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Winter 2023: The Future of the Energy Grid

Carbon Capture and Storage and ESG in the United Kingdom

Prem Thakor and Felicity Wooley


  • Addresses the United Kingdom’s net-zero strategy and how carbon capture and storage is a key component in the fight against climate change.
  • Defines carbon capture and storage as the process where carbon dioxide is captured, transported, and then stored.
  • Discusses the challenges and worries associated with CCS.
Carbon Capture and Storage and ESG in the United Kingdom
anucha sirivisansuwan via Getty Images

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In October 2021, the United Kingdom (UK) government unveiled a landmark Net Zero Strategy that, in its words, set out “how the UK will secure 440,000 well-paid jobs and unlock £90 billion in investment in 2030 on its path to ending its contribution to climate change by 2050.” Although the overall Net Zero Strategy will undoubtedly change due to recent legal proceedings and changes in political priorities, carbon capture and storage (CCS) is likely to remain a core element of the program.

While CCS is not a new technology, there are relatively few large-scale commercial projects operating around the globe. However, this is likely to change in the coming decades with ever-growing attention making it increasingly likely that CCS will be seen as a key component in the fight against climate change.

What is CCS? In short, CCS involves a three-step process where carbon dioxide is captured, transported, and then stored. At present, UK plans appear to focus on capturing carbon dioxide from power stations (produced when fossil fuels are burned) and industrial facilities, such as iron, steel, and cement works.

In practice, carbon dioxide will be separated from other gases before being transported via pipelines, road, and/or ships to a site for storage. The gas will then be injected into deep geological formations, such as depleted oil and gas reservoirs, coalbeds, or saline aquifers, for storage.

CCS offers an exciting opportunity for the UK, which is best demonstrated by the ongoing HyNet project. HyNet is described as the UK’s leading industrial decarbonization project, which aims to lock away carbon dioxide emitted by heavy industry and provide low carbon hydrogen to power industry, transport, and heat homes and businesses.

The UK legislative regime for CCS

Businesses wishing to engage in the new technology will need to grapple with a complex, and as yet incomplete, myriad of legislation and guidance. This framework is likely to span many different sectors and will almost certainly require specialist advice from regulatory, planning, energy, and transport experts. While it is impossible to outline fully the entire UK regulatory regime in this article, the following legislation covers the principal licensing aspects applicable to CCS.

First is the Energy Act 2008 (EA 2008). Part 1, chapter 3 of the EA 2008 provides for a licensing regime governing the storage of carbon dioxide. The EA 2008 imposes strict rules concerning the activities that must be undertaken with a license. It also summarizes the relevant licensing authorities governing this area. The EA 2008 is supported by various regulations, including the Storage of Carbon Dioxide (Licensing etc.) Regulations 2010 and the Storage of Carbon Dioxide (Access to Infrastructure) Regulations 2011. These regulations contain provisions regulating many issues including consent conditions, applications for licenses and storage permits, and post-closure plans and obligations.

Next is the Environmental Permitting (England and Wales) Regulations 2016 (EPR 2016). The EPR 2016 provides for an environmental permitting and compliance regime that applies to various activities and industries. Specifically, the capture of carbon dioxide from an installation for the purposes of geological storage is considered a “regulated activity” and, therefore, requires the operator to obtain and hold an environmental permit.

Finally, there is the Greenhouse Gas Emissions Trading Scheme Order 2020, which establishes the UK Emissions Trading Scheme (ETS). This replaced the UK’s participation in the European Union (EU) ETS scheme on January 1, 2021. The scheme requires persons who carry out a “Regulated Activity” to hold a greenhouse gas emissions permit that authorizes the activity to be carried out.

In addition, we note that the Energy Bill 2022 was introduced in July 2022. Although not finalized legislation as of the writing of this article, the Energy Bill aims to consolidate and develop existing legislation.

Each piece of legislation above addresses different elements of CCS. While the EA 2008 and the EPR 2016 focus on the permitting and consent aspects of the technology, ETS is more concerned with wider environmental considerations. It is also important to note that there is an extensive planning regime, principally under the Planning Act 2008 (PA 2008), that must be factored in alongside regulatory considerations. The PA 2008 sets out how nationally significant infrastructure projects should be consented and establishes the development consent order to authorize them.

Environmental, social, and governance (ESG)

The development of viable CCS projects will require significant investment in the infrastructure needed to capture emissions, separate the carbon dioxide from other gases, and transport and store the carbon dioxide. Directing investment into a CCS scheme is a credible option for many investors looking to put money into an environmentally positive, sustainable, and socially responsible scheme and avoid the negative publicity associated with investing in potentially lucrative, but unethical, schemes.

There is increasing pressure for investment firms as well as other companies to publish their ESG values, targets, and results as part of their annual reports. By way of example, section 414C of the Companies Act 2006 requires that where appropriate, strategic reports prepared on companies should also analyze nonfinancial performance indicators, such as information relating to environmental matters. Similarly, the proposal by the EU to adopt the Corporate Sustainability Reporting Directive (which will require companies to disclose information about the impact of their activities on the environment) and the Sustainable Finance Disclosure Regulation (which aims to improve transparency and prevent greenwashing) demonstrates the ongoing trends towards environmental transparency. Consequently, many companies are continuing to choose schemes that align with their ESG standards and values.

It is notable, however, that cost is a barrier for some who might wish to invest in CCS. Indeed, more generally, ESG friendly investments are often traded at premium prices that not all can afford.

The volatile market

While CCS is likely to have an essential role to play in energy transition and global net zero ambitions, a major drawback is that the main starter component, carbon dioxide, is typically obtained by the burning of fossil fuels. As mentioned above, much of the current UK plan for CCS focuses on capturing carbon emissions that otherwise would be released from fossil-fuel-burning power stations. Even though the CCS process enables a “cleaner” use of fossil fuels, as the process cuts and prevents approximately 85% to 90% of harmful carbon emissions from those facilities from entering the atmosphere, the continued use of fossil fuels makes the process vulnerable to the volatile oil market.

The current unstable crude oil market caused by unforeseen and external events (such as the COVID-19 pandemic and the war in Ukraine) can result in daily price swings and market instability. Consequently, while CCS provides a more environmentally friendly means of burning fossil fuels, CCS will remain susceptible to supply and demand shocks, as well as the unpredictable energy market and global economy.

Additionally, in recent years investment into new oil and gas production has declined with the world economy steering clear of fossil fuel development, and the World Bank no longer financing fossil fuel exploration. However, a benefit of continuing to use fossil fuels through CCS is that there are reserves available and that it can also be utilized in depleted oil reservoirs for enhanced oil recovery. With this in mind, it is therefore not surprising that Qatar, Saudi Arabia, and the UAE, all of which have large fossil fuel resources, have conducted and invested a significant sum into researching enhanced oil recovery.

With fossil fuel use still an option under CCS, some worry that CCS could potentially result in fossil fuels not being phased out and instead be used to delay carbon reduction, rather than being viewed as an adjunct to decarbonization. It remains to be seen how viable CCS technology will be in the future.