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Governments in race to unlock potential of CCS

Policymakers must ensure key technology for reaching net-zero sustains momentum over the next decade

 In a world where low-carbon hydrogen is increasingly being seen as a solution to decarbonisation of not just the energy sector but other, harder to decarbonise sectors such as transport and industrial processes, the development of carbon capture and storage (CCS) facilities to enable production of hydrogen from natural gas will be critical.

While it is the case that some regions have expressed a preference, or indeed are putting financial incentives and regulatory requirements in place, to ensure that green hydrogen production is prioritised, the majority of industry insiders believe a ‘technology neutral’ approach to hydrogen is the only way to ramp up production sufficiently quickly and at the scale required to meet decarbonisation targets set for 2030 and beyond.

But beyond the blue hydrogen industry, CCS has the potential to play a vital role in decarbonisation in its own right—in managing emissions from heavy-polluting industries such as steel manufacturing, cement, chemicals and refineries, and through direct air capture and sequestration of carbon already in the atmosphere. Could it be that, finally, CCS projects are set to become mainstream?

Beyond the blue hydrogen industry, CCS has the potential to play a vital role in decarbonisation in its own right—in managing emissions from heavy-polluting industries such as steel manufacturing, cement, chemicals and refineries

This article compares the different approaches taken in some key jurisdictions and considers what steps must be taken in future to sustain momentum over the next decade and deliver the solutions that are required for net zero to be a realistic goal.


In the UK, CCS as an industry is still in its infancy after a number of false starts over the previous decade. The enormous capital costs involved meant businesses were reluctant to invest in CCS technologies without a clear indication from the government that there would be both regulatory and financial support.

The UK government first promised support for CCS in 2007, and in 2012 launched a commercialisation competition for CCS technology comprising up to £1bn in capital funding plus ongoing support in the form of guaranteed price contracts (known as contracts for difference, or CfDs). This supposedly ring-fenced £1bn budget was then cancelled in November 2015, just six months before it was due to be awarded, much to the dismay of environmental campaigners, investors and the oil and gas industry alike.

Fast-forward to 2020, and despite government statements that renewable energy is likely to be the UK’s primary source of electricity in the future, interest in CCS projects was revived when the government pledged to create an £800mn CCS Infrastructure Fund (CIF). In November of that year, the government spending review confirmed an allocation of £1bn to the fund.

In broad terms, the strategy of the current government to establish a new CCUS sector in the UK is focused around the creation of low-carbon industrial clusters within the UK. A cluster must involve a CO₂transport and storage (T&S) network and at least two carbon capture projects, and is likely to also include a blue hydrogen project.

The UK government plans to support four CCUS clusters by 2030, with a view to deliver at least two by the mid-2020s. Government figures estimate the storage potential within the UK continental shelf at around 78bn t of CO₂and, looking to the longer term, it is intended that a self-sufficient CCUS industry be established with a view to importing CO₂for storage, bringing economic benefit to the UK and contributing more widely to global decarbonisation aims.

Within these clusters, T&S networks will provide the foundations for, and enable the development of, a range of CCS projects. It is intended that the proximity of carbon storage facilities will be of benefit to industrial customers, and clusters will enable customers for blue hydrogen to be close to production, helping to deploy it rapidly and at scale. They might also help project developers mitigate offtake risk where supply contracts are short term or at risk of ending prematurely. This does raise the question of whether a focus on decarbonisation of key geographical areas discourages investment elsewhere. While it may do in the short term, this focus on clusters may enable CCS and hydrogen infrastructure to reach critical mass, which will then lead to its wider roll-out.

Details of the government support package for these clusters were published in May 2021, clarifying that the support available will be broken down into a number of different areas, with different packages and business models proposed for each of T&S networks, power, industrial carbon capture (ICC), bioenergy and hydrogen.

CCUS already plays an important and valuable role in the US economy

However, not all of these will receive equal levels of support, with the government making it clear that it intends the bulk of the CIF to contribute to the capital costs of establishing T&S infrastructure and early ICC projects, and that there will be a mechanism in place to provide revenue support (although the full details of this are not due to be published until later in 2021).

Power CCUS will be supported through a dispatchable power agreement, funded by levies on energy consumers. Hydrogen projects may be eligible for revenue support—this should become clear when the UK hydrogen strategy is published (it is due imminently, although recent comments from the Department for Business, Energy and Industrial Strategy suggest a delay until after the summer recess) but capital support through the CIF will not be extended to this sector. Instead, developers can apply for support for an element of capital funding through the separate net-zero hydrogen fund (which totals £240 million), although CCUS-enabled ‘blue’ hydrogen projects may still indirectly benefit from the CIF-supported T&S network.

The government sees the CIF as an important element of the support package it will offer, alongside other measures including a revenue mechanism to encourage private sector investment and an economic licence to grant licensees a regulated revenue stream (facilitated by the right to charge a regulated fee from completion of construction).

It has identified the oil and gas sector in particular as a source of investment, anticipating £2-3bn of investment as part of the North Sea Transition Deal, and this has already been borne out from a quick glance at the consortia members of some of the key projects under development—Net Zero Teesside in England, for example, which describes itself as a full value chain CCUS project and includes both CCUS infrastructure and a 1GW blue hydrogen project, is being developed by Italy’s Eni, Norway’s Equinor, Shell, TotalEnergies, and BP (as operator); or the Acorn Project in Scotland, which plans to capture the CO₂emissions from the gas terminals at the St Fergus complex before expanding to store CO₂ imports, and which is funded by Shell, private equity-backed UK producer Chrysaor, TotalEnergies and, within the last few weeks, ExxonMobil.

So how does the UK strategy compare to other countries’?


In Australia, the government has named CCUS as one of the “priority technologies” to help the country reduce emissions and predicts that its large-scale deployment will underpin new low-emissions industries such as hydrogen, as well as reducing emissions in hard-to-abate sectors such as natural gas processing and cement production.

At present, Australia’s only large-scale CCUS project (which also happens to be the world’s largest) is located at Chevron’s Gorgon gas facility on Barrow Island off Western Australia. The Gorgon project was approved on the condition it used CCUS to sequester up to 80pc of the carbon extracted from its reservoir gas over a five-year period. Somewhat beset by controversy, recent reports suggest that technical difficulties with the CCUS project means it is capturing only one-third of the pollution the approvals initially contemplated.

There are several other CCUS ventures under development in Australia, with Santos (the country’s second-largest independent oil and gas producer) aiming to give the go-ahead later this year on its project at Moomba in South Australia costing up to $155mn. Compared to Gorgon, which utilises a deep onshore sandstone formation called the Dupuy Formation, the Moomba project differs in that it will inject CO₂into depleted reservoirs that contained gas for tens of millions of years before they were drilled.

5,200 – Miles of dedicated CO₂ pipelines in the US

To incentivise similar projects, the Australian government has released plans to expand Australia’s emerging market for carbon credits to a range of new activities, including coastal and marine ecosystem sequestration and biomethane production as well as CCUS.  The upstream sector in Australia has long advocated for such incentives, noting that Australia has the potential to become a superpower in carbon storage, given its vast tracts of pastoral and farming land as well as its depleted oil and gas reservoirs. The changes in regulations to make CCUS projects eligible for carbon credits are expected by the end of 2021.


In contrast to many other regions, CCUS already plays an important and valuable role in the US economy.  There are 5,200 miles of dedicated CO₂pipelines; 52mn t of CO₂ were supplied to enhanced oil recovery projects for injection underground in 2019; and there are approximately 45 CCUS facilities in operation or under development. In 2013, the US Geological Survey released its first-ever comprehensive, nationwide assessment of geologic carbon sequestration and concluded there is a mean storage potential for 3,000 metric gt of CO₂. The assessment is for the technically accessible potential, meaning CO₂can be successfully injected using today’s engineering practices and techniques.

In 2019, the EIA estimated that the US emitted 5.1bn t of energy-related CO₂, while global emissions of energy-related CO₂ totalled 33.1bn t. For President Biden’s administration to meet its ambitious domestic climate goal of net-zero emissions economy-wide by 2050, the US will likely have to capture, transport and permanently sequester significant quantities of CO₂. 

There are a number of different incentives which already exist to encourage the development of CCUS projects. These include measures at the federal level, such as certain US Department of Energy programmes (as detailed below), as well as state initiatives such as California’s Low Carbon Fuel Standard. 

DOE Carbon Capture and Storage Program.  Under this programme, the DOE partners with industry and others to conduct R&D on advanced CCS technologies.

DOE Loan Program Office (LPO) Financing.  This supports innovative technologies that are typically unable to obtain conventional private financing due to perceived technology risk.  To be eligible, projects must avoid, reduce or sequester air pollutants or anthropogenic emissions of greenhouse gases.  There is $8.5bn of loan guarantee capacity available through LPO’s Advanced Fossil Energy Projects Solicitation, which can support CCUS projects.

Tribal Energy Loan Guarantee Program. This program is broadly authorised to provide loan guarantees for tribal energy development, which includes CCUS projects.  There is currently up to $2bn of available loan guarantee capacity under this programme.

USDA Rural Development Program Financing. The USDA Electric Infrastructure Loan Program provides direct loans, loan guarantees and other financing tools to electric utilities (wholesale and retail providers of electricity) that serve customers in rural areas of the US. The programme is authorised to finance the construction, acquisition, design, engineering or improvement of fossil-fuelled electric generating plants  (new or existing) that utilise carbon subsurface utilisation and storage systems.

45Q tax credits. The Bipartisan Budget Act of 2018 expanded the Section 45Q tax credits to provide for capturing and sequestering carbon oxides that would otherwise escape to the atmosphere and contribute to climate change. The tax credit is also available for direct air capture projects and, importantly, there is no cap on the total amount of tax credit that can be claimed. Tax policies adopted by numerous state governments complement these federal tax incentives.

For energy companies and investors alike, what is interesting about the CCUS industry in the US, in comparison with the UK and Australia, is that the financial support framework is already in existence, proven to work, and understood. Should companies decide to pursue the development of blue hydrogen projects here, they will benefit from regulatory certainty and a proven pathway for the CCS aspect of the project, perhaps contributing to a smoother and quicker planning phase and a more financially robust business model.


Canada is particularly well-suited to the development of CCUS technologies, having seven large sedimentary basins for permanent geological sequestration of captured CO2 and an oil and gas industry with deep expertise in drilling wells and injecting substances into geological formations for storage or disposal. Canada’s first CO2 enhanced oil recovery (EOR) scheme started in 1984 with CO₂ sourced from a petrochemical facility, and in 1990 the world’s first acid gas injection operation was commenced in Alberta. Canada is home to world-class CCUS projects already, including:

  • The Weyburn-Midale CO₂EOR Project, which is one of the world’s largest and longest-running as well as being one of the few international CCUS projects. This project captures CO₂ from a gasification facility in the US state of North Dakota and transports it through a 320km pipeline into Canada where it is permanently injected into the Weyburn-Midale oilfields in Saskatchewan for EOR purposes.
  • The Boundary Dam Project in Saskatchewan, in which CO₂in flue gases from a coal-fired power plant operated by SaskPower is captured and sold to oil companies for EOR purposes.
  • Shell Canada’s Quest Project in Alberta, which captures and geologically sequesters CO₂that would otherwise be emitted from a bitumen upgrader and has sequestered over 5mn t to date. On 13 July 2021, Shell Canada announced a second project, Polaris, which will potentially would store 300mn t of CO₂ in the same geological formation used to store CO₂ from the Quest project.
  • The Alberta Carbon Trunk Line (ACTL), which is the world’s largest capacity (14.6mn t/yr) pipeline for CO₂ from human activity. Operated by Wolf Carbon Solutions, ACTL transports emissions captured from a bitumen refinery and a large fertiliser plant to mature oil fields for EOR operations.

Canada also has a stable legal and regulatory system that has been specifically amended to consider and approve CCUS projects. In Alberta, for example, project proponents have benefitted from the certainty provided by legislative changes enacted over a decade ago vesting the pore space used for sequestration in the Crown and transferring post-closure liability to the government. More recently, Alberta announced a new competitive process for the establishment of carbon hubs, where a single CCUS project will serve a cluster of industrial facilities in a limited geographic area.

The federal government and provincial governments alike continue to provide support for Canada’s CCUS industry. At the federal level, the government has announced an investment of C$100mn through the Strategic Innovation Fund to accelerate the development and adoption of innovative technologies and processes seeking to lower the oil and gas industry’s environmental impacts, including the reduction of greenhouse gas emissions.

Developers of CCUS technologies will doubtless be among those vying for part of this funding. At the provincial level, Alberta has announced that its Industrial Energy Efficiency and Carbon Capture Utilisation and Storage Grant Program has budgeted C$80mn in funding to help emitters regulated by Alberta’s carbon emissions legislation to reduce their emissions and lower compliance costs through technology and equipment upgrades related to energy efficiency and CCUS.

In Australia, the government has named CCUS as one of the “priority technologies” to help the country reduce emissions and predicts that its large-scale deployment will underpin new low-emissions industries such as hydrogen

The new Alberta funding opportunity is of interest to oil and gas companies with operations required to reduce emissions under Alberta’s Technology Innovation and Emissions Reduction Regulation, which sets emission reduction requirements for industrial facilities using a facility-specific benchmark, including those in the oil and gas, oil sands, pipeline and refining sectors.

Canada continues to advance its role as a leader in CCUS with announcements in the last few months of new projects representing hundreds of millions of tons of potentially sequestered CO₂ over the projects combined lifespans. In addition to Shell Canada’s Polaris project, discussed above, Pembina Pipeline and TC Energy have announced a plan to retrofit existing pipelines and build new transportation systems to connect industrial emitters to sequestration locations, while oil sands producer Suncor Energy and ATCO are partnering on a hydrogen project that will incorporate CCUS technology.

Regardless of the region, it is clear that, to secure private investment, governments need to give out the right signals and underpin these with the right policy landscape, clarity on business models and financial incentives. Those with a strong track record in the oil and gas sector have an advantage, with the potential to identify and repurpose suitable assets, capitalise on transferable skills and develop reliable supply chains, but they will need to move quickly to gain the competitive advantage. Thought may also need to be given to developing international standards or mutually recognised measurements to maximise CO₂capture efficiency, with the added benefit of allowing future carbon storage customers to make true comparisons when selecting a site.

Penny Cygan-Jones is knowledge of counsel, energy, Noam Ayali is a partner, Nikki van der Meer is special counsel and Alan Harvie is a senior partner at Norton Rose Fulbright.



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