UK CCUS deployment costs double, while demand case shrinks: Carbon Tracker

The UK's carbon capture, use and storage strategy is outdated and based on "unrealistic" economic assumptions, with deployment costs more than doubling since 2020 while demand could be smaller than thought, think tank Carbon Tracker said in a report published March 13.

The UK government's December 2023 CCUS strategy aims to capture 20 million to 30 million mt/year of CO2, supported by GBP20 billion ($26 billion) in public funding.

"This strategy risks locking consumers into a high-cost, fossil-based future, despite cleaner and cheaper alternatives being available," Carbon Tracker said in a statement to accompany the report launch.

The strategy was based on recommendations from the UK's Climate Change Committee published in the sixth carbon budget in December 2020, Carbon Tracker said.

"Since then, cost estimates for deploying CCUS have more than doubled, while the need for carbon capture could be much smaller," the think tank said.

Global CCUS capex costs have increased by 23%-31% in the last three years, S&P Global Commodity Insights senior analyst, clean energy technology, Yufei Li said.

"The recent surge in the cost of equipment and materials due to inflation pose challenges for CCUS projects under development," Li said. "Additionally, regulatory issues around CO2 transportation are emerging as a more pressing concern, leading to project suspension."

Equipment and materials costs are expected to increase further out to 2030, largely due to inflation, Li said.

Uncertain demand outlook

Carbon Tracker estimates the need for UK gas-fired power plants with CCUS would be just a third of previous estimates, because of the growth in renewable power generation, battery storage and flexible technologies.

"The UK is targeting applications where CCUS could lock consumers into a high-cost and fossil-based future, despite the existence of cleaner and cheaper alternatives," Carbon Tracker said.

In steel, Carbon Tracker said plans to use CCUS should be abandoned, as producers are already moving to invest in electric arc furnaces to replace blast furnaces.

"While the government is playing an important role in de-risking new projects it urgently needs to revisit its targets and focus its resources on high-value applications such as cement and hydrogen," Carbon Tracker associate analyst and report author Lorenzo Sani said.

"Carbon capture has a significant role to play in helping the UK achieve energy security and independence, with the Committee on Climate Change describing the technology as a necessity, not an option, for meeting our net-zero targets," a Department for Energy Security and Net Zero spokesperson said in an email to S&P Global Commodity Insights.

"This is vital to transforming sectors such as steel, cement and chemicals," the spokesperson said.

The UK's North Sea Transition Authority awarded 21 CO2 storage licenses under its first round in 2023, with capacity of up to 30 million mt/year by 2030.

BECCS challenges

Carbon Tracker also criticized the UK government's bioenergy with carbon capture and storage (BECCS) plans, warning of "technical challenges, stranded assets and cost premiums."

It said the UK's BECCS strategy was "heavily exposed" to a single project -- Drax's 2.6-GW Selby site in north Yorkshire -- warning the technology was unproven at scale.

The Drax contract could cost the UK taxpayer GBP26 billion to GBP43 billion over 15-25 years, with power prices up to three times more expensive than offshore wind, Carbon Tracker said.

Drax declined to comment on the report, but said "BECCS is the only technology that can deliver reliable, secure, and renewable power while permanently removing carbon dioxide from the atmosphere."

BECCS at Drax Power Station could save the UK up to GBP15 billion between 2030 and 2050, compared with other more complex carbon reduction measures, a company spokesperson said in an email.

Platts, part of S&P Global Commodity Insights, last assessed UK offshore wind capture prices at GBP66.75/MWh ($85.32/MWh) on March 4.

Drax has held formal talks with the government on a bridging support mechanism between the end of its current Renewables Obligation contract in 2027 and the start of a BECCS contract at the Selby site, it said in December.

Carbon market woes

The Carbon Tracker report also highlighted a need to make changes to the UK carbon market, saying most CCUS projects need a carbon price of at least GBP100/mtCO2 to compete with unbated technologies.

UK Emissions Trading Scheme nearest December prices slumped to a record low of GBP31.42/mt at the end of January, before recovering slightly to GBP36.60/mt (Eur42.84/mt, $46.84/mt) on March 12, according to Platts assessments.

Prices are well below the peak of almost GBP100/mt in August 2022, and have diverged significantly from the EU ETS since the UK left the EU's mechanism.

Platts assessed EU ETS nearest December carbon prices at Eur56.13/mt March 11.

"Fixing the UK's carbon market -- either by establishing a rising price floor or, preferably, linking it back to the EU scheme -- is the single most important action needed to deliver the government's vision of a self-sustaining and competitive CCUS sector," Sani said.