Carbon Capture and Storage Projects Face Funding Cuts in the UK

Proposed changes:

In October, the government announced funding of £21.7bn over a 25-year period for Carbon Capture and Storage (CCS) projects, financed through a combination of levies on energy bills and Treasury funds, alongside an additional £8bn from the private sector. Initially, this funding will only benefit two proposed projects located in Teesside and Merseyside, while projects in the Humber and Scotland remain in the queue.

Although there had been expectations for further investment in the June spending review, recent economic pressures and a shift in government sentiment in favour of technology over green investment strategies now make additional funding unlikely.

What is Carbon Capture and Storage (CCS)?

Carbon Capture and Storage (CCS) is a technology designed to reduce CO₂ emissions by capturing carbon from industrial processes and power stations, transporting it, and storing it underground in geological formations, such as depleted oil and gas reservoirs. CCS is essential in addressing climate change by enabling hard-to-decarbonise industries reliant on fossil fuels, such as cement and steel production, to significantly reduce emissions.

Why the change in direction?MPs on the House of Commons Public Accounts Committee have highlighted the government's backing of CCS as a high-risk strategy, noting significant uncertainties regarding the technology's commercial and practical viability at scale. The cost implications for consumers, particularly concerning electricity bills, have been highlighted as a significant concern during a period of rising living costs and economic uncertainty.

Rachel Reeves previously identified green energy investments as key to boosting economic growth outside of the South East, stressing CCS’s potential role in securing energy independence and meeting climate objectives. However, the recent scaling back of government commitment to CCS suggests a strategic pivot, raising critical questions about alternative pathways to achieving climate and economic targets.

What is the impact?

From an environmental standpoint, the limitation of CCS funding represents a potential setback for industries struggling with decarbonisation. The reduced investment could threaten the UK's ability to meet ambitious climate pledges or force industries to adopt more expensive and less proven alternative technologies.

Politically, these funding cuts indicate an ongoing challenge in balancing fiscal prudence against ambitious electoral promises regarding green energy transition. It signals a cautious approach amid heightened economic pressures and public sensitivity regarding household costs.

From a commercial perspective, this could shift responsibility towards the private sector, creating opportunities for businesses and investors interested in early-stage CCS development. However, attracting substantial private-sector investment in an environment of reduced government backing will likely require clear policy frameworks, strategic incentives, and robust financial assurances from policymakers.

To maximise the commercial opportunities, businesses will need greater clarity from government on long-term policy commitments and regulatory environments to ensure investments remain attractive, viable, and strategically sound.