Carbon capture: High degree of uncertainty whether risky investment by Government will pay off
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Government's backing of unproven, first-of-a-kind technology to
reach net zero is high-risk. In a report published today, the
Public Accounts Committee (PAC) calls on Government to assess
whether its full carbon capture, usage and storage (CCUS) programme
will be affordable for taxpayers and consumers, given wider
pressures on energy bills and the cost of living. CCUS sees the
capture and storage underground of carbon before it is released
into the atmosphere and is viewed by...Request free trial
Government's backing of unproven, first-of-a-kind technology to reach net zero is high-risk. In a report published today, the Public Accounts Committee (PAC) calls on Government to assess whether its full carbon capture, usage and storage (CCUS) programme will be affordable for taxpayers and consumers, given wider pressures on energy bills and the cost of living. CCUS sees the capture and storage underground of carbon before it is released into the atmosphere and is viewed by the Government as essential to its legally mandated net zero by 2050 goals. There are no examples of CCUS technology operating at scale in the UK. The PAC's inquiry heard that CCUS may not capture as much carbon as expected, with international examples showing that Government's expectations for its performance are far from guaranteed. The report notes recent scientific evidence that producing liquid natural gas, which will be used to run several CCUS projects, leaks more greenhouse gases into the atmosphere than previously thought. This could undermine the rationale for pursuing certain schemes, and the PAC calls on Government to consider the impact of up-to-date scientific understanding on CCUS. The report finds that Government has learnt from previous failed attempts to support CCUS, with the first two projects expected to begin operating in 2028. It notes that three-quarters of the almost-£22bn envisaged to support the projects will come from levies on consumers who are already facing some of the highest energy bills in the world. But the report finds the Government has not yet looked at the likely financial impact of CCUS on households. The PAC's inquiry further found that neither of the contracts for the two new CCUS projects include any provision for the Government to share the profits or for consumers to benefit from lower energy bills should things go well. This is despite any such profits, which could be significant if the programme is successful, being a result of early public support. The report calls on Government to introduce mechanisms to make sure taxpayers and consumers benefit financially from the success of all future CCUS projects that they have supported. The Government downgraded its ambitions for CCUS in 2024, with a target of storing 20 to 30 million tonnes per year of CO2 by 2030 now seen as no longer achievable. No revised targets have yet been announced. The PAC's report notes that this creates a shortfall in Government's pathway to net zero, with the now-abandoned targets leaving it unclear how the Government will meet its legally binding goals. The PAC's report calls for new targets to be set out as a matter of urgency. Sir Geoffrey Clifton-Brown MP, Chair of the Committee, said: “Government is gambling on carbon capture technology becoming foundational to achieving net zero. In this context, it is welcome to see Government learning lessons from past failures to grow these programmes by working with clusters of projects that can support each other. It must now ensure that it has not sown the seeds of its own failure with this approach by making sure that it can direct support to sectors or locations outside of these clusters. This £21.7bn policy is going to have a very significant effect on consumers and industry's electricity bills. Whether this is acceptable remains to be seen. “As we are currently in the foothills of CCUS' development into a fully functioning industry, the Government must remain alive to recent scientific evidence to adapt its approach. All early progress will be underwritten by taxpayers, who currently do not stand to benefit if these projects are successful. Any private sector funding for such a project would expect to see significant returns when it becomes a success. We were surprised that the Government had not even considered this aspect. Most concerningly, last year's downgrading of ambitions for CCUS has left a glaring shortfall in the path to net zero. While our Committee was left unconvinced that CCUS is the silver bullet Government is apparently betting on, we hope the recommendations in our report will help support the programme to become the success Government and the public need it to be.” PAC report conclusions and recommendations The Department is taking a high-risk approach by backing first-of-a-kind, unproven technologies with large amounts of taxpayer and consumer funding. The Department has learnt from its previous two failed attempts to support CCUS in its design and early implementation of the current programme. This includes supporting 'clusters' of projects and developing a new approach to managing risks between emitter projects and transport and storage companies. Additionally, the Department has secured significant financial support from HM Treasury – almost £22 billion over 25 years for five Track 1 projects. The government is also underwriting risks relating to the programme, creating contingent liabilities estimated to be worth up to £34 billion. But there are not any examples of CCUS technology operating at a commercial scale in the UK, meaning the performance of early projects is uncertain. The written evidence we have received raises concerns that CCUS projects may not capture as much carbon as expected and experience from Norway suggests that performance on the scale expected by the Department is far from guaranteed. The Department acknowledges the first-of-a-kind risks associated with the programme. It considers its approach for allocating costs and risks between the government and the projects reduces taxpayer and consumer risk because projects do not get paid until they deliver. But at this stage in the programme these models remain untested in practice. Recommendation 1. The Department should, as the projects it is supporting progress, make sure it is assessing on a regular basis whether taxpayer and consumer exposure is in line with expectations. This should include an assessment of whether its approach for allocating costs and risks between government and the projects is performing as intended. While the Department is taking steps to incentivise efficient delivery of the CCUS projects, it has not established mechanisms to make sure that taxpayers and consumers will benefit financially should the programme be successful. The Department has developed a range of business models for applying CCUS to a range of sectors. The models form the basis of negotiations between the Department and the private sector and outline how risks will be allocated between the different parties and set the payment mechanism. While the projects will receive the bulk of taxpayer and consumer support only when they are operational, the sums involved are substantial. Should the programme be successful, projects might eventually earn significant profits that are partly a result of early public support. Neither of the two contracts that the Department has already signed include any provision for the government to share profits or take an equity stake, or for consumers to benefit from lower energy bills should things go well. Nor does the Department seem to have considered any such 'gainshare' mechanisms when negotiating with the Track 1 projects. Recommendation 2. For all future CCUS projects, the Department should introduce mechanisms to make sure taxpayers and consumers benefit financially from the success of the projects they have supported financially. The Department and HM Treasury have yet to assess the full financial impact of the CCUS programme on taxpayers and consumers. The costs of the CCUS programme are significant: in November 2024 the government announced £21.7 billion of funding over 25 years to cover only the first five CCUS projects. There are three more projects that are still under negotiation as part of Track 1, an unquantified number of additional projects that are expected to join the HyNet and East Coast clusters as part of Track 1 expansion, and all the projects that will join the Track 2 clusters at Peterhead and Humberside. The Department has not indicated the likely cost of these projects. The Department and HM Treasury expect that around 75% of the cost of supporting these early projects will be met by levies on consumers who are already facing significant financial pressures, with the remainder funded by the Exchequer. Drawing on a recent report from the National Energy System Operator (NESO), the Department has concluded that supporting the deployment of CCUS in gas-fired power stations offers lower costs compared to alternatives. But NESO also concluded that this approach would require more upfront financial support. The Department has not looked at the likely financial impact on bills of the full CCUS programme at a time when households are already facing high energy prices. Recommendation 3. The Department and HM Treasury should assess whether the full CCUS programme will be affordable for taxpayers and consumers, given wider pressures on energy bills and costs of living. The Department and HM Treasury lack clarity on how they would take account of project underperformance and advances in scientific understanding as part of their ongoing assessment of the programme's future. The Department had a clear set of five factors it considered when assessing the value for money of the first two clusters and then the individual projects it selected as part of Track 1 of the programme. The Department and HM Treasury were also clear that projects would be subject to a further value for money assessment before awarding contracts. As part of this assessment it would consider the cost effectiveness of capturing carbon and wider economic issues such as investment in particular regions. But some recent scientific evidence suggests that producing liquid natural gas (which will be used to run several CCUS projects, such as Net Zero Teesside) leaks more methane, a potent greenhouse gas, into the atmosphere than previously thought. As CCUS will not reduce these ‘upstream' emissions, this could undermine the rationale for pursuing certain projects. The government also expects bioenergy with carbon capture (BECCS) to play a significant role in providing negative emissions to offset residual emissions in other sectors. However, the National Audit Office has previously concluded that the government could not demonstrate the adequacy of monitoring arrangements for its existing schemes to support bioenergy in giving it confidence industry was meeting sustainability standards. In addition, Ofgem's critical findings in its recent investigation on Drax (which has received more than £6 billion of public funding over the last two decades) over its approach to reporting against sustainability criteria, have raised concerns over whether BECCS offers a genuine path to reducing emissions. We are therefore concerned that any government support for BECCS at Drax will not necessarily support its net zero ambitions and are minded to examine further the issue soon. If not all of the materials used were meeting the government's own sustainability standards this would be completely unacceptable. Recommendation 4. The Department and HM Treasury should reappraise on an annual basis its approach to assessing the value for money of CCUS projects which it intends to support. As part of this assessment they should consider the impact of up-to-date scientific understanding of CCUS. They should also make sure any future support for BECCS is accompanied by monitoring arrangements that provide real assurance that industry is meeting sustainability criteria. To date, the Department has done little to ensure that government support for CCUS is directed to the sectors or locations where it will be essential for achieving net zero. CCUS is currently seen as the only way to decarbonise certain industries. For example, it is estimated that 60-70% of carbon emissions from the cement industry comes from chemical reactions. The government sees CCUS at the only means to prevent these from being released into the atmosphere. Projects producing energy from waste are also reliant on CCUS due to the lack of alternate green energy sources. Other applications for CCUS capture carbon from the burning of fuels and there can be alternative methods to decarbonise these processes (for example, through electrification). However, the Department's current cluster-based approach focuses on supporting carbon capture projects that are located close to one another. While this makes sense in terms of maximising the use of infrastructure such as pipelines, it does not ensure that financial support for CCUS is directed at the sectors which will need it most. The Department has not decided how it will support the use of CCUS at sites outside of industrial clusters, known as dispersed sites. Recommendation 5. The Department should set out its rationale for supporting CCUS in each sector where it could be applied, including considering whether alternative approaches could be more cost effective. The Department has downgraded its ambitions for the CCUS programme, stating that the original 2030 ambitions are no longer achievable. The current CCUS programme is the government's third attempt to introduce the technology. Compared with previous attempts, the government is now more reliant on CCUS succeeding as it sees the technology as essential to achieving net zero by 2050. But over the course of the CCUS programme's development, the Department has reduced its expectations of the carbon that will be captured and stored by the first wave of projects, known as Track 1. Its progress has also been slower than planned: the government recently agreed financial terms with two projects in the East Coast Cluster, around two years later than scheduled. In December 2024, the Department concluded that its target to capture 20 to 30 million tonnes of CO2 annually by 2030 will not be met. It has yet to announce revised targets for the programme. The 2030 ambitions for the CCUS programme were aligned with the government's pathway for meeting the decarbonisation goals for Carbon Budget 6 (2033-2037). As these targets have now been abandoned, it is not clear by what alternative means government will meet these legally binding goals. Recommendation 6.
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