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REPORT

Carbon Capture, Usage andStorage programme
Department for Energy Security & Net Zero

SESSION 2024-25
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Carbon Capture, Usage andStorage programme
Department for Energy Security & Net Zero

Report by the Comptroller and Auditor General
Ordered by the House of Commons
to be printed on 22 July 2024
This report has been prepared under Section 6 of the
National Audit Act 1983 for presentation to the House ofCommons in accordance with Section 9 of the Act

Gareth Davies
Comptroller and Auditor General
National Audit Office
5 July 2024

HC 120 | £10.00

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CORRECTION SLIP
Title: Carbon Capture, Usage and Storage programme
Session: 2024-25
HC 120ISBN 978-1-78604-572-0
Ordered by the House of Commons to be printed on 22 July 2024
Correction:
The text in paragraph 1.8 currently reads:
At that time, the government was committed to having “the option of deploying CCUS
at scale during the 1990s”.
“1990s” should read “2030s”.
The paragraph currently reads:
1.8 DESNZ sets its ambitions with reference to the Climate Change Committee’s(CCC’s) assessment of how much CO2 needs to be captured to support its balanced
pathway to net zero (paragraph 1.4). DESNZ has its own pathway based on its own
assessment of how to meet the government’s net zero target. This contribution is morethan was established at the outset of the programme – in 2018, the government’s
overall climate ambition was to reduce carbon emissions by 80% in 2050 comparedwith 1990 levels. At that time, the government was committed to having “the option of
deploying CCUS at scale during the 1990s”. DESNZ told us that it considered whether,for example, an approach where government carried more of the cost and risk of thefirst projects was required in the light of the ambitions for CCUS, but we have not seen
any substantial evidence of such an assessment. If the government only achieves its
minimum ambition for 2030 then this will be below the CCC’s assessment of what isrequired (Figure 3 overleaf).
The paragraph now reads:
1.8 DESNZ sets its ambitions with reference to the Climate Change Committee’s(CCC’s) assessment of how much CO2 needs to be captured to support its balanced
pathway to net zero (paragraph 1.4). DESNZ has its own pathway based on its own
assessment of how to meet the government’s net zero target. This contribution is morethan was established at the outset of the programme – in 2018, the government’s
overall climate ambition was to reduce carbon emissions by 80% in 2050 comparedwith 1990 levels. At that time, the government was committed to having “the option of
deploying CCUS at scale during the 2030s”. DESNZ told us that it considered whether,for example, an approach where government carried more of the cost and risk of thefirst projects was required in the light of the ambitions for CCUS, but we have not seen
any substantial evidence of such an assessment. If the government only achieves its
minimum ambition for 2030 then this will be below the CCC’s assessment of what isrequired (Figure 3 overleaf).
Date of correction: 4 September 2024

Contents

Key facts 4
Summary 5

This report can be found on the
National Audit Office website atwww.nao.org.uk
If you need a version of thisreport in an alternative format
for accessibility reasons, or
any of the figures in a different
format, contact the NAO at
enquiries@nao.org.uk

Part OneSetting up the programme 14
Part Two
Progress of the Carbon Capture,
Usage and Storage programme 26
Part Three
Next steps for the programme 36

The National Audit Office study
team consisted of:Liam Blanc, Terry Caulfield,
and Matthew Conroy, under the
direction of Simon Bittlestone.

Appendix One
Our audit approach 42

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4 Key facts Carbon Capture, Usage and Storage programme

Key facts

Up to
£20bn

78bn
tonnesthe amount HM Treasury has
committed to supporting future
costs of Carbon Capture, Usageand Storage (CCUS) projects

the UK government’s estimate of
how much captured carbon could
be stored on the continental shelfunder the North and Irish Seas

8.5mn
tonnesper annum
the amount of CO2 storage
capacity targeted for ‘Track-1’,
the ﬁrst phase of the
CCUS programme4

the number of CCUS clusters announced by the Department
for Energy Security & Net Zero (DESNZ) across the UK

8number of emitter projects selected by DESNZ as part of
Track-1 that are currently going through negotiations

2

number of transport and storage projects selected by DESNZ
as part of Track-1

20–30 million
tonnes perannum

the government’s CO2 storage ambition for 2030

£630 million

DESNZ’s spending to date on the CCUS programmeCarbon Capture, Usage and Storage programme Summary 5

Summary

Background1
The government sees Carbon Capture, Usage and Storage (CCUS) as central
to achieving net zero by 2050. CCUS can potentially address several challenges
to decarbonising the economy, such as in the power sector, and may be theonly practical way to decarbonise some industries, such as cement production.
CCUS could also be used to capture carbon absorbed during the process of growing
biofuel (such as biomass used for generating power), or through a technology
known a Direct Air Capture, which captures carbon directly from the air, resulting ina net removal of carbon dioxide from the atmosphere. CCUS includes several
technologies that cover the process of capturing carbon and permanently storing
before it can be released into the atmosphere. These technologies include hydrogenproduction, energy generation, industrial and waste processes, and Greenhouse
Gas Removals. The government considers that the UK is well placed to deploy
CCUS given the possibility of storing 78 billion tonnes of captured carbon in thecontinental shelf under the North and Irish Seas. The government also hopes that
CCUS will generate jobs in the UK and that, in the future, there may be a market
for the UK to store carbon captured overseas. While the government first set out
its intention to support CCUS in the early 2000s, there are no facilities operating
at a commercial scale in the UK.
2
The government has attempted to launch CCUS programmes in the UK twice
before without success. We reported on these in 2012 and 2017.1,2•

The Department of Energy & Climate Change cancelled the first competition
for government support in 2011. It decided that the project could not becompleted within the funding limits agreed by the government in its 2010
Spending Review. We concluded that the government had not undertaken
sufficient planning and failed to recognise the significant commercial risks.

•

The Department for Business, Energy & Industrial Strategy (BEIS) cancelled
the second competition in 2016 when HM Treasury withdrew funding becauseof mounting costs. We highlighted how BEIS had not, at the outset, agreed
with HM Treasury the amount of financial support that would be requiredfor programme’s lifetime. The cancellation of these competitions dented
industry confidence in the government’s commitment to CCUS.

12

Comptroller and Auditor General, Carbon capture and storage: lessons from the competition for the first UK
demonstration, Session 2010–2012, HC 1829, National Audit Office, March 2012.
Comptroller and Auditor General, Carbon capture and storage: the second competition for government support,
Session 2016-17, HC 950, National Audit Office, January 2017.

6 Summary Carbon Capture, Usage and Storage programme

3
The Department for Energy Security & Net Zero (DESNZ) has lead
responsibility for the current CCUS programme. Through its CCUS programme,
DESNZ aims to establish the technology in four industrial areas, or clusters,in the UK to capture and then store 20 to 30 million tonnes of carbon per yearby 2030. DESNZ has set targets which are based on the trajectory required
to meet Carbon Budget 6, which is its legally-binding interim target for theperiod 2033-37 towards achieving net zero in 2050.
4
In October 2021, DESNZ announced that the first two clusters in the CCUS
programme (known as Track-1) would be HyNet, spanning north-west Englandand north Wales; and the East Coast Cluster covering Humberside and Teesside.
In March 2023, DESNZ announced that it had short-listed eight emitter projects
across these clusters to proceed to commercial negotiations. DESNZ plans to
identify additional emitters that could join these clusters later (known as Track-1
expansion). The application process for Track-1 expansion at HyNet was launched
in December 2023. DESNZ also intends to launch two further clusters (Track-2)
before 2030. These will be Acorn (centred on Peterhead, north of Aberdeen)
and Viking (on Humberside), although no formal timeline has been announced.
5
In the March 2023 Budget, HM Treasury announced up to £20 billion to
support the early development of the CCUS programme. This is a combination of
direct government funding and consumer levies and, for example, levies on suppliers.
DESNZ ultimately wants CCUS to run without public subsidy and published its CCUS
Vision in December 2023, setting out at a high level how this might work in practicefrom the 2030s.

Scope and purpose of this report
6This report examines:•

how DESNZ responded to the lessons of previous attempts to support
CCUS in designing the current programme;•

the progress DESNZ has made with the current CCUS programme; and•the key risks and issues that DESNZ will need to address to meet its
targets for CCUS deployment.

Carbon Capture, Usage and Storage programme Summary 7

7This report is intended to support Parliament’s understanding of the CCUS
programme and the key issues DESNZ faces in achieving its objectives. We haveassessed whether DESNZ has set up the CCUS programme in a way that is likely
to achieve value for money and made recommendations aimed at supporting
DESNZ’s management of the programme. In doing so, we recognise DESNZ is
operating in a high-risk environment given the inherent challenges of CCUS as atechnology; the fact that DESNZ is aiming to support ‘first of a kind’ projects; and thecomplexities and high ambition of DESNZ’s approach. This means risks of project
failure, high upfront costs, and obsolescence will need to be accommodated if they
are deemed to be outweighed by the programme’s potential long-term benefits,particularly given the central role that DESNZ expects CCUS to play in achieving
net zero. We also recognise that the CCUS programme is going to be one ofgovernment’s largest projects financially, meaning HM Treasury has a crucial role
toplay in overseeing and managing the financial risks.
8
As DESNZ is currently conducting commercial negotiations with the Track-1
projects we have not included information that is commercially sensitive and whichmight negatively affect these negotiations if made public. Given its long‑term nature,
we expect to report again on the CCUS programme in the future to assess whether
DESNZ is achieving value for money and whether it is effectively managing therisks we have identified in this report.

Key findings
Setting up the CCUS programme
9
DESNZ and HM Treasury must manage a range of risks to be successful in
deploying the first commercial-scale CCUS facilities in the UK. For example, DESNZ
needs to manage risks inherent to CCUS, such as introducing a complex technology
at scale and the uncertainties around the potential capacity and performance ofstorage sites. Given the approach to implementation it is adopting, DESNZ will needto define and agree appropriate allocations of risk between the government andprivate investors providing the capital for the projects, as well as between companies
involved within projects (for example, between carbon emitters and transport andstorage companies). Ultimately, these individual projects need to be operationalat the same time for the programme to be successful. Given the expected scaleand longevity of the CCUS programme, HM Treasury will have an important rolein ensuring there is a clear plan for funding, either via the Exchequer or throughconsumers’ bills, and will need to be closely involved in cross-government
governance arrangements (paragraphs 1.11 to 1.13, 2.2, 3.2 and Figure 6).

8 Summary Carbon Capture, Usage and Storage programme

10 DESNZ identified lessons from previous failed attempts to launch CCUS in
the UK and sought to address them. DESNZ introduced its current approach to
CCUS in 2018. It reflects lessons learned from previous attempts by introducing
a new method of creating transport and storage companies that are separate
from the emitter projects that will capture carbon. This is intended to reduce therisks from projects that manage the capture of carbon, its transportation andstorage all together. By separating out the stages, DESNZ hopes that issues canbe dealt with by those best able to manage them (for example, so that a problem
with a storage site has less of a direct impact on the associated capture projects).
Instead of single projects, DESNZ’s current approach is built on emitters in tightgeographical clusters. It considers this will reduce risks by connecting projects
across sectors, so that they share the costs of transport and storage infrastructure.
DESNZ is looking to secure competitive tension from the selection of emitter
projects in each cluster (paragraphs 1.12, 1.13 and 2.6).
11
DESNZ acknowledges that its design of the CCUS programme introduces
new risks. Launching new technology at scale is inherently challenging as there
are a range of technical and commercial risks that need to be addressed andthere are no established solutions. DESNZ will need to conduct negotiations
and conclude agreements with a range of emitting projects as well as transportand storage projects simultaneously, all against tight deadlines, while handlingthe different commercial risks that arise from each different business model.
DESNZ told us that it considered competitive tension would be created throughits ability to ‘walk away’ from negotiations and by the projects being considered
for Track-1 expansion, which might replace Track-1 projects currently innegotiations (paragraphs 1.12, 1.13, 2.1 and 2.2; Figure 6).
12 DESNZ has taken steps to fill the capability and capacity gaps it has
identified. Carrying out separate negotiations across different sectors each with
its own business model, has placed considerable demands on DESNZ’s capacity
and capabilities. DESNZ established the CCUS Directorate in January 2021,
which worked with the Hydrogen and Industrial Carbon Capture Directorate to
manage the programme. At that time, this group had 51.5 full-time equivalent (FTE)
staff, compared with the 103.5 FTE that DESNZ assessed it needed. As the CCUS
programme progressed, DESNZ calculated that it would need many more staff.
By 2023-24 DESNZ had a target of 206.5 FTEs, but an actual staffing level of only
144.5 FTE at the start of the year. DESNZ is confident it now has the resources inplace to conclude negotiations around Track-1 (paragraphs 1.13 and 2.13).

Carbon Capture, Usage and Storage programme Summary 9

13 DESNZ has increased its reliance on CCUS to contribute to meeting its net
zero targets since it began designing the current programme but it has not fully
considered whether this should result in changes to the programme’s design.
DESNZ’s predecessor, BEIS, began developing its approach to supporting CCUS
in 2018, when the government’s overall climate ambition was to reduce carbon
emissions by 80% in 2050 compared with 1990 levels. At that time, the government
was committed to ‘having the option to deploy CCUS at scale during the 2030s’.
In 2019, the government established its net zero target, for which the Climate
Change Committee (CCC) has said CCUS is “essential”. The CCUS programme has
subsequently adopted the ambitions for carbon capture in 2030 that are impliedby the CCC’s balanced net zero pathway – a far higher level of ambition than at theoutset of the programme. DESNZ told us that it considered whether, for example,
an approach where government carried more of the cost and risk of the first projects
was required in the light of the ambitions for CCUS, but we have not seen any
substantial evidence of such an assessment (paragraph 1.8).
14 DESNZ and HM Treasury have committed up to £20 billion to the early
deployment of CCUS, responding to lessons they had learnt from past failings,
but uncertainty remains around the funding available for future stages of the
CCUS programme. HM Treasury announced this commitment in the spring 2023
budget, but neither it nor DESNZ specified which elements of the programme arecovered. DESNZ and HM Treasury acknowledge that further funding will be required
for the CCUS programme and that they plan to agree the funding available in stages.
Agreeing this will be important so that DESNZ can tailor its approach to the laterstages of the programme within the available funding limits. In setting funding limits,they will need to give investors certainty without undermining the government’s
negotiating position by making clear to commercial parties the maximum funding
available. HM Treasury told us it hoped agreeing government support for Track-1
projects would give industry confidence about the government’s commitment
to CCUS (paragraphs 1.11 and 3.17)

Progress to date
15 The government has so far spent £630 million on its CCUS programme,
primarily through grants to support the early development of projects. For example,
it has spent almost £200 million through the Industrial Decarbonisation Challenge
fund (which invests in developing carbon capture and storage technologies) anda further £346 million on research and development projects. Around £30 millionof this spending was through the Carbon Capture and Storage Infrastructure
Fund, a total potential fund of £1 billion, which the government first announced
in 2020. This Fund was established primarily to support the capital costs ofestablishing transport and storage infrastructure and early industrial capture
projects. DESNZ will allocate the remainder to support construction throughits negotiations with emitter projects. In addition, DESNZ has spent at least£84 million administrative support for the programme (paragraphs 1.9 and 2.13).

10 Summary Carbon Capture, Usage and Storage programme

16 DESNZ is behind schedule in agreeing government support for the Track-1
projects. In November 2020, BEIS stated that it wanted to deploy CCUS
in a minimum of two industrial clusters by the mid-2020s. DESNZ has now
reduced its ambition so that it is “supporting” two clusters by the mid-2020s,
rather than them being in operation by this date. DESNZ has pushed backthe Final Investment Decision (FID) for the Track-1 cluster projects to at least
September 2024, around nine months later than the original plan to have thisstage completed by the end of 2023. However, DESNZ is considering whether
it should have different FID dates for some of these projects, to prioritise theprojects which can start construction rather than waiting for all projects toreach this stage (paragraphs 2.15 to 2.17).
17 DESNZ has reduced the amount of carbon it expects Track-1 projects tostore because of delivery constraints in one of the two shortlisted clusters.
DESNZ considered two options for Track-1 – one which involved 15.5 million
tonnes per annum (Mtpa) of carbon storage and one which aimed for 8.5 Mtpa.
DESNZ initially preferred the 15.5 Mtpa option as it offered lower lifetime delivery
costs and a clear trajectory to meet its 2030 ambitions. In November 2022 it reversed
its preferred option because of feasibility challenges with some storage sites.
In addition to supporting fewer carbon capture projects overall, DESNZ concluded
that the 8.5 Mtpa option was not compatible with a bioenergy with carbon captureand storage (BECCS) project. It is therefore unclear how DESNZ will meet the2030 target for engineered Greenhouse Gas Removals as it expected BECCS
to contribute significantly to the 5 Mtpa ambition (paragraphs 2.8 to 2.10).
18 There has been significant private sector investment in the programme,
which DESNZ attributes to its creation of business models that allocate costs
and risks between government and investors. DESNZ plans to support CCUS
in eight sectors with taxpayer and consumer funding. To date, it has focusedon developing business models for waste and industrial carbon capture,
power generation, the production of hydrogen from methane (which, with carbon
capture, is known as blue hydrogen production), and transport and storage
networks. Across these, DESNZ is taking a proportion of the risk to incentivise
private sector investment. This is supported by different funding structures whichlook to, for example, encourage technology specific outcomes such as investment
in facilities and the functioning transport and storage network. Industry estimatesthat the private sector has invested around £1 billion of development expenditure
in projects, which reflects its willingness to negotiate terms based on thesebusiness models (paragraphs 2.2 and 3.17, and Figures 6 and 7).

Carbon Capture, Usage and Storage programme Summary 11

19 DESNZ has organised its negotiations with Track-1 projects to manage therisk of conducting multiple negotiations simultaneously. DESNZ has establisheda high‑level mandate to guide negotiations for each business model and has
established an approach to identifying and then managing risks across these.
The precise terms of government support provided through its business models
are subject to negotiation, such as the target rate of return for investors and thethresholds for government intervention. The effectiveness of DESNZ’s approach
can only be fully assessed once negotiations are complete (paragraphs 2.11 to 2.13).
20 DESNZ and HM Treasury are developing the framework for assessing
the value for money of the Track-1 projects and deciding whether to award
them government support. DESNZ and HM Treasury have been clear that the
government’s FID will be subject to assessments of value for money. HM Treasury
told us that the parameters of its value for money assessment were still under review.
Track-1 projects have particular characteristics which need to be considered whenassessing value for money, such as being ‘first of a kind’ projects and potentiallyenabling greater benefits to be achieved by later stages of the programme.
DESNZ and HM Treasury will also need to take account of the downside of notproceeding with support, particularly the government’s environmental goals andthe impact on investor confidence (paragraphs 1.12, 2.10 and 3.16).

Future risks to manage
21 Future progress of the CCUS programme is dependent on reaching FID for atleast some of the Track-1 projects. While agreeing deals to support Track-1 projects
on a slower timeframe than initially planned could be accommodated, not reaching
FID at all would have a significant impact on the confidence of investors to engage
with the government, as happened in the wake of the cancellation of the previous
CCUS competition in 2016. Reaching FID will require the government to assure
investors in the Track-1 projects that they have the prospect of a securing a returnon their investment, which could be over a long period of operation following theirinitial expenditure on construction. There is a risk that failing to achieve FID on
Track-1 projects would result in a delay of several years in deploying CCUS in the
UK and may require the government to seek alternative approaches to meet its
carbon budgets (paragraphs 2.14 to 2.16).
22 Once FID is achieved, DESNZ will have a new and significant set of risks
to manage as the programme moves into the next stage of implementation.
Numerous technical issues remain. For example, carbon capture facilities need
to be installed onto existing plants, and pipelines need to be built to connect
these to onshore terminals and then to undersea sites. There is also uncertainty
surrounding the practicalities of the proposed methods for capturing andstoring carbon. This includes how effective the solvents that projects will use
to capture carbon will prove and whether proposed storage areas are viable.
Fundamental to the programme’s successful operation is the proper functioningof the regulatory framework, responsibility for which sits with Ofgem andother bodies (paragraphs 3.2 to 3.8 and Figure 10).

12 Summary Carbon Capture, Usage and Storage programme

23 Slower progress with getting Track-1 up and running means that DESNZ
will struggle to achieve its 2030 ambitions for carbon capture. This is for anumber of reasons.

•

DESNZ reduced its ambitions for the amount of carbon that could be stored.
It estimates that the amount of carbon which could be captured by theeight emitters with which it is currently negotiating for Track-1 is less than aquarter of its lower target for 2030.

•

There are currently no dedicated BECCS or other Greenhouse Gas Removal(GGR) projects being negotiated under Track-1, creating significant riskthat it could miss its ambitions to capture and store 5 Mtpa of carbon
from GGRs by 2030.

•

DESNZ has launched a process to expand the HyNet Cluster and has begun
engagement with the Track-2 clusters. However, it is likely that negotiations
for Track-1 expansion and Track-2 will not advance significantly until DESNZ
has concluded negotiations with Track-1 (paragraphs 2.8 to 2.10 and 3.12).

Conclusion on value for money
24 DESNZ and the CCC have described CCUS as being ‘essential’ to achieving
net zero. The government does not have and is currently not developing a credible
alternative pathway without the use of CCUS. In this context, it is critical that
DESNZ succeeds with its CCUS programme if the UK is to achieve its legally binding
climate ambitions. DESNZ has applied lessons it has learnt from previous failed
attempts to launch CCUS. But the inherently challenging nature of CCUS remains,given the nascency of aspects of the technology. And DESNZ’s current approachbrings new complexities to be managed, depending on parallel, interdependentnegotiations with projects across different technologies. Completing negotiations
to support the Track-1 projects will be a very significant milestone in signalling the
programme’s commercial feasibility and the government’s commitment to CCUS.
Achieving this may require the government to accept that some risks can only bepartly mitigated, including higher costs to support early projects, but this could bea risk worth taking if it determines that the potential costs of delays or pursuingalternatives could be significantly higher. The government will extract greater
value for money from the first wave of projects if it ensures lessons are captured,both in terms of the negotiation process and technologically, to enable costs tocome down in future, as has been the experience for offshore wind.

Carbon Capture, Usage and Storage programme Summary 13

Recommendations
25

DESNZ and HM Treasury should:ashould ensure that the criteria for considering value for money, ahead ofdeciding whether to proceed with government support for the Track-1 projects,
consider the follow-on benefits that will be achieved by launching a newtechnology in the UK;bconsider which sectors of the UK economy are most reliant on CCUS todecarbonise and what viable alternative means of decarbonisation may beavailable for the UK to achieve net zero; andcin light of the outcome of Track-1 negotiations and prior to commencing
negotiations on Track-1 expansion, consider what actions government needs
to take to sustain investor confidence in the CCUS programme. This might
include agreeing and communicating indicative funding available for Track-1
expansion and Track-2.

26

DESNZ should:didentify lessons from its Track-1 negotiations, particularly relating to businessmodels, resourcing and maintaining competitive tension, and ensure that these
are carried over to its subsequent work on Track-1 expansion and Track-2;

eensure it maintains sufficient oversight of the progress of Track-1 projects
during construction and operation so that it can identify early any issues
arising that impact on the CCUS programme’s objectives, such as delays
to construction or lower-than-planned injection capacity, and so that it candraw technical and commercial lessons that can inform projects in laterstages of the programme; andfensure that the scale and timing of these next steps are achievable,
given the resources available to it and, in turn, whether this enables the
CCUS programme to achieve the emissions reductions required under
Carbon Budget 6.

14 Part One Carbon Capture, Usage and Storage programme

Part OneSetting up the programme
1.1This part of the report:•

describes Carbon Capture, Usage and Storage (CCUS) and its role in achieving
the government’s net zero targets;•describes the government’s current CCUS programme; and•sets out how the Department for Energy Security & Net Zero (DESNZ) learnt
lessons from its previous attempts to support CCUS.

CCUS and its role in achieving net zero
1.2 CCUS enables the capture and storage of carbon dioxide (CO2) before it isreleased into the atmosphere, to avoid it having a negative impact on the environment.
CO2 is produced in several ways during industrial processes. For example, as a
byproduct of burning fuel to produce electricity or as a chemical reaction through the
production of materials like cement. CCUS can be used on a range of CO2 emitters,such as waste facilities, power stations, cement plants, and hydrogen producers.
1.3

CCUS can have four stages: capture; transport; usage; and storage (Figure 1).

•

Capture: a capture plant removes CO2 when it is produced. Current technologies
are designed to capture around 90% of the CO2 from emissions, but this varies
depending on the type of emitter. Capturing CO2 requires large amounts ofenergy to work.

•

Transport: either the project capturing the CO2, or a separate entity, then transports
the captured and compressed CO2 through pipelines (sometimes repurposedfrom transporting gas) to a storage site. Alternatively, non-pipeline transportation,such as ships, rail and road, is being considered to transport CO2 from capture
projects to stores.

•

Usage: an alternative to being stored is where captured CO2 can be fed into
industrial processes that require CO2 to work. For example, Enhanced Oil
Recovery which injects CO2 in oil and gas reservoirs to increase extraction or
areas such as the food and beverage sectors.

•

Storage: CO2 is injected into storage locations underground or under the seabed– this is typically at a depth of greater than 800 metres. Depleted oil and gas
reservoirs or saline aquifers are preferred locations as the surrounding rocks
help to prevent CO2 from escaping. Storage sites must store CO2 permanently
because if it were to be released this could cause negative environmental effects.

Figure 1
The Carbon Capture, Usage and Storage process
Carbon is captured from an industrial process then stored in depleted gas fields or saline aquifers at depths of more than 800 metres

30m
500m
Aquifier

1,000m
1,500m
2,000m

Depleted gas field

Land

Sea

Platform

Carbon emitter

Offshore undersea storage

Note1
Depths are approximate and not to scale.
Source: National Audit Office analysis of Department for Energy Security & Net Zero documents

Pipeline transportation

Carbon Capture, Usage and Storage programme Part One 15Depth

16 Part One Carbon Capture, Usage and Storage programme

1.4 The Climate Change Committee (CCC) views CCUS as “essential to achieving
Net Zero”. All pathways to net zero in the CCC’s Carbon Budget 6, the interim target
for emissions between 2033 and 2037, feature an element of CCUS that will be
required if the UK is to meet its ultimate 2050 net zero goal. This is because:•

CCUS can potentially support the decarbonisation of several sectors acrossthe economy. This includes: enabling fossil-fuelled power stations, such as
those using gas, to continue operating in a decarbonised power sector;
enabling a clean way of producing hydrogen for home heating or powering
heavy goods vehicles; and decarbonising some heavy industry.

•

CCUS could be the only way to decarbonise certain industrial processes,
such as cement production. CCUS is not the only way to reduce the carbon
emissions produced by the industrial sector, with potential alternatives
such as electrification and the use of hydrogen for fuel, instead of natural gas.
But in some sectors CCUS is seen as “essential” to decarbonise industries
which emit a large quantity of CO2. For example, around 60 to 70% of CO2
from the cement industry does not come from the combustion of fuels,
but from a chemical reaction during production.

•

CCUS could provide vital flexibility in a decarbonised power system.
Decarbonising power is the backbone of the government’s plan to achieve
net zero because many sectors will use electrification as a clean alternative
to fossil fuels. A decarbonised power system, which relies primarily onintermittent renewable sources like wind and solar, will require flexible
power to meet demand when there is limited generation from renewables.
CCUS combined with gas-fired power stations is one of the technologies
that might fulfil this role.

•

The government considers that CCUS could enable negative emissions.
CCUS combined with sustainable biomass – known as BECCS(bioenergy with carbon capture and storage) – could generate negativeemissions. This is because biomass absorbs carbon as it grows. If, when it isburnt to generate heat or power rather than being released back into
the atmosphere, the carbon is captured and stored it could result inan overall net decrease in atmospheric carbon dioxide. Other ways of
producing a net decrease in carbon emissions is through Direct Air Capture(DAC). This is where CO2 is removed directly from the surrounding air
and is not linked to a specific emitter project. The CCC considers that theachievement of the net zero target is dependent on “engineered solutions”
like BECCS and DAC, with different levels per scenario depending on how
widespread alternative methods such as behaviour change become.

Carbon Capture, Usage and Storage programme Part One 17

1.5 Despite its potential, there are no CCUS facilities operating at commercial scalein the UK. The government has attempted to launch carbon capture in the UK before(Figure 2 overleaf):•

In 2007, the Department for Business, Enterprise & Regulatory Reform (BERR)
launched a competitive process to fund up to 100% of the costs of building
and operating carbon CCUS technology at a UK power plant. In October 2011,
BERR terminated negotiations on the grounds of affordability and differences inpositions on risk. In 2012, we published a report in which we concluded that BERR
did not review alternative options for achieving its objectives, nor did it do enoughto consider commercial risks and the impact that these would have on costs.3•

In 2012, the Department of Energy & Climate Change (DECC) launched the UK’s
second CCUS competition. This varied from the previous competition, as it looked toenable developers to invest in CCUS by offering financial support through a contractfor difference, as with other low-carbon generating technologies. However, in the2015 Spending Review the government withdrew funding. In our 2017 report on thecompetition, we found that DECC had not agreed a funding limit with HM Treasury,
and therefore was unable to manage the competition within the bounds ofagreed affordability constraints.4 We also found that one of the two projects in
the running would not have been able to proceed in the competition because
it could not accommodate DECC’s requirement to cover the “full CCS chain”(capture, transport and storage) as it struggled to allocate risks between theparties covering these different elements in a way that would enable it to secure
external investment. Overall we concluded that the department responsible forthat programme had not secured value for money from its spending.

The government’s CCUS programme
1.6 DESNZ has responsibility for the government’s current CCUS programme.
DESNZ has based the CCUS programme around ‘clusters’, locations in which there areprojects across different sectors which emit CO2, such as power stations and heavy
industry, which can share the infrastructure to transport and store the CO2.5 There will
be a single transport and storage company within each cluster which will be responsible
for the transportation of captured CO2 to its permanent undersea storage. As emitter
projects are near one another this also reduces the amount of pipeline needed toconnect emitters to a network. Being located on or near the coast also means thatclusters are closer to the permanent CO2 storage offshore (Figure 4). An emitter project
which is not part of a cluster is known as a ‘dispersed site’.6 Deploying CCUS throughclusters has become the dominant model for advancing the technology globally.
3
4
5
6Comptroller and Auditor General, Carbon capture and storage: lessons from the competition for the first UK
demonstration, Session 2010–2012, HC 1829, National Audit Office, March 2012.
Comptroller and Auditor General, Carbon capture and storage: the second competition for government support,
Session 2016-17, HC 950, National Audit Office, January 2017.
A Carbon Capture, Usage and Storage cluster is defined as a group of capture projects that are physically close to one
another in the UK. For Track-1 of the CCUS programme, the government defined a cluster as ‘a minimum of two capture
projects connected to a transport and storage network’.
DESNZ defines a dispersed site as all the industrial sites that are more than 30 km (around 18 miles) from a central point
established within each of the 11 clusters.

The government tried to launch CCUS at a commercial scale in 2007 and 2012. In 2020, the government started its third CCUS programme
Nov 2007

Nov 2018

Mar 2023

The Department for Business, Enterprise and Regulatory Reform
launched a competition for industry to design, construct andoperate the UK’s first commercial-scale carbon capture andstorage demonstration at a coal-fired power station by 2014.

The Department for Business, Energy &Industrial Strategy (BEIS) published Clean
Growth detailing its ambitions and visions
for carbon capture in the UK.

The initial Track-1 projects wereannounced. The Chancellor announced
up to £20 billion to support the initialdevelopment of CCUS.

2007

2010

Nov 2011

Nov 2021

Mar 2023

The Department of Energy & Climate
Change (DECC) withdrew fromnegotiations with the last remaining
bidder in the competition.

HyNet and East Coast
Cluster are announced as
the Track-1 CCUS clusters.

The government
announced a plan toexpand the Track-1 clusters– ‘Track-1 expansion’.

2011

2012

2015

2018

2020

2021

2023

2024

Oct 2010

Apr 2012

Nov 2015

Jul 2023

Dec 2023

In the 2010 Spending
Review the government
announced up to £1 billion
in capital investment
for the first carbon
capture and storage
demonstration project.

DECC launched a new
Carbon Capture andStorage (CCS) programmewith an objective to enable
developers to invest in CCS
in the early 2020s withgovernment support.

In the 2015 Spending Review, thegovernment announced the £1 billion
capital funding allocated to the secondcompetition was no longer available.
This decision led to the two competitionbidders, Shell and Capture Power
Limited, cancelling their projects.

The Department
for Energy
Security & Net
Zero (DESNZ)
announced Acorn
and Viking as theTrack-2 clusters.

DENSZ launches
the expansionof the HyNet
cluster.

Nov 2020
First CCUS programme
Second CCUS programme
Third CCUS programme

The government announced The Ten Point Plan for a Green Industrial
Revolution. This stated the government’s ambitions: “We will establish
CCUS in two industrial clusters by [the] mid 2020s, and aim for four ofthese sites by 2030, capturing up to 10 Mt of carbon dioxide per year.”Notes
1
The current CCUS programme – the third programme – is being developed in stages. These are known as Track-1, Track-1 expansion and Track-2.
2

The department responsible for the carbon capture programme has changed over time in response to machinery of government changes: the Department for Business Enterprise &Regulatory Reform (2007 to 2009); the Department of Energy and Climate Change (2009 to 2016); the Department for Business, Energy & Industrial Strategy (2016 to 2023);
and the Department for Energy Security & Net Zero (2023 to present).

Source: National Audit Office analysis of publicly available documents

18 Part One Carbon Capture, Usage and Storage programme

Figure 2
Carbon Capture, Usage and Storage (CCUS) development in the UK, 2007 to 2024

Carbon Capture, Usage and Storage programme Part One 19

1.7

DESNZ has set what it describes as ‘ambitions’ for its CCUS programme:•

to have two industrial carbon capture clusters operational by the mid-2020s,
and four clusters operational by 2030;•

for these clusters to be capturing 20–30 million tonnes of carbon per year
(Mtpa) by 2030, including 6 Mtpa of industrial emissions;•for there to be at least one power station with carbon capture operatingby 2030; and•to capture at least 5 Mtpa of carbon though engineered Greenhouse Gas
Removals by 2030.

1.8 DESNZ sets its ambitions with reference to the Climate Change Committee’s(CCC’s) assessment of how much CO2 needs to be captured to support its balanced
pathway to net zero (paragraph 1.4). DESNZ has its own pathway based on its own
assessment of how to meet the government’s net zero target. This contribution
is more than was established at the outset of the programme – in 2018, thegovernment’s overall climate ambition was to reduce carbon emissions by 80% in
2050 compared with 1990 levels. At that time, the government was committed tohaving “the option of deploying CCUS at scale during the 2030s”. DESNZ told us thatit considered whether, for example, an approach where government carried moreof the cost and risk of the first projects was required in the light of the ambitions for
CCUS, but we have not seen any substantial evidence of such an assessment. If thegovernment only achieves its minimum ambition for 2030 then this will be below the
CCC’s assessment of what is required (Figure 3 overleaf).
1.9 To date, the government has focused on supporting the early developmentof CCUS projects. For example, it has committed £210 million through theIndustrial Decarbonisation Challenge fund, which invests in developing low‑carbon
technologies such as CCUS. To date it has spent almost £200 million in thisway and a further £346 million on research and development projects. Around£30 million of this spending was through the Carbon Capture and Storage
Infrastructure Fund, a total potential fund of £1 billion, which the government firstannounced in 2020. This Fund was established primarily to support the capitalcosts of establishing transport and storage infrastructure and early industrial
emitter projects. DESNZ will allocate the remainder to support construction
through its negotiations with emitter projects.
1.10 DESNZ has identified the first four clusters that it plans to support:
HyNet (north Wales/Merseyside); East Coast (Teesside and Humberside);
Acorn (northeast Scotland); and Viking (Humberside). HyNet and East Coast are the‘Track-1’ clusters that will be launched first. Across these two clusters, DESNZ iscurrently negotiating with eight emitter projects and two transport and storage
companies for government support. In March 2023, DESNZ announced that it would
launch a process to increase the capacity of the Track-1 clusters by identifying
and selecting further projects. Known as ‘Track-1 expansion’, this will also include
Humberside. By January 2024, the North Sea Transition Authority had awarded
27 carbon storage licences (Figure 4 on pages 21 and 22).

20 Part One Carbon Capture, Usage and Storage programme

Figure 3
Climate Change Committee’s (CCC’s) assessment of how much Carbon
Capture, Usage and Storage (CCUS) will need to be deployed under its
Balanced Net Zero pathway, 2020 to 2050
If the government achieves its minimum ambition for CCUS deployment, this will be below the CCC’s
assessment of how much CCUS will be needed to achieve the Balanced Net Zero pathway
Megatonnes of CO2 per annum
180
170
160
140
120
100
90

104

80
79
60
50
40
30
20
0

20

2020

2025

22
2030

2035

2040

2045

2050

Total amount of CO2 captured in the CCC’s Net Zero pathway
Government’s maximum ambition
Government’s minimum ambition
Notes
1
The Climate Change Committee developed its Balanced Net Zero pathway as a potential trajectory of emissions
reductions and action that reaches net zero by 2050. It designed the pathway to drive progress through the 2020s
while creating flexibility to changing circumstances.
2

The Department for Energy Security & Net Zero has its own pathway based on its own assessment of how to meetthe government’s net zero target.

3

For 2035, the government has only stated a minimum ambition.

Source: National Audit Office analysis of Climate Change Committee and Department for Energy Security & Net Zero data

Carbon Capture, Usage and Storage programme Part One 21

Figure 4
The UK’s carbon capture and storage landscape
The Department for Energy Security & Net Zero (DESNZ) has confirmed four carbon capture clusters
close to areas of large industrial emissions or potential carbon storage areas
Confirmed clusters
Acorn
East Coast Cluster
HyNet
VikingIndustrial clusters
Carbon dioxide appraisal andstorage licence areas

22 Part One Carbon Capture, Usage and Storage programme

Figure 4 continued
The UK’s carbon capture and storage landscapeNotes
1
A carbon dioxide (CO2) appraisal and storage licence allows the licensee to explore a geological feature for the
long-term storage of CO2 in the UK. 21 of the 27 existing carbon dioxide appraisal and storage licences wereawarded in September 2023 from the first UK Carbon Storage Licensing Round. The remaining six licenceswere awarded between 2012 and 2021.
2

A Carbon Capture, Usage and Storage cluster is defined as a group of capture projects that are physically close to
one another in the UK. For Track-1 of the Carbon Capture, Usage and Storage (CCUS) programme, the government
defined a cluster as ‘a minimum of two capture projects connected to a transport and storage network’.

3

Industrial clusters are areas defined by the National Atmospheric Emissions Inventory. Data for these areas areaccurate as of 2021.

4This map shows a number of major industrial clusters in the UK, but does not include other areas that have aninterest in carbon capture.

5

Industrial clusters shown on this map include: Black Country (0.4 metric tonnes of carbon dioxide
equivalent (MtCO2e)); Teesside (2.2 MtCO2e); Southampton (3.0 MtCO2e); Grangemouth (3.6 MtCO2e);
Merseyside (4.8 MtCO2e), Humberside (8.3 MtCO2e); and South Wales (8.6 MtCO2e).

Source: National Audit Office analysis of Department for Energy Security & Net Zero and North Sea Transition
Authority data. Office for National Statistics licensed under the Open Government Licence v.3.0. Contains OS data
© Crown copyright and database right 2023

1.11 As well as DESNZ, a number of other organisations have a key role in the
CCUS programme (Figure 5 on pages 23 and 24). For example, providing funding forthe programme, issuing licences and permits for storage sites, regulating transportand storage companies, and managing the revenue support schemes undersome of the contracts .7 Given the expected scale and longevity of the CCUS
programme, it is important to maintain cross-government governance arrangements,
which ensure critical risks which span wider than DESNZ’s control can be
managed. Previous government projects which had overall budgets of many tensof billions of pounds and project lifetimes spanning decades, such as HS2 andthe New Hospital Programme. These saw decisions to proceed that were notaccompanied by sufficiently robust and realistic assessments of affordability,with emerging overspends then becoming one of the government’s overall priorities
to deal with. On CCUS, HM Treasury will have an important role in ensuring there
is a clear plan for funding, either via the Exchequer or through consumers’ bills.

7

Other organisations involved in the CCUS programme include the Environment Agency, Offshore Regulator for
Environment & Decommissioning, the Crown Estate and Crown Estate Scotland.

Carbon Capture, Usage and Storage programme Part One 23

Figure 5
Key organisations’ roles and responsibilities in the Carbon Capture,
Usage and Storage (CCUS) programme
There are a number of government departments, regulators and private companies involved in
the CCUS programme
Government department
Department for Energy Security & Net Zero (DESNZ)DESNZ is responsible for the CCUS programme. Its key responsibilities include:•••

selecting the transport and storage companies;
selecting the future users of the networks; andnegotiating and awarding government support packages.

HM Treasury (HMT)
HMT is responsible for:•providing the funding for the CCUS programme and approving key decisions where there
are funding implications;••ensuring that public spending presents value for money; andproviding oversight and challenge to DESNZ through representation on the CCUS
Programme Board.

Main CO2 regulatory bodies and contract counterparties
Office of Gas and Electricity Markets (Ofgem)
Ofgem is the economic regulator for the transport and storage networks. Its responsibilities include:•

promoting the economic, efficient and effective development and operation of transportand storage networks; and•protecting interest of current and future users of the networks.

North Sea Transition Authority (NSTA)
The NSTA is a CO2 store regulator for the CCUS programme. Its key responsibilities include:•••issuing licences for carbon storage area appraisals;
issuing carbon storage permits; andseabed licensing.

Low Carbon Contracts Company (LCCC)
LCCC works as the government’s contract counterparty. Its responsibilities include:•••

managing government support contracts;
managing revenue support agreements; andpaying and collecting monies due under contracts.

24 Part One Carbon Capture, Usage and Storage programme

Figure 5 continued
Key organisations’ roles and responsibilities in the Carbon Capture,
Usage and Storage (CCUS) programme
Government department
CO2 emitters/capture projects
Individual companies that capture carbon before it can be released into the atmosphere.
Key responsibilities include:•

designing, building and operating collection infrastructure.

Transport and Storage companies
These are the companies that transport and store captured carbon. Key responsibilities include:•

designing, building and operating transport and storage infrastructure.

Notes
1This figure does not include all organisations involved in the CCUS programme.
2

A government contract counterparty signs a contract on behalf of government with a private company. For the
CCUS programme LCCC shall act as the counterparty on completion of required administrative formalities forbusiness models that provide government support.

Source: National Audit Office analysis of Department for Energy Security & Net Zero documents

Drawing lessons from previous attempts to support CCUS
1.12 DESNZ learnt lessons from the previous two CCUS programmes when
designing the current programme.

•

Using industrial clusters: deploying support across industrial clusters
rather than supporting transport and storage for individual emitter projects
allows key infrastructure, such as pipelines for transport and storage to be
used by multiple CO2 emitters. DESNZ intends this to increase the use of
the network and create economic resilience by preventing an issue with asingle emitter causing the network to fail.

•

Splitting the chain: DESNZ’s new approach separates the transportand storage functions from the emitter projects which capture carbon.
This enables specific risks to be precisely allocated to the relevant part ofthe chain and helps to mitigate the risks which occur when different partsof the CCUS process are dependent on each other. These were seen as asignificant factor in the failure of previous attempts to launch CCUS as the
projects were expected to handle all steps in the CCUS chain. As a result,problems in any part of the CCUS process could derail the entire project.

Carbon Capture, Usage and Storage programme Part One 25•

Creating a pipeline of projects: having planned the introduction of four industrial
clusters, DESNZ sees this as a way of maintaining a stream of potential emitter
projects, therefore allowing it to retain options in how it will deploy future
CCUS projects.

•

Working with HM Treasury to agree on funding availability: previous cancellations
were partly due to lack of agreement between DESNZ’s predecessor departments
and HM Treasury on the long-term operational costs of the CCUS programme.8
For the current CCUS programme, HM Treasury has announced a budget of up
to £20 billion for government support to the operation of early CCUS projects.
This support is a mixture of direct government funding and consumer levies.
HM Treasury has not publicly stated how many projects it expects this funding
to support. HM Treasury is on the CCUS Programme Board (see paragraph 3.9).

1.13 While DESNZ has designed a new approach to CCUS that responds tolearning from previous competitions, it has created new complexities. In particular,
DESNZ needs to conduct negotiations separately with a range of emitter projects,
as well as with the transport and storage companies which pose different
commercial risks, and conclude them to coordinated deadlines.

8

In 2023, following machinery of government changes, the Department for Business, Energy & Industrial Strategy(BEIS) split into three departments. These being, the Department for Energy Security and Net Zero (DESNZ),
the Department for Business and Trade (DBT), and the Department for Science, Innovation & Technology (DSIT).

26 Part Two Carbon Capture, Usage and Storage programme

Part Two

Progress of the Carbon Capture, Usage andStorage programme
2.1 This part of the report covers the Department for Energy Security & Net Zero’s(DESNZ’s) progress in agreeing government support for the first wave of Carbon
Capture, Usage and Storage (CCUS) projects (Track-1), including:•

how it has established the business models on which it will base the termsof support;•

how it has selected the clusters and projects to be included in Track-1;•

how DESNZ has organised itself to negotiate with the Track-1 projects; and•DESNZ’s progress against its planned timetable for agreeing support.

Establishing business models for Track-1 projects
2.2 DESNZ has established business models on which to base the terms ofgovernment support for the Track-1 projects. Each business model sets out inprinciple how costs and risks are allocated between DESNZ and the projects
and establishes the payment mechanism (Figure 6 on pages 28 and 29).
DESNZ developed, in consultation with industry, these models ahead ofnegotiations with projects to limit the number of issues which were subject
to negotiations. The precise terms of the government’s support remains tobe agreed between DESNZ and the commercial projects, including agreeing
a rate of return for investors over a long period of time and establishing thecircumstances which will prompt an intervention from government. DESNZ told
us that industry had estimated the private sector had invested around £1 billion
of development expenditure in projects, which reflects their willingness tonegotiate terms based on these business models.
2.3 Figure 7 on page 30 provides an overview of how the business models
supporting each technology relate to the transport and storage companies.
It also highlights the technologies that Track-1 of the programme is focusing on:
power generation; industrial carbon capture; waste; and blue hydrogen production.99‘Blue hydrogen’ is defined as the production of hydrogen from methane with carbon capture.

Carbon Capture, Usage and Storage programme Part Two 27

2.4 The business model for transport and storage companies means they may
need to be classified as public bodies. The Office for National Statistics (ONS)
is currently considering how to classify the two Track-1 transport and storage
companies. Although it has yet to reach a final decision, DESNZ expects the ONS
to classify the companies as central government bodies because of the indemnities
that the government is providing against certain risks. These include the government
acting as an “insurer of last resort” against significant leaks from storage facilities
and its agreement to provide financial support if there is less demand for thetransport and storage network than planned.
2.5 The transport and storage companies being classified as central government
bodies would present challenges for DESNZ and HM Treasury to manage.
This would require DESNZ to consolidate the accounts of the companies into its
group accounts and elements of their expenditure would need to be covered byspending limits agreed with HM Treasury. The companies would also be subject
to the provisions of Managing Public Money and subject to central government
spending controls. DESNZ is discussing potential derogations (that is to say,
exemptions from certain controls) with HM Treasury, and whether implementing
controls could be delayed until the transport and storage companies start operations
rather than when they reach Final Investment Decision (FID).10 This issue could
result in delays to negotiations or potentially prevent any agreement being reached
between government and the companies. As such, FID is not guaranteed.

Selecting the first clusters and projects
2.6 DESNZ took a two-stage approach to selecting the first two clusters andprojects for the CCUS programme. Firstly, it identified the clusters to support.
This was then followed by selecting the emitters that could use the transport andstorage infrastructure (Figure 8 on page 31). It used this as the basis for requestingfunding from HM Treasury. It also wanted to achieve some competitive tension fromthe selection of emitter projects in each cluster.
2.7 DESNZ considered five criteria when selecting clusters and projects,
prioritising deliverability and emissions reduction potential (Figure 9 on page 32).
As well as ranking individual clusters and projects, DESNZ considered bids in
different combinations (described as a ‘portfolio assessment’). For example,
it considered whether the first and third ranked clusters would allow for a greater
range of technologies to be taken forward as part of Track-1. Similarly, it considered
how well combinations of projects worked in the cluster as a whole. In October 2021,
it announced that the two Track-1 clusters would be HyNet (covering Merseysideand north Wales) and the East Coast Cluster (covering Teesside and Humberside).
These clusters were ranked highest when assessed against the five criteria
highlighted earlier. The portfolio assessment exercise did not change this position.

10 HM Treasury, Managing Public Money, May 2023. Available at: https://assets.publishing.service.gov.uk/
media/65c4a3773f634b001242c6b7/Managing_Public_Money_-_May_2023_2.pdf. This document offers guidance
to, for example, departments on how to handle public funds.

28 Part Two Carbon Capture, Usage and Storage programme

Carbon Capture, Usage and Storage programme Part Two 29

Figure 6
Carbon Capture, Usage and Storage (CCUS) business models – an overview
of funding mechanisms
Each business model takes a different approach to funding projects
Business model

PurposeHow it works during ‘business as usual’

When the government might intervene

Transport and Storage (T&S)

To set up a regulated carbon transport and storage operator foreach confirmed CCUS cluster. The business model is designed toensure that the operator delivers a network that meets the needsof the emitter for a regulated return.

A transport and storage company is paid through fees it charges
emitters for its services.

Transport and Storage

It will receive an ‘allowed revenue’ – an amount that it is entitled
to recover, through charging transport and storage fees toan emitter, over a defined period. This is based on an agreed
return on investment negotiated between the Department forEnergy Security & Net Zero (DESNZ) and the transport andstorage company.

If an emitter project is delayed, then the cluster cannot start
operations and the T&S company does not receive any‘allowed revenue’.
If emitter projects do not successfully concluded negotiations
and reach the Final Investment Decision or do not complete
construction leading to the T&S company being underutilised.
If there are differences between estimated and actual flow
volumes, leading to lower than planned network utilisation.
An emitter project’s contract is terminated (for example, due toinsolvency) so overall utilisation of the network is reduced.

Industrial Carbon Capture

Waste

Dispatchable Power Agreement

Hydrogen production

To compensate the emitter for the cost of installing and operating
carbon capture equipment on existing and new industrial facilities.
For example, cement production.

The emitter receives a payment from the government for eachtonne of CO2 captured and stored – the difference between an
amount negotiated by the government with each emitter and areference price (based on the UK Emissions Trading Scheme).

Emitter project

Initial projects will also have access to funding for a proportionof their capital costs.

If there are periods of either full or partial outage of the
T&S network, meaning the expected level of network capacity
is not met. Emitter projects are unable to use the network
as intended.

To compensate the emitter for the cost of installing andoperating carbon capture equipment on existing and new waste
management facilities.

The emitter receives a payment from the government for eachtonne of CO2 captured and stored – the difference between an
amount negotiated by the government with each emitter anda reference price (fixed in advance of contract signature andbased on the UK Emissions Trading Scheme).

To compensate the power producer for the cost of building andoperating a plant with carbon capture.

The power generator receives a payment from the government
made up of two components.

The subsidy is designed to allow power generators that capture
their carbon to compete with unabated gas power generators.

•

Availability – the government pays the plant an amount tobe ready to produce electricity. This is paid regardless ofwhether it generates electricity.

•

Variable – the government pays an amount for the electricity
produced by the CCUS plant that means this electricity is
despatched ahead of unabated alternatives.

To compensate the hydrogen producer for the cost of building
and operating a plant. The contract subsidises the producer whenrevenues for selling the hydrogen are insufficient to compensate
for production costs.

Note
1This does not include non-Track-1 business models which cover greenhouse gas removals and power bioenergy
with carbon capture and storage (BECCS).
Source: National Audit Office analysis of the Department for Energy Security & Net Zero’s documentation

The government’s payment to producers is made up of anumber of elements.

•

An amount for producing and then selling qualifying
low-carbon hydrogen (known as the variable premium).

•

An amount to encourage the sale of hydrogen above theprice of natural gas (known as the price discovery incentive).

•

An additional amount per unit of hydrogen sold tocompensate producers when demand (sale of hydrogen)falls below a certain level (known as the sliding scale top up).

If the construction of the T&S network is delayed, an emitter
project cannot transport and store the CO2 it collects.

If there are prolonged outages of the network, which will only
become available after a long period and/or after significant
remedial expenditure. The emitter project’s assets risk
becoming stranded.

The Department for Energy Security & Net Zero (DESNZ) is developing business models for each technology – an approach to allocating costs and risks between
the government and the private sector
Power generation

Greenhouse Gas Removals

Also known as ‘Dispatchable
Power Agreement’. The use ofcarbon capture at facilities that
produce electricity.

The use of methods that directly
remove greenhouse gases fromthe atmosphere, such as Direct
Air Capture and Storage.

Waste

Transport and Storage networks

The use of carbon capture in
the waste management sector
including energy from waste
and waste-to-fuel projects.

The company(s) responsible
for the transport andpermanent storage of carbon
captured by emitter projects
in various sectors.

Industrial Carbon Capture

Blue hydrogen production

The use of carbon capture
at industrial sites including
those which produce cement
and chemicals.

Hydrogen produced whencombined with the addition ofcarbon capture and storage,
making production low carbon.

Track-1 business model area

Carbon storage

Movement of captured carbon

Post-Track-1 Business model area

Hydrogen users

Movement of hydrogen

Power Bioenergy with
Carbon Capture and Storage(Power BECCS)
The use of carbon capturecombined with the productionof power from bioenergy.

Notes
1
DESNZ is implementing the initial stages of the CCUS programme in three phases: Track-1; Track-1 expansion; and Track-2.
2

The post-Track-1 business models are in a later stage of development than the Track-1 business models. DESNZ is developing business models for the technologies it plans
to introduce in later in the programme.

3‘Blue hydrogen’ is not the only type of hydrogen production. Other methods exist – however we have highlighted ‘Blue hydrogen’ as this is a business model being developed
within the CCUS programme.

Source: National Audit Office analysis of Department for Energy Security & Net Zero documents

Offshorestorage

Hydrogenusers

30 Part Two Carbon Capture, Usage and Storage programme

Figure 7
An overview of Carbon Capture, Usage and Storage (CCUS) business models

Carbon Capture, Usage and Storage programme Part Two 31

Figure 8
The Department for Energy Security & Net Zero’s (DESNZ’s) Track-1 clusterand emitter project selection process for the Carbon Capture, Usage andStorage (CCUS) programme
As at July 2024, DESNZ negotiating terms of support for eight emitter projects across two clusters
May 2021: Five clusters bid to receive government support throughTrack-1.

Phase 1: cluster
selection

October 2021: DESNZ selects HyNet and East Coast Cluster as
the two clusters to support in Track-1. It also selects a reserve clusterin Scotland.

Summer 2022: DESNZ selects an ambition that the Track-1 clusters
will aim to capture a total of 15.5 million tonnes per annum (Mtpa)
of carbon dioxide across both clusters.

70 emitter projects submitted expressions of interest across HyNet,
the East Coast Cluster and the Scottish reserve cluster.

August 2022: DESNZ shortlists 20 emitter projects across four
technologies: power CCUS (3); industrial carbon capture (13);waste and CCUS-enabled hydrogen (4).
Phase 2: emitter
project selection
November 2022: DESNZ reduces its ambition to 8.5Mtpa because ofdelivery issues and other considerations.

March 2023: DESNZ announced the eight emitter projects across
HyNet and East Coast Cluster that it would negotiate terms ofgovernment support for.
DESNZ action
Private sector action
Source: National Audit Office analysis of the Department for Energy Security & Net Zero’s documentation

32 Part Two Carbon Capture, Usage and Storage programme

Figure 9
The Department for Energy Security & Net Zero’s (DESNZ’s) five criteria
for cluster selection – Track-1 of its Carbon Capture, Usage andStorage programme
DESNZ’s consideration of deliverability and emissions reduction potential were central to its
selection of Track-1 clusters
Learning and innovation,
10%

Cost considerations,
15%

Deliverability,
30%

Economic benefits,
20%
Emissions reduction potential,
25%
Note
1
DESNZ weighted its selection criteria for clusters and projects by assigning them percentages.
Source: National Audit Office analysis of the Department for Energy Security & Net Zero documents

2.8 In the summer of 2022, DESNZ considered two storage options: 15.5 million
tonnes per annum (Mtpa) and 8.5 Mtpa. It decided to proceed with the 15.5 Mtpa
option because, for example, it provided a clearer pathway to meeting its overall
carbon capture targets and lower lifetime costs. In August 2022, DESNZ announced
an initial shortlist of 20 emitter projects across the two Track-1 clusters on the basisof the 15.5 Mtpa storage option. This announcement was made once HM Treasury
had agreed that the proposals had the potential to offer acceptable value for money.
2.9 In November 2022, DESNZ reduced its ambition for Track-1 to a storage
capacity of 8.5 Mtpa because of potential delivery challenges associated withthe clusters and emitter projects it had shortlisted. For example, it identified
feasibility challenges with regard to some storage sites. In addition, DESNZ had
set a condition that all Track-1 projects should be operational by 2027 at thelatest. However, five of the shortlisted projects for the East Coast Cluster werelocated south of the Humber, requiring a pipeline to be built under the estuary
to the onshore terminal for the cluster’s storage site. DESNZ concluded that,while this was technically feasible, the work could not be completed until 2029.
Therefore, DESNZ opted not to include Humberside based projects in Track-1.

Carbon Capture, Usage and Storage programme Part Two 33

2.10 As DESNZ decided on a smaller level of carbon storage capacity for Track-1,
this meant fewer Track-1 emitter projects could be selected and a lower budget was
required. DESNZ revisited its shortlist of projects from August 2022 in light of the
new decision on storage capacity and, in February 2023, presented HM Treasury
with a range of combinations of emitter projects from HyNet and East Coast Cluster.
Based on the options provided by DESNZ, HM Treasury approved eight projects
for Track-1 that will potentially capture a total of 4.9 Mtpa of carbon across thetwo clusters (therefore using just over half of the 8.5 Mtpa storage capacity).
It considered both monetised and non-monetised costs and benefits in making
this decision and announced up to £20 billion of funding in the March 2023
Budget for the initial deployment of CCUS.

DESNZ’s approach to Track-1 negotiations
2.11 Agreeing FID on the Track-1 projects requires DESNZ to conduct multiple
sets of negotiations simultaneously. This is because the transport and storage
element needs to be operational at the same time as emitters. DESNZ hasorganised its negotiations with individual projects to manage the risk of dealing
with interdependent projects simultaneously. This includes:•

establishing a broad set of principles, known as the Track-1 mandate,for each negotiating team to follow;•

establishing a shared understanding of the risks to the successful operationof an emitter project because of operational issues with, for example,
the transport and storage company (and vice versa); and•managing, for example, budgets at project, cluster and programme level.

2.12 DESNZ has established a team to manage the commercial assurance aroundthe negotiations; and manage programme-wide, and cluster- and project‑specificbudgets. Its role is to ensure compliance with the Track-1 mandate and to make surecross-cutting risks (risks shared by business models) and crosschain risks (risks thatexist between emitter, transport facility and storage facility within each businessmodel) are being managed consistently by each negotiating team. The effectivenessof DESNZ’s approach can only be fully assessed once negotiations are complete.

34 Part Two Carbon Capture, Usage and Storage programme

2.13 DESNZ created the CCUS Directorate to manage the programme inJanuary 2021 which, together with staff from the Hydrogen and Industrial
Carbon Capture Directorate, manages the CCUS programme. It also appointed
a director‑level senior responsible owner. When the Directorate was established,
51.5 full-time equivalent (FTE) staff, less than half the 103.5 FTE that DESNZ
assessed it would need for 2021-22, were in post. DESNZ considers this difference
reflects the time it takes to fill vacancies. The number of staff required increased
sharply, particularly as Track-1 negotiations started. By 2023-24 DESNZ calculated
that it needed 206.5 FTE, compared to a staffing level of 144.5 FTE at the startof that year. DESNZ had problems recruiting people with the required negotiating
and commercial skills during 2022-23, noting that civil service pay scales werea significant barrier. To date, DESNZ has spent £84 million on staff supporting
the programme.

Assessing the value for money of the Track-1 projects
2.14 DESNZ and HM Treasury are clear that the FID for each cluster is subject to anassessment of whether the clusters represent value for money for the taxpayer andthe consumer. As part of this assessment they will need to consider, amongst otherthings, how to manage the risks of taking forward first of a kind projects. DESNZ will
also need to consider the impact that not going ahead with the projects might
have on investor confidence. DESNZ told us that it will also be considering otherissues before making a final decision. For example, the cost effectiveness in
capturing carbon of the selection of projects considered at the FID stage and theimpact these will have on its net zero commitments and the level of investment
into specific regions. HM Treasury told us there are challenges in considering thecosts and benefits of going ahead with Track-1 as it is the first step in a muchlarger programme. The final decision as to whether to proceed is, ultimately,
one for ministers.

DESNZ’s progress agreeing support for Track-1
2.15 DESNZ has taken longer than it planned to agree the terms of government
support for the first wave of CCUS projects, although it considers it remains on trackto establish two clusters by the mid-2020s. In April 2021, DESNZ said the first of
two Track-1 clusters would reach FID in the second quarter of 2022, with the otherTrack-1 cluster following in 2023. By March 2022, DESNZ had moved the FID dates
to May and October 2023. In April 2023, DESNZ reviewed the CCUS programme as
it considered the earlier FID dates it had set were not achievable. The Infrastructure
and Projects Authority told us that DESNZ moved back its target date for FID
partly because of delays in getting HM Treasury and ministerial agreement to thefunding package that was announced in the March 2023 Budget. In June 2023,
DESNZ settled on a revised FID date of September 2024 after consulting withdelivery partners in the public and private sectors.

Carbon Capture, Usage and Storage programme Part Two 35

2.16 DESNZ is currently considering whether achieving FID across all eight projects
by September 2024 is feasible. It therefore expects to achieve FID with at least someof the Track-1 projects by September 2024, with the rest reaching FID in 2025.
This approach may risk reducing the programme’s value for money, because it could
lead to fewer projects making use of common transport and storage infrastructure.
But it may also lead to earlier carbon reductions as it means prioritising projects thatare able to commence construction, rather than waiting untilall projects reach thisstage. In addition, DESNZ considers this approach may prevent more mature
projects needing to retender contracts if they are delayed by waiting for otherprojects to be ready to take FID.
2.17 DESNZ no longer describes having two clusters operational by themid‑2020s as a target. The November 2020 Ten Point Plan for a Green Industrial
Revolution included a target of “two clusters operational by the mid 2020s”.11
DESNZ’s early planning interpreted this as meaning that both clusters should be
operational by the end of 2026, which was echoed in the schedule published in
the Net Zero Strategy in October 2021.12 However, by May 2022 DESNZ wasworking towards the Track-1 clusters starting operations by the end of 2027
which remains its target. More recently, DESNZ has adapted this target to ‘support’
two clusters by the mid‑2020s, indicating that it expects them to begin operating
later. The Infrastructure and Projects Authority completed a Gateway Review in
April 2023 and issued the programme a red rating because it was behind schedule.
In September 2023, it issued an amber rating because of the progress DESNZ had
made in a number of areas.

11

HM Government, Ten Point Plan for a Green Industrial Revolution, November 2020. Available at:https://assets.publishing.service.gov.uk/media/5fb5513de90e0720978b1a6f/10_POINT_PLAN_BOOKLET.pdf
12 HM Government, Net Zero Strategy: Build Back Greener, October 2021. Available at: https://assets.publishing.
service.gov.uk/media/6194dfa4d3bf7f0555071b1b/net-zero-strategy-beis.pdf

36 Part Three Carbon Capture, Usage and Storage programme

Part Three

Next steps for the programme
3.1

This part of the report covers:•

the risks the Department for Energy Security & Net Zero (DESNZ) faces
in launching Track-1 of the Carbon Capture, Usage and Storage (CCUS)
programme once it has concluded commercial negotiations;•

DESNZ’s plans for Track-1 expansion and Track-2 of the CCUS programme; and•DESNZ’s longer term vision of developing a market for CCUS that will not
require government support.

Risks to delivery of Track-1 projects
3.2 DESNZ’s current aim is for Track-1 projects to begin operations by the endof 2027. DESNZ will need to maintain sufficient oversight of the projects, both inconstruction and operation, to identify risks that may impact the delivery of the
CCUS programme’s objectives. DESNZ needs to manage a number of different typesof risk that include technological risks (because it is dependent on as yet untried
technology), construction risks (in common with other major infrastructure projects),
and financial risks (because it is underwriting many aspects of the programme).

Construction risks
3.3 Delays to construction of the emitter or transport and storage projects would
impact on DESNZ’s objectives for carbon capture and, consequently, its overall net
zero pathway. We often see overoptimism in the scheduling of government major
projects, with the government’s ambitions to meet its goals overriding a frankassessment of mounting risks.13 There is also a risk that higher than expected
construction costs may mean that carbon capture projects may become unviablewithout additional revenue support from the government or consumers.

13 Comptroller and Auditor General, Lessons learned from Major Programmes, Session 2019-20, HC 960,
National Audit Office, November 2020, page 14. Available at: www.nao.org.uk/wp-content/uploads/2020/09/
Lessons-learned-from-Major-Programmes.pdf

Carbon Capture, Usage and Storage programme Part Three 37

3.4 For the CCUS programme, there is a particular risk associated with thetechnology being unproven at the scale being planned, and dependence on
specialist expertise and equipment. For example, one of the Track-1 emitter
projects is planning to build a gas-fired power station with carbon capture,
but this would be 40-times larger than any existing examples globally. A previous
attempt to scale up CCUS in the United States ended before it started operating
due to cost overruns attributed to the massive scaling up from pilot to commercial
scale. Similarly, applications of CCUS in the cement industry are unproven atscale, with potential limits to technical experience. Several countries aroundthe world are also currently pursuing CCUS, so there is a risk that limitationsof global supply will cause unexpected cost increases or delays.
3.5 The Track-1 projects will also need to ensure they obtain sufficient financeto fund project construction. The private sector will need to provide most of thecapital to build and install carbon capture equipment, pipelines and infrastructure
for the storage sites. The UK Infrastructure Bank (UKIB) estimates that the HyNet
and East Coast Clusters will require £8 billion to £10 billion of private financein 2024-25 alone. There is a risk that the transport and storage companies
and carbon capture projects might not be able to get enough funding to finish
construction. The UKIB has developed a number of ways to support capital
investment by providing, for example, debt. These may expose the government
to a level of financial risk as these products effectively underwrite private
sector investments.

Operation risks
3.6 There are some unknowns around how effectively the projects will operate(Figure 10 overleaf). Should any of these risks materialise, the projects could
contribute less to DESNZ’s overall objectives for carbon capture and its
net zero ambition.

Regulation risks
3.7 DESNZ has developed bespoke business models for carbon capture thatoutline how risks will be shared between government and the private sector andhow the projects will receive financial support. The precise arrangements arebeing worked out through negotiations between DESNZ and the various projects.
Ofgem and the Low Carbon Contracts Company will be required to collect, monitor,
gain assurance over and act upon a range of data sources to ensure that items
like power generated and carbon captured are accurately recorded.14 This will befundamental to the entire CCUS programme functioning as intended and ensuringthat the carbon capture projects receive the correct levels of financial support.

14

Ofgem’s and the Low Carbon Contracts Company’s responsibilities are described in Figure 5.

38 Part Three Carbon Capture, Usage and Storage programme

Figure 10
Carbon Capture, Usage and Storage (CCUS) programme – Track-1 project
operation risks
The Department for Energy Security & Net Zero (DESNZ) has identified a number of risks it needs tomanage when Track-1 programmes become operational
Risk

Description

Carbon capturesolvents

In carbon capture a solvent is a substance that reacts with carbon dioxide
to separate it from other emissions. The carbon dioxide-rich solvent is thenheated, separating back into solvent (which is used again) and carbon dioxide(which is sent for storage). The Track-1 projects will use either a generic or
proprietary solvent. For a permit application, the Environment Agency needs
to know all the solvent components and breakdown products so the impact on
air quality, habitats and the environment can be assessed. The Environment
Agency has a legal duty to place any information that relates to an emission
onto the public register. Some operators are reluctant to disclose this proprietary
solvent information so have applied for a permit using a generic solvent.
DESNZ considers that this could have an adverse effect on the efficiency ofcarbon capture projects and permits will need to be varied post FID as theoperators will likely want to change to using a proprietary solvent. DESNZ iscurrently trying to assess the potential extent of this issue and is working with
the Environment Agency to ensure that industry understands and complies
with the legal requirements around solvent disclosure.
Previous attempts to apply CCUS in the power sector using post-combustion
capture encountered difficulties with carbon dioxide (CO2) capture rates
being lower than expected. For example, Boundary Dam in Canada was thefirst-of-a-kind project to retro-fit a coal-fired power station with CCUS and isestimated to have captured less than 65% of its emissions versus a targetof 90%.1

Pipeline flow rates

The pipelines that will transport carbon need to have a certain level of carbon
dioxide flow to function optimally.

Storage sites

There are only a handful of sites worldwide where carbon has been pumped
underground for long-term storage at significant scale. The oldest storage site
is Sleipner Vest, a gas field located under Norwegian waters in the North Sea,
which has had over 17 million tonnes of carbon injected since 1996. Storing carbon
securely underground involves a complex range of geological factors and there
will be a need for ongoing monitoring. There is therefore an element of risk as
to the long-term viability of storage sites given the lack of real-world experiencein this area. Some stakeholders say that DESNZ should have a backup storagesite in case its first choices do not work, particularly given the potential longlead times in developing an alternative.

Injection rates

The proposed storage sites have a massive potential capacity, but there is a limit
on how quickly carbon can be pumped into them. If the rate of carbon being
captured by the emitter projects exceeds the rates at which it can be injected
into the underground stores, it will have to be vented into the atmosphere.

Note
1
Carbon Tracker Initiative, Curb your Enthusiasm: Bridging the gap between the UK’s CCUS targets and reality,
March 2024, p.15, available at: https://carbontracker.org/reports/curb-your-enthusiasm/
Source: National Audit Office summary of the Department for Energy Security & Net Zero’s documentation

Carbon Capture, Usage and Storage programme Part Three 39

3.8 DESNZ’s work in this area thus far has focused on identifying all the key
procedures and actions that will be needed for the programme to operate ona ‘business as usual’ basis. It is working with the key regulators to ensure that
responsibilities are clear and that all parties are adequately resourced. It is also
developing a system of testing to ensure that there are robust processes in place,and that all relevant parties are ready when projects begin to capture carbon.

DESNZ’s approach to risk management
3.9 The CCUS Programme Board is the main body for managing risks to theprogramme. The Board is led by DESNZ, and includes HM Treasury and theInfrastructure and Projects Authority (IPA) as members. The Programme Board
considers and makes decisions around, amongst other things, the programme’s
affordability, scope and timeline. While HM Treasury was not originally a memberof this board, it joined during 2023 and is a full member, contributing to decision
making. Below this, a Tranche 1 board, of which HM Treasury is also a member,is focused on issues relating to Track-1. There is a monthly process for teams
to identify, assess and escalate risks to the appropriate board and these arelogged on the programme risk register. A similar board will be established to haveoversight of Track-1 expansion and Track-2. HM Treasury also has an advisory roleon the DESNZ group that considers issues arising from the current negotiations
with projects for Track-1.
3.10 DESNZ established these arrangements in response to reviews that had
identified weaknesses in its risk management. The Government Internal Audit
Agency (GIAA) reviewed the CCUS programme in November 2022 and concluded
that “There are significant weaknesses in the framework of governance,risk management and control for planning and scheduling.” The IPA completed
a Gateway review in April 2023 when it made the following recommendation
its highest priority: “… that the Programme implement a fundamental review ofthe governance arrangements to ensure a fit-for-purpose delivery model for
the Programme”. The most recent GIAA review in March 2024 concluded that
DESNZ had addressed almost all of its recommendations and that it had made“significant progress”.
3.11 DESNZ has identified capability and capacity issues, both for itself and forthe regulators, as a risk for the CCUS programme once Final Investment Decision
has been achieved for Track-1. DESNZ has struggled to recruit and retain enoughspecialist staff to progress the CCUS project. As of April 2024, it considered thatit needed an additional 31 full time equivalent (FTE) staff to manage the Track-1
clusters effectively and a further 154 FTE for later sections of the programme.
It also noted that there is a higher turnover of staff on the CCUS programme (17%)
compared to BEIS as a whole (13%), in part because of the lack of clear career
opportunities for technical and specialist staff.

40 Part Three Carbon Capture, Usage and Storage programme

DESNZ’s plans beyond Track-1
3.12 DESNZ’s CCUS programme will need to capture significantly more carbon
beyond Track-1 to achieve its ambitions for the programme (see paragraph 1.7).
Even if DESNZ agrees terms with all eight of the short-listed projects for Track-1,
these will only provide a quarter of the carbon capture capacity needed to meet the
government’s targets for 2030. DESNZ estimates that the eight projects currently
under negotiation will capture and store a maximum of 4.9 million tonnes per annum(Mtpa) of carbon, less than a quarter of its lower target for total carbon capture by2030. A further 15 Mtpa of carbon will need to be captured by 2030 in order toreach the lower end of the government’s target. No dedicated bioenergy with carbon
capture and storage (BECCS) or other Greenhouse Gas Removal (GGR) projects
were included in Track-1, creating a significant risk that DESNZ will miss its target
to remove 5 Mtpa carbon through engineered removals by 2030.15 In addition tomeeting decarbonisation targets, BECCS plays a role in the government’s plans
to improve the UK’s energy security.
3.13 In addition to the eight Track-1 carbon capture projects currently undernegotiation (see paragraph 1.10), DESNZ has two further stages planned toachieve the 2030 targets for CCUS in the UK: Track-1 expansion and Track-2.

Track-1 expansion
3.14 DESNZ is looking to identify additional carbon capture projects that could
connect to the carbon stores developed by the HyNet and East Coast Clusters.
DESNZ hopes that these could be in operation before 2030. DESNZ considers
these projects will provide alternatives to the initial Track-1 projects if DESNZ is
unable to agree contracts or if the projects are considered to offer poor value
for money. It also intends that they will add additional carbon capture projects
to already‑established clusters, increasing the value for money offered by the
initial expenditure on Track-1 by more fully utilising the pipeline and storage
infrastructure put in place. Applications for Track-1 expansion at HyNet wereopened in December 2023. DESNZ has yet to set a date for when the process
will be started at the East Coast Cluster.

Track-2
3.15 DESNZ intends to have a further two carbon capture clusters operationalby 2030. In July 2023 it announced that these Track-2 clusters would be Acorn,in northern Scotland, and Viking, on Humberside. DESNZ has asked the transportand storage companies at these clusters to submit lists of initial carbon capture
projects in “early 2024”. This process had not formally commenced before theGeneral Election was announced in May 2024. DESNZ told us it is currently
determining the scope of Track2 and its timetable and cost, but that it does
not know when it will complete this process. It told us it had shared high level
estimates of the cost of Track-2 with HM Treasury.
15 The Track-1 shortlist does include an energy from waste facility. A portion of its output will count as BECCS and
therefore produce negative emissions, provided that it uses as element of biogenic waste as feedstock.

Carbon Capture, Usage and Storage programme Part Three 41

Budget for Track-1 expansion and Track-2
3.16 The budget available for the later stages of the CCUS programme remains
uncertain. This could bring similar risks to the programme like those which
contributed to the failure of the previous government’s competition. HM Treasury
and government ministers will ultimately decide whether the CCUS programme will
receive financial support, and how much will come from the government and fromconsumers. It has made it clear that it will only support the programme as long as
it considers that it offers value for money. While HM Treasury has announced up
to £20 billion of funding for the current CCUS programme, this is unlikely to beenough to meet government’s ambitions for CCUS deployment to 2030. DESNZ hasshared high-level cost estimates for the entire CCUS programme, but HM Treasury
has yet to make any further spending commitments. One of the key findings ofour 2017 report on the previous failed attempt to launch CCUS in the UK was that
DESNZ had not secured HM Treasury agreement on how much long-term funding
it would provide. This led to the programme being cancelled when estimated costsrose. The lack of funding certainty also poses risks for potential investors who may
be less willing to invest in projects without clarity of the government’s support.
HM Treasury has told us that it hopes agreeing government support for Track-1
will provide industry with confidence over government’s long-term commitment
to CCUS. DESNZ and HM Treasury currently plan to agree the funding available
in stages.

Developing a self-sustaining CCUS market
3.17 As set out in its 2023 CCUS Vision, over time DESNZ wants to establish
what it describes as a “commercial and competitive […] market for CCUS in the
United Kingdom”.16 It sees such a market as not only supporting the government’s
net zero ambitions but also supporting, for example, the creation of new jobs.
It has estimated that CCUS exports – such as expertise and access to storage –could add between £4 billion and £5 billion to the UK economy annually by 2050.
To support its aim to create a “self-sustaining CCUS market” by 2035, DESNZ has
a highlevel plan for how the UK will move away from early projects backed by thegovernment through taxpayer and consumer funding. It plans to achieve this inthree phases: creating a market (up to 2030); transitioning to a market (2030 to2035); and supporting a selfsustaining market (2035 onwards). The government
has also been engaging with industry on how to integrate dispersed sites into its
CCUS programme.

16 Department for Energy Security & Net Zero, Carbon Capture, Usage and Storage: A Vision to Establish a Competitive
Market, December 2023. Available at: https://assets.publishing.service.gov.uk/media/6594718a579941000d35a7bf/
carbon-capture-usage-and-storage-vision-to-establish-a-competitive-market.pdf

42 Appendix One Carbon Capture, Usage and Storage programmeAppendix One

Our audit approach
Scope
1
We examined the government’s strategy for Carbon Capture, Usage andStorage (CCUS) and how far it has progressed its CCUS programme to date.
This report covers:•

the role CCUS plays in government plans to decarbonise the UK by 2050;•

how the government has learnt lessons from previous failed attempts;•

the progress that the government has made in launching CCUS in the UK; and•the risks that government will need to address to ensure that the CCUS
programme meets its targets.

2
We have previously written two reports on the government’s attempts tolaunch CCUS in the UK. Although we make references to these reports, we did notconduct a full comparative analysis of each of government’s CCUS programmes.
3
We prepared and published this report while the Department for Energy
Security & Net Zero (DESNZ) was conducting commercial negotiations with theeight carbon capture projects and two transport and storage companies thatmake up Track-1 of the CCUS programme. We therefore have not included any
information that could be considered commercially sensitive or could negatively
affect these negotiations.

Methods
4
In examining these issues, we drew on a range of evidence which weanalysed between April 2023 and May 2024.

Carbon Capture, Usage and Storage programme Appendix One 43

Document review
5

We reviewed DESNZ documents on CCUS. These included:•

documents focusing on the planning of the CCUS programme;•

strategy documents including DESNZ’s vision for the future of the
CCUS market;•

financial and funding documents;•

risk registers and DESNZ’s strategy for identifying and mitigating short andlong-term risks;•business models on the different types of emitter projects and the transportand storage companies;•business cases, focusing both on parts of the programme and the programme
as a whole;•ministerial submissions; and•correspondence with HM Treasury.

6
In addition, we reviewed documents and data from the Climate Change
Committee. The focus of this was how CCUS fits in with the UK’s carbon budget
and net zero goals. Furthermore, we engaged with the Infrastructure and Projects
Authority on assessments of how the CCUS programme is progressing.

Interviews
7
We conducted a series of interviews with relevant government departments
and stakeholders. These include:•

DESNZ;•HM Treasury;•

Office of Gas and Electricity Markets (Ofgem);•

Climate Change Committee;•

National Infrastructure Commission;•

North Sea Transition Authority;•

UK Research & Innovation;•

UK Infrastructure Bank;•

Low Carbon Contracts Company; and•Carbon Capture and Storage Association.

Interviews were conducted through a mix of in-person meetings and conversations
via Microsoft Teams.

44 Appendix One Carbon Capture, Usage and Storage programme

8

We used these interviews to understand:•how DESNZ identified lessons from previous CCUS competitions and what
different approaches were considered for the new CCUS programme;•

the roles and responsibilities of DESNZ, Ofgem, LCCC and other bodies
in preparing for and administering the CCUS programme;•

the key risks to the programme and how DESNZ and other bodies are
mitigating them;•

how decisions on which clusters and projects to select to take forward
were made; and•how groups outside the government view the CCUS programme.

Teach-ins
9
We held a series of in-depth workshops with officials from DESNZ on a wide
range of issues relating to the CCUS programme. These teach-ins focused onproviding greater insight and information on specific areas of the CCUS programme.
Teach-ins were conducted through a mix of in-person meetings and conversations
via Microsoft Teams.

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