By Georgia Gratton and Victoria Hatherick

March 14, 2024 - The UK must overhaul its carbon market, delivering a strong and long-term price signal to achieve the government's goal of a "self-sustaining and competitive" carbon capture, use and storage (CCUS) sector, think tank Carbon Tracker said today.

Carbon Tracker assessed the role that CCUS could play in the UK's transition to its legally binding target of net zero emissions by 2050.

"The UK must fix its carbon market to create a long-term price signal above £100/t [of CO2] ($128) that can provide the right incentive to the market", the report found. "Potential measures could be setting a rising price floor or considering linking the UK ETS [emissions trading system] with the EU scheme", Carbon Tracker said.

The UK ETS price, which closed at £36.60/t CO2 equivalent on 12 March, has held at a discount to the EU carbon market for over a year on a backdrop of uncertainty surrounding policy direction. The government's response to its consultation on revising the scheme in July last year came more than a year after the consultation closed, while in September prime minister Rishi Sunak announced a set of policy changes which appeared to run contrary to net zero implementation, contrasting with the agreement of large-scale reforms to the EU carbon market in April.

The "carbon price range needed to bring CCUS to market without subsidy support is more than £80/t of CO2; most applications could compete at a price of around £100/t", it added. Gas with carbon capture and storage (CCS) would require prices of "at least £120/t of CO2", while bioenergy with CCS (Beccs) would need negative emissions priced "above £80/t" of CO2, it added.

The transport and storage of CO2 in the UK — for pipeline transport — could be between £20-30/t of CO2, Carbon Tracker said. But it warned on "very long lead times for development" of around 10 years for CO2 storage sites.

The UK should focus its CCUS efforts on the cement sector, which is high-emitting and has "no other alternative to decarbonise", the report found. It calculated that CCS "could add between £33 to £52 per tonne of cement produced". But the UK should avoid CCUS for the steel industry and focus instead on using hydrogen in production.

There is a "medium to low risk for CCUS in the hydrogen sector", with technology relatively mature, the report found. But gas with CCS has "a very high stranded asset risk" owing to "strong competition from other low-carbon flexible assets", it added. Beccs has a high stranded asset risk too — though it is "currently the only credible option" for the UK government to reach its target of 5mn t/yr of engineered GHG removals, Carbon Tracker found.

The UK government aims to capture and store 20mn-30mn t/yr of CO2 by 2030 and up to 50mn t/yr by 2035. It has set aside £20bn for CCUS and targets two CCS clusters for mid-2020s start, with a further two by 2030.