Navigating Change: The Energy Act 2023’s Framework for Carbon Capture and Storage

The Energy Act 2023 (EA) introduces a new phase in the UK’s approach to carbon capture utilization and storage (CCUS).

This comprehensive legislation is aimed at advancing the country’s climate goals through a structured framework for CCUS technologies.

By focusing on regulatory standards, funding mechanisms, and business models, the Act sets the stage for significant innovation and investment in carbon management.

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Regulatory Framework for Carbon Capture

The Energy Act 2023 establishes clear guidelines for carbon capture and storage, including licensing requirements for CO2 transport and storage.

Operators must secure licenses for managing geological storage sites and transporting CO2, though certain exemptions may apply, subject to future regulations.

These licensing systems are modeled on those used in critical infrastructure sectors like gas, electricity, and water, ensuring efficiency and safety.

“The framework provides a stable environment for private investment by reducing barriers to entry for new players,” says Andreas Gunst, a key contributor to this analysis.

The Office of Gas and Electricity Markets (Ofgem) has been designated as the economic regulator for these activities.

Ofgem will oversee pricing and cost-efficiency, ensuring operators maintain fair practices while managing CO2 transport and storage networks.

The legislation also addresses the decommissioning of infrastructure, reinforcing sustainability in the long term.

Funding Mechanisms

The Act includes several mechanisms to promote CCUS deployment by reducing financial barriers:

Contracts for Difference (CfDs)

CfDs offer fixed prices for carbon capture services, creating revenue stability for investors.

These contracts, typically lasting 10–15 years, align market prices with the costs of carbon capture, boosting confidence in financing these projects.

Government Grants and Subsidies

Grants support research, pilot programs, and large-scale deployment of innovative carbon technologies. These funds foster public-private partnerships to drive progress in the CCUS sector.

Tax Incentives

The Act introduces tax reliefs for businesses investing in carbon capture, lowering costs and broadening accessibility.

Initially supported by public funding, the framework will shift to levy-based financing as projects mature.

Public consultations are planned to refine these levies, which will also support hydrogen production and transport initiatives.

The government has committed to backing four operational CCUS clusters by 2030, with the goal of capturing 20–30 million tons of CO2 annually.

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Cluster Development

The UK has taken significant steps toward CCUS cluster development.

Starting in 2020, the government pledged £1 billion to support four clusters, including HyNet and the East Coast Cluster, identified as Track-1 projects.

Track-1 Clusters

The government allocated £22 billion to three of the eight proposed Track-1 projects, covering CO2 transport and storage infrastructure.

These clusters are strategically positioned near facilities capable of liquefying CO2, optimizing transportation and offshore storage.

Track-2 Clusters

Under Track-2, additional clusters, like the Acorn CCS Project in Scotland and the Viking CCS Project in England, are being developed.

These projects aim to transport and store at least 10 million tons of CO2 per year by 2030.

“The government’s roadmap for CCUS expansion highlights the importance of early engagement and strategic positioning,” notes Valeriia Mikhailova, emphasizing the need for businesses to stay aligned with evolving regulations.

Greenhouse Gas Removal (GGR) Framework

The Department for Energy Security and Net Zero (DESNZ) is integrating GGR technologies, such as Direct Air Carbon Capture and Storage (DACCS) and Biomass Energy Carbon Capture and Storage (BECCS) into the UK’s carbon management strategy.

The GGR framework uses a “contract for difference” model to support large-scale deployment.

DESNZ is also exploring the inclusion of GGR technologies in the UK Emissions Trading Scheme, expanding market opportunities for innovative solutions.

This flexible, technology-neutral approach is designed to foster diversity in carbon removal technologies.

Business Models Supporting CCUS

The Energy Act 2023 outlines various business models to encourage investment in CCUS:

Public-Private Partnerships (PPPs)

These collaborations share resources and risks between government and private entities, reducing costs and improving project viability.

Service-Based Models

Businesses can offer carbon capture as a service, making it more accessible for smaller companies.

Integrative Approaches

Coupling CCUS with industrial processes enhances efficiency and reduces costs, aligning operations with sustainability goals.

Economic regulation ensures that transport and storage companies operate efficiently, charging users fairly while maintaining profitability.

This oversight is particularly important as CO2 transport networks evolve into regional monopolies.

The Path Ahead

While the Energy Act 2023 lays a solid foundation, many details remain to be clarified through secondary legislation.

Licensing exemptions, operational standards, and application processes will be fleshed out in the coming year.

By encouraging innovation and creating a stable regulatory environment, the Act positions the UK as a leader in carbon management.

As the framework matures, businesses and stakeholders will need to adapt to the evolving landscape, leveraging the opportunities it presents to align with the country’s ambitious climate targets.

For more details, visit Energy Act 2023.