of
State if it is unable to perform its duties.
Turning to the carbon capture regulations, I will first set out
the context of industrial carbon capture, ICC, which is critical
to decarbonising industries with hard-to-abate emissions and
achieving net zero by 2050. The Government's ambition is to
capture and store 6 megatonnes annually of industrial emissions
of CO2 by 2030, increasing to 9 megatonnes of CO2 annually by
2035. The ICC business models are designed to incentivise the
deployment of carbon capture technology by industrial and waste
users who often have no viable alternative to achieve deep
decarbonisation.
I turn now to the role of the carbon capture regulations in
facilitating the business models. The regulations broadly mirror
those that I detailed on transport and storage in respect of the
Secretary of State's directions to a counterparty—in this
instance for offering a contract with an eligible carbon capture
entity, including where directions cease to have effect or may be
revoked. The reporting requirements for a counterparty also
remain, including a duty to publish contracts entered into,
establish a public register and promptly notify the Secretary of
State if the counterparty is, or considers that it is likely to
be, unable to carry out its functions.
However, the regulations also satisfy the duty in Section 68(4)
of the Act, by determining the meaning of “eligible” in relation
to a carbon capture entity, specifically one where the CO2 to be
captured and stored is produced by commercial or industrial
activities, as set out in the Act.
In short, the regulations set out who can be eligible for
support. The transport and storage regulations do not include a
definition of eligibility, as an eligible transport and storage
company is defined at Section 60(2) of the Act as a person who
holds an economic licence or has been notified in writing by the
appropriate parties that an economic licence is to be granted.
The ICC business models have been developed to support
decarbonisation of the industrial sector, including the waste
management sector.
We do not consider it appropriate for the ICC business models to
support carbon capture deployment for certain parts of the power
sector. Therefore, the regulations set out that an entity would
be ineligible if it is capturing CO2 produced by the generation
of electricity and is connected to one or both transmission and
distribution systems in respect of all the electricity that the
generation station produces.
However, capture from combined heat and power plants and energy
recovery generating stations would be eligible, regardless of how
and whether they are connected to the transmission and
distribution systems. It should be noted that these regulations
form only one part of the assessment for whether projects would
be awarded an ICC or waste ICC contract. Further eligibility
criteria are expected to be set for individual allocation rounds
in the appropriate allocation guidance.
In conclusion, in implementing transport and storage
infrastructure and the industrial carbon capture business models,
these draft regulations represent an essential step towards
achieving our 2030 deployment ambitions and, ultimately, net
zero. I therefore commend them to the Committee.
(Lab)
My Lords, I thank the Minister for his explanatory and
informative remarks, for these regulations are complexities for
the uninitiated in these deceptively thinly paged dual sets of
regulations. Surely, they are regulations to be welcomed. It is
the war against CO2, and the Minister, if I may say so, has
escaped the thickets of Brexit legislation to display insightful
knowledge of the huge energy world.
Climate change is upon us. We should not be complacent. I hope
the regulations will facilitate the successful overcoming of a
big challenge. There are certainly ambitious targets. Can the
Minister explain a little further the register and the
counterparty in Regulation 6(2)? Also, in paragraph 4.2 of the
helpful and necessary Explanatory Memorandum we see the power of
the Secretary of State to “direct”. It is reasonable for a
Back-Bencher in a Parliament to query that word. Here, at first
glance, it is the granting of all-powerful influence. Is that so?
I think I know the Minister well enough in parliamentary terms to
know that he is not a person who seeks all-powerful directions,
but he might like to explain with his usual expertise what that
is all about. This is, after all, a Parliament.
At paragraph 4.3 of the Explanatory Memorandum, we have
references to the nations and, not least, to Wales. How many
likely carbon capture projects are mooted or in the pipeline for
Wales, Scotland and England, not forgetting Northern Ireland? At
paragraph 5.3, what is the department's understanding of
“a reasonable return on investments”?
Is there a percentage in mind? Shall it not be a blank cheque?
Can the Minister also explain further, for the uninitiated, what
the “CCUS cluster” is at paragraph 5.5?
At paragraph 6.5, the department rightly points to “large upfront
capital expenditure”. Can the Minister give a possible list of
the scale of this up front? Surely there are in existence
projects quite far down the line. I ask for the Minister to give
his best guesstimate. At paragraph 5.9, it is welcome—to be very
positive—that the public are to be made aware of deployment of a
public register of projects. That has to be good.
Time is of the essence. I am aware that in north-east Wales,
Connah's Quay Power Station proposes carbon capture. This station
is in the constituency that for 31 years one represented in
another place. One visited regularly. It was once mooted for
nuclear power, being on the substantial River Dee estuary. I
emphasise that I have no registered interest whatever in raising
this matter, but since I still live in the shadow of this
establishment and have had a connection with it for the best part
of 54 parliamentary years, I raise the matter. Currently the
station is owned by a company called Uniper, about which I know
very little. The company is briefing in the locality. I quote
from the letter of invitation to visit for briefing. It is from a
shrewd, practical managerial team that I encountered in response
to its invitation.
Briefly, it says that it is
“developing plans for a new low-carbon, highly efficient
gas-fired power station with carbon capture technology at the
site … We expect to reuse an existing pipeline, which will
connect to the regional CO2 infrastructure currently under
development by Eni, enabling the captured CO2 to then be
transported to permanent offshore storage facilities in
repurposed depleted offshore gas fields”.
I visited this plant as a result of receiving that invitation for
briefing and, on the face of it, the project seems to be very
much related to these regulations. That is why I have quoted from
that letter.
4.00pm
Lastly, if I may prevail once again upon the Minister, he surely
might be able—by letter if not in this Committee—to tell me of
his further plans for the great Wylfa nuclear power station on
Anglesey. Will he also, helpfully and warmly, indicate that he
has something up his sleeve for the now redundant Trawsfynydd
power station that once generated nuclear power for the nation?
If he cannot respond in terms under the chairmanship of the noble
Viscount, Lord Stansgate, he might wish to write to me on any of
the points that I have raised. I thank him again for his
introduction of these regulations.
of Manor Castle (GP)
My Lords, the noble Lord, , spoke about a war on carbon. Of
course, that is a war we should not be having to fight. The
arrival of these regulations is an expression of failure over
decades. We have continued to dig up and burn coal, oil and gas,
and now, having done all that damage to the natural carbon
capture and storage—the best possible form of it, which nature
has done for us over hundreds of millions of years—we are trying
to find a mechanism to undo some of that damage. Yet what we are
doing here is establishing an expensive, top-down framework for a
technology that does not yet exist at any scale and which, if
successful, will create natural monopolies.
This novel industry has zero customers and no guarantee that
there will be any in the future. It will be heavily dependent on
the Government to adopt an energy and industrial strategy down a
route that makes the carbon capture and storage industry
possible. It is heavily centralised, risky and expensive, which
must be contrasted with the decentralised, readily available and
readily deployable technologies that exist as an alternative to
CCS. What the Government are proposing with these regulations are
huge subsidies for decades, in the hope that at some point there
will be economic developments that will start to reduce the cost
to the taxpayer. This means that our situation is a bit like the
problem we have with incinerators, whereby we build incinerators
with contracts to supply them with waste for decades and then
have to generate the waste. The Government are really combining
science fiction with dinosaur thinking here.
I feel some sympathy for the Minister, because these regulations
have landed in your Lordships' Committee in a rather unfortunate
week. To quote the Energy Mix website, referring to the carbon
capture and storage industry,
“Industry Navigates Very Bad Week”.
This article reflects two developments in Canada, where Capital
Power has cancelled a 2.4 billion Canadian dollar carbon capture
and storage project at its Genesee generating station, saying
that it is “technically viable” but “not economically feasible”.
It also reflects, as the Canadian national organisation
Environmental Defence said,
“the latest failure in carbon capture's terrible track
record”.
This project had already received 5 million Canadian dollars from
the Government of Alberta and was being set up for further tax
breaks and support from both the federal and provincial
Governments. It is just not working.
The other bad week to which the website referred concerned
figures that have come out of Boundary Dam Unit 3, a project
worth 1 billion Canadian dollars. It promised to capture 90% of
the CO2 that was being generated but, in fact, its capture rate
has been only 57%. This gives me a question to ask of the
Minister—and perhaps of the Labour Front Bench—about the
regulations before us and the Government's plans: if there are
contracts promising a certain rate of capture but that rate of
capture is not met and they fail to deliver what is promised,
with the potential to cause considerable damage in this new
industry, what will be done? I note that the Toronto Globe and
Mailis saying that there are
“continuing tensions between industry and the federal government
about the extent to which public dollars will be used to
provide”
for this industry.
With that in mind, I note the Minister's comments in his
introduction. I also note paragraph 5.10 of the Explanatory
Memorandum to the directions, eligibility and counterparty
regulations and paragraph 5.9 of the Explanatory Memorandum to
the directions and counterparty regulations, both of which refer
to the importance of information being deployed publicly, as well
as the Minister's comments about commercial confidentiality. In
so many areas of public provision, we have seen real problems
with people hiding behind a total lack of transparency arising
from that coverall of commercial confidentiality. Can the
Minister assure me that that will not happen in this case?
(LD)
My Lords, I rise to speak to both of these SIs. I note that
neither of them has been subject to any report by the Secondary
Legislation Scrutiny Committee.
Both SIs relate to carbon capture, usage and storage—CCUS—and are
broadly welcomed on these Benches. I will not partake in any
debate on CCUS today. It is a suite of technologies that enable
the mitigation of carbon dioxide emissions from large point
sources, such as power plants and refineries, and the removal of
existing CO2 from the atmosphere. In short, CCUS is one vital
tool in the toolbox to help us reach net zero.
The Government envisaged building a competitive, self-sustained
CCUS market in the UK. I note that, as of today, no
commercial-scale CCUS projects are up and running. CCUS could
provide economic growth potential as part of the transition to
net zero—£1 billion of government money has already been made
available for investment in four potential clusters, which aim to
be capable of storing 20 to 30 megatonnes of carbon dioxide by
2030—but CCUS has had a slow and slightly rough start in the
UK.
The revenue, directions, eligibility and counterparty SI
establishes the process by which the Secretary of State can
direct a carbon capture counterparty to offer to contract with an
eligible carbon capture entity. It also sets out the requirement
that certain information must be published by the counterparty in
respect of contracts entered into, as well as the requirement on
the counterparty to notify the Secretary of State promptly if it
is likely to be unable to perform its functions. This instrument
concerns the implementation of industrial carbon capture business
models, or ICCBMs—there must be a better acronym—which are
intended to support the ambition set out in the net-zero strategy
to deliver carbon capture, usage and storage, or CCUS, in four
industrial clusters. The ICCBMs have been designed to incentivise
the deployment of carbon capture technology by industrial and
waste users who often have no viable alternative, as the Minister
set out, and are similar to contract for difference schemes.
My questions on this SI relate to the future review and scrutiny
of those contracts. As they are commercial contracts—I note that
they are in the public domain, but some of this may not be made
public—and are signed off by the Secretary of State, can the
Minister explain what, if any, further parliamentary scrutiny
there will be of these processes? These contracts are for new and
in some cases yet unproven technologies, so how will value for
money be ascertained and reported back to Parliament in future,
especially given that the SI allows for the amendment of those
contracts in future and no statutory review is envisaged? I
welcome the response to the consultation and the changes,
including the use of the term “energy recovery generating
station” and around the exclusions and support.
Because of time, I will not go through all that the SI on carbon
dioxide transport and storage does. It seeks to help establish
first-of-the-kind infrastructure in the UK to transport and
permanently store the carbon dioxide that has been captured. It
provides Exchequer-funded revenue support to mitigate the
financial risks of the initial investors. The investment in this
infrastructure is welcome, and I recognise the need for it, but
what level of financial support is envisaged at this stage? If
none is required now but money is perhaps required at some later
point, can I ask if and how Parliament might be consulted on that
and what limits are in place on those future financial
investments in this scheme? If more money goes in, how will that
be reported and noted by Parliament?
My other questions relate to parliamentary oversight and scrutiny
of the new types of technology and new contracts—what they are
delivering and whether they are delivering value for money, how
they are monitored and how Parliament gets future say in scrutiny
of them.
Finally, in relation to both SIs, the process is delivered via
commercial contracts, and both SIs allow for alterations and a
requirement on the parties to inform the Secretary of State if
the counterparty is unable, or likely to be unable, to fulfil its
role as entered into. What, if any, dispute resolution mechanisms
exist here between the department and the contractors? I am
particularly interested in what legal dispute resolution
mechanisms exist to give adequate oversight of this process to
Parliament before any potential legal disputes end up in
court.
of Leeds (Lab)
I thank the Minister for his in-depth introduction to the two SIs
that are before us today and for the comments we have heard so
far. There will be some repetition in some of our concerns and
questions.
I start by setting a bit of the context. I admire the ambition
that is expressed, as we discussed during the passage of the
Energy Act, recognising that this whole area is just one part of
the toolkit in addressing the need to remove carbon from our
industry. The Minister outlined the sheer scale of the proposals
here, which involves going from 6 megatonnes in 2030 to 9
megatonnes in 2035, but I do not think he expressed what that
will mean in terms of the infrastructure required to support the
operations. I have to be honest that this Government have so far
not had a great track record in delivering infrastructure across
the piece, particularly transport infrastructure.
I would like to have a bit more sense, given the backlog in
transport investment, of whether investment in this area will
jump the queue, if you like, in the planned progress. Is there a
plan? That is a question we come back to again and again in terms
of delivering on this agenda. Of course, the other major issue
around all this is the way the planning system works, or does not
work. Can the Minister assure us that we can move forward with
confidence in delivering a fairly steep timetable approaching
2025—next year? The clock is well and truly ticking.
4.15pm
Two things are referenced in the wider documentation around the
two SIs. One relates to the green jobs plan. Will the Minister
comment on how the plan as it is envisaged will deliver,
particularly in this area around carbon capture and storage?
There is also reference to an industry working group, which I
understand from the information is due to be set up at some point
this year. Can he tell us when it will be established, and indeed
whether the membership thus far has been identified in terms of
moving this very important work forward? I think there is also a
wider concern about capacity. We have heard that the Secretary of
State will take on a great deal of responsibility through these
SIs and related work, but Ofgem will also have a significantly
enhanced role in oversight—can we have more information about
what the additional capacity will look like?
The consultation response is very well detailed, and I welcome
the responses to it. I do not want to repeat everything that has
been said, but, particularly in response to the additional
oversight by the Secretary of State, when we are talking about
the ability of the Secretary of State to modify the terms of
contract offered, can the Minister give us a little more detail?
Which scenarios would generate the Secretary of State considering
providing written consent to the modification of the terms of the
contract? These are the issues that my noble friend was pursuing. Obviously, the
issue of transparency came back very strongly from the
consultation. There were concerns around that in terms of
establishing a public register, and I think the powers that the
Secretary of State seems to have have caused some disquiet from
the sector. There has been a request for opportunities for
representations to be made around the published information about
how decisions are being made. This is a concern that runs across
all the responses.
Can we have a little bit more detail around the issues that the
Minister believes may prevent a counterparty fulfilling its
obligations? Obviously, there is talk in the impact assessment of
the Energy Bill around asset stranding and CO2 leakage. Perhaps
we could have a little more detail and information around that,
and particularly on what steps the Secretary of State can take to
replace a counterparty. These are matters that we will be looking
at as we move forward.
As we know, the second SI on carbon capture revenue support has
very similar issues; I do not want to repeat myself. Perhaps it
would be useful, however, just to dwell on the consultation that
took place on this and to have a bit more detail on the specific
changes that resulted from that consultation, so that we can have
them laid out in detail.
Perhaps the Minister could provide information on the adjustments
to the policy, particularly in the light of the stakeholders'
responses to the six-week consultation. How will those
adjustments ensure that the instruments meet their objectives?
The Government need to be commended on the consultation that they
undertook but, for it to be meaningful and useful, they need to
give reassurance that these points will be picked up and woven
into the response.
With those comments, I look forward to the Minister summing
up.
(Con)
My Lords, I thank all noble Lords for their contributions. Before
I get into the detail on particular questions, I will talk about
the general issue, particularly as raised by the noble Baroness,
Lady Bennett, of CCUS and the principle. Obviously, that was a
Second Reading speech for the legislation rather than for this
particular statutory instrument, but let me explain why I think
the noble Baroness is both misinformed and wrong.
First, most informed opinion disagrees with the noble Baroness on
this, including the Climate Change Committee, which told us in
its advice that CCUS is essential and not an option if we are to
reach our decarbonisation goals. She said many other things that
were incorrect. To take an example, she said that CCUS had never
been tried and was unproven. Again, that is incorrect. There are
many operating CCUS plants in the US. I witnessed one in Alberta,
Canada, last year and, only last week, I was in Iceland to see
the opening of the largest direct air capture greenhouse-gas
removal plant in the world. It has an operating CO2 ejection
system into the basalt rock, which has been working successfully
for many years.
So, the technology does work and is proven. We are attempting it
at a greater scale than many other countries, but that is a
fantastic business opportunity for the UK. We are privileged to
have fantastic, tremendous storage potential in the North Sea,
where we can store not only our own emissions but possibly those
produced by other nations and Europe as well. This has the
potential to be a massive revenue earner for the UK, generating
potentially tens of thousands of jobs and millions of pounds of
contributions. There are a number—dozens—of really innovative UK
companies that are experimenting and working in this area. There
is great export potential for the UK, and potentially many
jobs—or rather, there are hundreds of jobs already.
I can understand the noble Baroness's point—and I agree with
her—that we should seek to minimise emissions as much as possible
by processes such as fuel switching. But what would she say to
those industrial plants that generate CO2 as part of their
processes rather than by heating? What about cement plants, for
instance? Does she think that they should just close down? Should
they not exist at all? These are the practical issues that, when
dealing with policies that affect people's jobs and livelihoods
in the construction sector, we need to have a solution for rather
than just airy-fairy academic views. As the CCC said, CCUS will
be essential and is not an option. If the noble Baroness wants to
make a point, I will be happy to hear it.
of Manor Castle (GP)
I am not sure whether this is procedurally correct, but the
Minister directed the question directly at me. Once we set up
these CCUS plants and establish the contracts, as I said with
reference to incinerators, we will need to feed them, whereas, if
we look at different technologies that are being developed for
cement, for steel or electric arc furnaces and so on, the point
is to—as the noble Baroness, Lady Blake, said—have a transport
modal shift. We need to plan for the shift in operations—in ways
of doing things—rather than business as usual.
To address the point about the Climate Change Committee, we come
back to the issues around growth and the assumption that we must
have economic growth. If we look at social innovation and
changing the way in which our society works, we are looking at a
very different model for the future than is traditionally
presented.
(Con)
The noble Baroness is addressing issues that I never even raised.
Her last point is for a completely different debate. Nobody is
suggesting CCUS for transport emissions or steel emissions.
Again, the noble Baroness is evading the central issue. Some
industries have no choice but to produce CO2. Anyway, it is a
separate issue—let us get back to the debate that we are here for
today.
These two instruments are broadly administrative in nature but
outline vital operational procedures to enable the Government's
proposed business models for carbon capture, transport and
storage. I start with the issues raised by the noble Lord, , who asked for the directions of
the counterparty and the register to be explained further. In
relation to a direction to the counterparty, the counterparty
would enter into and manage contracts at the direction of the
Secretary of State and would be the conduit for HMG funding to
successful projects. A direction to the counterparty would be a
direction to offer to enter into a revenue support contract. The
register would be a public register of contracts entered into,
and the details that the counterparty would be required to
publish are set out in the schedules to the regulations.
The noble Lord, , and the noble Baroness, Lady
Bennett, asked about confidentiality. It is appropriate for
companies to be able to protect commercially sensitive or
privileged information—for example, information that relates to a
company's intellectual property. We expect redactions to be made
to published contract information only when there is strong
justification for doing so. Any redactions or exclusions in the
contract do not, of course, limit what information must be
disclosed in that public register.
The noble Lord, , asked for a definition of
“cluster”. We would define it as carbon capture projects, onshore
and offshore pipeline infrastructure, transport infrastructure
and the associated offshore storage site, all located in a
defined geographical area. We have two in the so-called track 1
process in the UK: one is the HyNet consortium in the north-west
and Wales, and the other is on the east coast and is centred
around Teesside and, to a certain extent, Humberside. There are
two additional ones in Scotland as well as the Viking consortium,
which will be in the so-called track 2 process.
The noble Lord, , asked about funding for CCUS,
and the geography. We have announced up to £20 billion of funding
for the early deployment of CCUS in the UK and, as I have just
said, we aim to establish up to four clusters in the UK by 2030.
The noble Lord might be a little more interested in the details
of the projects of the HyNet consortium, which is located in
north-west England and Wales. From memory, there is one project
in Wales; it is at the Padeswood cement plant, which we are
negotiating with at the moment. I think I am correct in saying
that that is the one. We are currently in negotiations on eight
projects and transport storage systems in total across the two
clusters. We hope to reach final investment decisions by the
third quarter of this year for the rollout and deployment of this
technology. We have announced those first two clusters and the
track1 negotiation list with, as I have said, eight projects
selected through the cluster-sequencing projects to progress to
negotiations by—I hope—the third quarter.
In addition, we announced two further clusters in July last year:
the Acorn cluster in Scotland and Viking in Humberside. Again,
those will be two additional T&S systems. We think that,
after the first two, they will be best placed to deliver on our
objectives—again, subject to appropriate due diligence,
consenting, subsidy control, affordability and value-for-money
assessments.
The noble Lord, , asked what the department's
understanding is of a reasonable return on investment. I would
say that that is the six million dollar question, but it is
probably a bit more than that. Of course, this is subject to
ongoing contract commercial discussions with the relevant
projects. The noble Lord can be assured that we are subjecting
all the negotiations to precise considerations on value for
money, subsidy control and affordability. As an indication of the
scale of support, we have announced up to £20 billion for the
early deployment of CCUS in the UK.
4.30pm
The noble Earl, Lord Russell, raised the issue of public scrutiny
of contracts. As set out in the regulations, once entered into,
revenue support contracts will be published by the counterparty
to ensure transparency. As yet, no contracts have been entered
into. Before the Government make any infrastructure investment
decision, strict criteria on value for money, affordability and
deliverability must be met.
The noble Baroness, Lady Bennett, asked what will happen if
contract holders promise a certain rate of capture but do not
meet it. Revenue support contracts will include requirements on
contract holders as a condition for receiving support, and there
will be contractual consequences for any non-compliance.
The noble Baroness made the point that the Government have been
promising subsidy and continued government support in other
jurisdictions for decades. The purpose of the RSA is to overcome
market barriers to the deployment of this first-of-a-kind
transport and storage infrastructure. On long-term support for
the sector, Carbon Capture, Usage and Storage: A Vision to
Establish a Competitive Market outlines our ultimate long-term
vision for the sector and establishes a transition to what we
hope will be a market and industry-led CCUS sector in the UK,
ultimately financed through the emissions trading system and the
value of putting a cost on carbon. I recommend that the noble
Baroness has a look at that published vision, which sets out what
we think are the critical next steps to enable the transition to
a commercial and competitive market, ultimately free, I hope, of
government subsidy.
The noble Baroness, Lady Blake, asked for more information about
the additional capacity needed to deliver this proposal,
including among other stakeholders. She made an important point.
One of my roles in the department is as co-chairman of the CCUS
industry delivery task force, where the Government, regulators
and industry sit down to do precisely the planning and discussion
that the noble Baroness outlined. But it is a huge undertaking.
She is right that planning is an important part of it, but the
consenting procedures are well established, in terms of the
safety considerations. The various regulators are involved,
including the HSE and the North Sea Transition Authority, which
is the licensing authority for CCUS stores—and, of course, the
planning process for the delivery and construction of pipelines,
capture plants and so on, are all subject to the normal planning
process, either with local authorities or nationally through the
DCO process.
The noble Earl, Lord Russell, asked about the level of financial
support. I mentioned the £20 billion for early deployment, and we
are currently negotiating those contracts. He asked how value for
money will be delivered and reported back to Parliament and he
advanced a statutory review. Before we make any infrastructure
investment decisions, strict criteria on value for money,
affordability and deliverability must be met. The noble Earl
asked about dispute resolution mechanisms, when the counterparty
cannot perform its function. The revenue support contracts
include appropriate dispute resolution mechanisms when
appropriate, with contractual consequences for non-delivery.
The noble Baroness, Lady Blake, asked about the ability of the
Secretary of State to provide oversight of modification of
contracts, and in what scenario the Secretary of State would
consent to modification of a contract after a direction is made.
The answer to her question is that the provisions follow
arrangements similar to those under the existing CfD regime for
the deployment of offshore wind and so on, and are there just to
account for the fairly unlikely scenarios in which contract
modifications may be appropriate.
I hope that I have been able to answer all the questions that
were put to me. As I said, the whole CCUS industry represents a
tremendous opportunity for the UK. We estimate that potentially
we have 78 gigatonnes of CO2 storage capacity in the UK
continental shelf. Industrial carbon capture will play a vital
role in fulfilling our ambitions in this area, taking us towards
net zero, transforming our many industrial regions and, as I
mentioned at the start, creating new high-value jobs in what will
be an emerging technology, not just in this country and Europe
but across the world.
I commend these draft regulations to the Committee.
Motion agreed.
Carbon Capture Revenue Support (Directions, Eligibility and
Counterparty) Regulations 2024
Considered in Grand Committee
4.35pm
Moved by
That the Grand Committee do consider the Carbon Capture Revenue
Support (Directions, Eligibility and Counterparty) Regulations
2024.
Motion agreed.
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