Carbon Capture at the Heart of the UK’s Modern Industrial Strategy

Consultation: Invest 2035: the UK’s Modern Industrial Strategy

Department: Department for Business and Trade (DBT)

Consultation Period: October – November 2024

Region: UK

Context

Late last year, the CCSA submitted a response to the DBT consultation: ‘Invest 2035: the UK’s Modern Industrial Strategy’. The UK Government’s proposed 10-year Industrial Strategy aims to provide stability for businesses to drive long-term economic growth, with a focus on innovation, entrepreneurship and taking advantage of the UK’s strengths in existing and emerging sectors.

Why does it Matter?

The UK needs an updated Industrial Strategy to support high-growth sectors critical to the Government’s growth mission. Many of these industries—particularly the foundation sectors—will depend on technologies such as Carbon Capture, Utilisation and Storage (CCUS) and hydrogen to realise their full potential and achieve decarbonisation. Embracing these innovations can help secure jobs, prevent deindustrialisation and position the UK as an attractive destination for new investment.

CCSA Position

• Clean Growth and Decarbonisation Opportunities – low-carbon technologies have the potential to decarbonise UK industries while developing energy security, creating high-quality jobs, attracting investment and exporting low-carbon expertise around the globe. Decarbonising industries in the UK is essential to removing them as a roadblock to reaching the nation’s net zero target by 2050. A major force behind this shift to net zero is the growth of CCUS clusters and Carbon Dioxide (CO₂) Transport and Storage (T&S) networks which can operate on regional, national and even international scales.

Key sectors essential to achieving decarbonisation and driving economic growth include cement and lime, refining and fuels, chemicals, iron and steel, and Energy from Waste (EfW), as well as emerging low-carbon product markets. In the UK, foundation industries—such as metals, ceramics, glass, chemicals, paper and cement—account for 50 million tonnes of CO₂ emissions annually, representing 10% of the UK’s total emissions from homes and businesses.

A successful modern Industrial Strategy needs to address how these industries will decarbonise to meet net zero and climate goals. Support will be crucial for both established industries and new sectors to cut emissions while unlocking their growth potential.

• Positioning the UK as a Global Leader – the UK benefits from its unique geological storage capacity, which equates to almost one third of all of Europe’s storage potential. This competitive advantage alongside growing CCUS networks – including allowing cross-border CO₂ transport – could bring significant economic benefits. Providing storage services to other European countries could generate UK tax receipts while also lowering CO₂ storage costs for UK emitters by achieving economies of scale.

To unlock this potential, key challenges need to be tackled. These include:

• Enabling non-pipeline CO₂ transport within the UK to offer flexible CO₂ transport for cluster projects and international CO₂
• Linkage of the UK and EU Emissions Trading Schemes (ETS) to create a level playing field for UK businesses that are competing in international markets. It was recently announced that the UK Government and the EU plan to work together towards linking the two ETS schemes, and the CCSA would welcome further updates on what this approach entails, along with indicative timescales.
• Recognising permanent CO₂ storage across borders and allowing cross-border CO₂ transfers are vital for maximising the benefits of CCUS and driving UK industrial and economic growth.

• Establishing an Economic Framework for Industrial Decarbonisation – an effective economic and market framework is crucial for driving industrial decarbonisation. A key priority is setting a stable and reliable UK ETS carbon price to encourage investment in CCUS, negative emission technologies, and other decarbonisation efforts. Linkage between the UK and EU ETS will be key to ensuring a stable carbon price across international markets.

Alongside a stable, predictable carbon price, applying a robust Carbon Border Adjustment Mechanism (CBAM) will guarantee that importers will face equivalent carbon costs to UK manufacturers. This will protect export competitiveness and create a level playing field which minimises the risk of carbon leakage. Both UK and EU CBAMs must also factor in CO₂ imports and exports to meet decarbonisation targets effectively.

The low-carbon product market, in particular, could see huge benefits from a strong economic framework. A reliable UK ETS and a strong CBAM – alongside the introduction of mandatory product standards, and the use of public procurement – could work together to boost growth in this market.

• Supporting Markets for Low-Carbon Products – the UK has the potential to take the lead in developing markets for low-carbon products like green cement, low-carbon steel, and other sustainable materials. Government support is key to unlocking this potential, especially through funding CO₂ utilisation projects, public procurement strategies and incentives for low-carbon products. These steps will help the UK tap into emerging markets while supporting its shift to a cleaner economy.

• The Importance of Government Clarity – to create a nationwide Industrial Strategy that drives economic growth and meets decarbonisation targets, the Government must provide clear, deliverable, and long-lasting policies. Predictable policies build investor confidence and help businesses make long-term investment decisions. The importance of this is even greater for first-of-a-kind (FOAK), capital-intensive, and infrastructure-heavy projects like CCUS.

The Government must also address delays in permitting and planning processes, which often delay project development. Given the nascent nature of the CCUS sector, the complexities involved in many of the proposed projects in terms of regulatory approval, and the FOAK nature of the projects, approvals of this nature have not been done before and the regulators will likely experience unforeseen difficulties in accurately assessing CCUS project applications.

Additionally, offering clear commitments on future allocation rounds and funding will provide the predictability needed to drive investment and innovation in these key industrial sectors. Assurances made by the Government improve investor confidence, which provides the certainty needed for the long-term planning of CCUS projects.

• Regional and Localised Industrial Strategies – a regional, place-based approach is important to harness the unique strengths and growth opportunities of different areas across the UK. The Industrial Strategy should take a regional approach, focusing on high-growth areas like industrial clusters while also helping dispersed sites to decarbonise.

A key priority for this approach is helping supply chains decarbonise industrial sectors – which can be achieved by addressing funding gaps, both nationally and regionally, for skills development and implementing target policies to align regional supply and demand. By building a well-prepared workforce and strong supply chains, the UK can accelerate its industrial transition while strengthening economic resilience at both local and national levels. However, a skills challenge persists within the CCUS sector, which includes a lack of workforce mobility, skills bottlenecks and barriers to new entrants joining the workforce. These issues need to be tackled collaboratively by both Government and industry.

Moving Forward and Next Steps

The UK’s Modern Industrial Strategy must drive growth and decarbonisation by supporting foundation industries, advancing CCUS, ensuring energy security and fostering investment and innovation for a low-carbon future.

The CCSA emphasises that CCUS must be a central component of any industrial strategy, particularly those focused on industrial decarbonisation. But a well-rounded Industrial Strategy needs to be supported by additional measures – for instance, advancing Track-2, Track-1 Expansion and other projects that can deploy along similar timeframes, and a Government commitment to deploying wider enabling market frameworks. This will accelerate the rollout of decarbonisation technologies.