United Kingdom

UK government policies on industrial decarbonisation

Net zero target Key climate policies Carbon pricing Hydrogen strategy Other policies Funding

Net zero target

UK Policy image

Further information: Net Zero Strategy: Build Back Greener;
Industrial Decarbonisation Strategy; Integrated National Energy and Climate Plan; CCUS Vision

Key climate policies

Energy Act (2023)

Energy Act 2023 will accelerate the growth of low-carbon technologies including carbon capture usage and storage (CCUS) and hydrogen. This is accomplished by business models which will attract private investment by providing long-term revenue certainty.

Additionally, the measures on CO₂ transport and storage (T&S) put the country on a path to seize market share and grow the economy.

The Bill features:

Financial assistance: Providing the Secretary of State with UK-wide powers to incur expenditure and provide long-term financial assistance to support the establishment of CCUS and low carbon H₂production.
Counterparty: The contractual nature of the ICC and hydrogen business models require a counterparty to manage the contracts and act as a conduit for funding. The Bill provides the Secretary of State with powers to designate and direct a counterparty.
Competitive Allocation: Initial projects are expected to be allocated support through a bilateral process. In the medium term, the business models are expected to move to a more competitive allocation process, similar to the low carbon contracts for difference, to reduce costs to the government and the consumer.
Hydrogen Production Levy: It is expected that from 2025 at the latest, all revenue support for low-carbon hydrogen production will be levy funded, subject to consultation and legislation in place.
CO₂ Transport and Storage (T&S) licensing framework: The Bill establishes an economic regulation model for CO₂ T&S, with statutory objectives and legal powers for Ofgem as the economic regulator of CO₂ T&S.

Further information: Energy Act 2023

Powering Up Britain

Powering Up Britain is the UK’s current energy and climate strategy, which collectively set outs how the UK’s net zero targets and energy security and affordability goals will be met. The plan puts industrial decarbonisation, particularly through deployment of CCS, at its centre, and includes commitments to:

Provide £20bn over 20 years for immediate deployment of selected CCS projects in the Track 1 clusters
Support the development of two additional carbon storage clusters by 2030, taking the total to 4
Develop policies to support non-pipeline transport of CO2
Extend the duration of the UK ETS scheme, and expand the sectors covered
Consult on policy options to mitigate the risk of carbon leakage

Further information: Powering up Britain

The CCUS Vision

The CCUS Vision, published in December 2023, detailed the UK’s strategy for growing its CCUS sector up to 2050. It proposes a three phase programme of Market Creation up to 2030, Market Transition to a commercial and competitive market from 2030 to 2035, and the existence of a self-sustaining CCUS market from 2035 onwards. It also announced a number of specific policy actions they will take to this end, detailed separately on this page.

Further information: CCUS Vision

Carbon pricing

UK Emissions Trading Scheme (UK ETS)

The UK ETS opened for trading in May 2021, replacing the country’s participation in the EU ETS on 1 January 2021.

The UK ETS cap is expected to align with the UK’s net zero targets from 2024. The total cap for Phase 1 (2021 – 2030) is proposed to be reduced by 30-35% from current levels. Currently, the UK ETS covers: energy-intensive industries, the power generation sector and aviation. The ETS will be expanded to cover domestic maritime from 2026, and the waste sector from 2028.

The price trajectory of allowances is expected to continue and even accelerate as the total number reduces to align the scheme with the UK’s net zero target, in addition to fewer free allowances. It is likely that this will increase the cost base for businesses either through a direct effect where companies are required to purchase allowances at a higher carbon price, or an indirect effect as the higher price is passed along the value chain. As a result, businesses will have to undertake emissions reduction measures.

Further information: UK ETS and UK Gov.

Hydrogen strategy

Hydrogen production capacity by 2030

of potential hydrogen projects in pipeline by 2037

To meet these ambitions, the UK has committed to supporting both electrolytic and CCUS-enabled hydrogen production.

By mid-2020s, we could start seeing larger (100MW) electrolytic hydrogen projects and the first CCUS-enabled hydrogen production facilities based in industrial clusters. By the end of the decade, there could be multiple large CCUS-enabled (500MW+) production facilities across the UK.

Currently, over a dozen large-scale hydrogen projects are ongoing or pending (e.g. Acorn, Gigastack, H21).

By setting up a hydrogen certification scheme by 2025, a new Low Carbon Hydrogen Standard is being established. This will support the UK in playing an active role in the international hydrogen market.

Further information: Hydrogen Investor Roadmap; UK Hydrogen Strategy

million

The Net Zero Hydrogen Fund (NZHF) Learn More

The Net Zero Hydrogen Fund (NZHF)

The Net Zero Hydrogen Fund (NZHF) which is worth up to £240 million, will fund the development and deployment of new low-carbon hydrogen production to de-risk investment and reduce lifetime costs. NZHF’s grant allocation is split into the following 4 strands:

Strand 1: Development expenditure (DEVEX) for front-end engineering design (FEED) and post-FEED activities, aims to build the pipeline of hydrogen production projects to measurably move these closer to deployment. The application window for strand 1 has now closed.
Strand 2: Capital expenditure (CAPEX) support for hydrogen production projects that do not require revenue support through the Hydrogen Business Model (HBM). Applicants for Strand 2 must demonstrate how they will develop a credible project that will contribute to the at-scale production of low-carbon hydrogen by 2025. Strand 2 closes on 13 July 2022.
Strand 3: CAPEX for non-CCUS enabled projects which require revenue support through the hydrogen business model.
Strand 4: CAPEX for CCUS-enabled projects which require revenue support through the hydrogen business model. Strand 4 NZHF’s Expression of Interest process will launch following the announcement of the Phase-2 shortlisted projects, followed by a Strand 4 application process in early 2023.

Other policies

Carbon Border Adjustment Mechanism

The UK Government has announced its intention to consult on a Carbon Border Adjustment Mechanism. Under this policy imported goods in key sectors would be liable for charges depending on the greenhouse gas emissions intensity of the imported good and the gap between the carbon price applied in the country of origin and the carbon price that would have been applied had the good been produced in the UK. It is intended to apply from 2027, and will be consulted on in 2024.

Carbon Contracts for Difference

Contracts for difference for captured CO2, effectively guaranteeing a minimum price, will be set via competitive allocation rounds, starting in 2027. A consultation is due this year.

Non-Pipeline Transport

The UK Government will publish a call for evidence this year on how they envisage delivering non-pipeline CO2 transport in the UK.

Funding

Funding opportunities

billion

Spring Budget 2023 Learn More

Spring Budget 2023

In the 2023 Spring Budget the UK Government allocated £20bn over the next 20 years to support the development of carbon capture and storage, specifically support the HyNet, Acorn, East Coast Cluster and Viking storage projects and emitter projects connecting to these.

Further information: Spring Budget 2023