Engineered greenhouse gas removal projects are needed if the world is to keep within the Paris Agreement global warming goals. But technologies like Direct Air Carbon Capture and Storage (DACCS) and Bioenergy with Carbon Capture and Storage (BECCS) are at a nascent stage. To overcome barriers to investment, the UK Government plans to develop a GGR Business Model based on a 'contract for difference' (CFD) structure to stabilise negative emissions prices. The model will use the UK Emissions Trading Scheme (UK ETS) and other carbon markets. Rigorous monitoring, reporting, and verification (MRV) standards will be established to measure negative emissions accurately. GGR projects can apply for support through the carbon capture, usage, and storage (CCUS) sequencing process. Further details on the business model and related criteria will be confirmed later this year.
UK government support for greenhouse gas removal technologies announced
The UK needs to meet a legally-binding target of 'net zero' emissions by 2050. The term 'net zero' acknowledges that it is not possible to prevent all emissions. Some will still be produced, so greenhouse gas removals (GGR) are needed. The Intergovernmental Panel on Climate Change (IPCC) described GGRs as "unavoidable" in limiting global warming to no more than 1.5˚C.
GGRs can be nature-based methods such as planting forests, restoring habitats and sequestering soil. But these need a lot of land and take time to remove carbon from the atmosphere. So we also need engineered GGR technologies such as Direct Air Carbon Capture and Storage (DACCS) and Bioenergy with Carbon Capture and Storage (BECCS). Engineered GGRs are currently less than 0.1% of all worldwide GGR activity but need to scale up rapidly to meet the Paris Agreement temperature goal.
There are barriers to investment in GGR technologies that need to be overcome to achieve large-scale commercial deployment. These barriers include high capital requirements and revenue uncertainty due to the lack of a reliable market for negative emissions. The UK Government aims to overcome these challenges by providing policy support to encourage private investment in GGR technology portfolios. It consulted last year on the design of a business model to reduce exposure to market uncertainty and provide investors with greater confidence regarding return on investment.
On 26 June 2023, the Department for Energy Security and Net Zero (DESNZ) published the Government's response to the consultation on business models for greenhouse gas removals. It confirmed:
- a GGR Business Model will be developed;
- the business model will be based on a 'contract for difference' (CFD) structure to provide a stable price for negative emissions;
- the business model will be designed to harness the benefits of the UK Emissions Trading Scheme (UK ETS) and other carbon markets; and
- the criteria that will be used to define 'negative emission' and principles guiding the approach to monitoring, reporting, and verification (MRV) and GGR technologies.
A negative emissions CFD will be introduced as the preferred business model. DESNZ is currently considering how a reference price for negative emissions will be set. It could potentially be based on the sales price of voluntary carbon markets (VCMs), or the carbon price in the UK ETS if projects are permitted to sell negative emissions credits in that market during the contract term. Other features of the negative emissions CFD to be confirmed later this year include contract length, treatment of carbon dioxide transport and fees, demand-side volume risk, and strike price indexation.
In terms of the negative emissions market, the Government confirmed in its recent response to the consultation on developing the UK ETS published on 3 July 2023 that it will consider options for incorporating GGR technologies in the UK ETS. See our Insight, Developing the UK ETS – potential market for greenhouse gas removals? for background to this consultation. DESNZ also aims to design the GGR business model in a way that maximises potential benefits of the VCMs.
Respondents to the consultation consistently stressed the need for credible, government-approved monitoring, reporting and verification (MRV) standards. The response confirmed that for any GGR technology to deliver negative emissions, it must remove more GHGs from the atmosphere than are generated from the carbon removal process. The business model will be underpinned by rigorous, government-approved MRV standards and guidance on storage permanence. Those standards have yet to be developed, but the Government has developed a set of principles to guide decision making and commissioned consultants to carry out an independent review of MRV standards currently in use across the GGR sector and report back by Autumn 2023.
It will be through the carbon capture, usage, and storage (CCUS) sequencing process (see our Insight CCUS Cluster Sequencing). Engineered GGR will be able to apply for track 1 expansion and track 2 of the CCUS programme. The overall policy framework will be designed to support a mix of GGR technologies to achieve commercialisation. Further details on the technology scope, allocation and eligibility criteria that will apply to CCUS clusters will be confirmed later in the year.
A taxonomy of alternative carbon dioxide storage options that do not require connection to the CCUS clusters has also been developed by DESNZ as a basis for further policy development. DESNZ will decide at a later date whether to include this in the GGR business model.
Any GGR projects that may wish to apply for revenue support through the GGR Business Model are invited to respond to a Request for Information by 1 August 2023. This is voluntary and is not an application for business model support, it is just to give DESNZ an idea of the range and scope of the projects that are interested. Information on the allocation process and eligibility criteria for the GGR Business Model will be published in due course.
According to the consultation, further details on the business model, negative emissions market and negative emissions criteria, technology scope, allocation and eligibility, and MRV will be confirmed later this year.
Due to increased action by governments and further investment in cutting-edge GGR technologies, the small global GGR sector is growing rapidly. This presents major economic opportunities for the UK and businesses alike to capitalise on the potential benefits of this emerging market through export opportunities, green jobs, and investment in GGR technologies and portfolios. Understanding the implications of this new and developing policy will be key to taking advantage of the potential business and investment opportunities.
A negative emissions CFD will be introduced as the preferred business model. DESNZ is currently considering how a reference price for negative emissions will be set.
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