Policy background Parts 1 and 2: Carbon Dioxide Capture, Transport and Storage etc and Hydrogen Production, Transport and Storage
Carbon Capture, Usage and Storage (CCUS) is a process involving the capture of carbon dioxide (CO2), from industrial and commercial activities, as well as power generation, and its transportation for the purposes of permanent containment, for example in very deep subsurface rock formations, or reuse, for example in cement. CCUS can be applied to a range of processes including chemical refining, cement, and residual waste management processes, and is likely to play an essential role in meeting the UK’s statutory carbon emissions targets. The Climate Change Committee has described carbon capture and storage as "a necessity, not an option" for reaching net zero emissions 1 .
	The Government has committed to provide support for the deployment of two CCUS ‘clusters’ by the mid-2020s and a further two by the end of the 2020s. The Government’s Net Zero Strategy , published in 2021, sets out the ambition to capture and store 20 to 30Mt of CO2, which includes 6MtCO₂ of industrial emissions, per year, by 2030 2 . A new carbon capture industry could support up to 50,000 jobs by 2030, split across industry, power and the transport and storage network.
	The Government consulted in 2019 on commercial models to pull through the investment needed to deploy CCUS at scale. The Government’s response 3 , published in 2020, set out that the proposed model for CO2 transport and storage is one of economic regulation. This is because CO₂ pipeline transport and storage networks are likely to be operated as regional monopolies, encompassing a range of different network users and emitters operating under different commercial models. In this model, a transport and storage company would receive a licence from an economic regulator which grants it the right to charge users in exchange for delivering and operating the transport and storage network. Here the regulator-approved prices charged would reflect efficient costs and a reasonable rate of return based on the level of risk assumed by a transport and storage company.
	The Government considers Ofgem to be the most appropriate entity to take on the role of economic regulator for CO2 transport and storage. Part 1 of the Act establishes the duties and functions for Ofgem to act as economic regulator of CO2 transport and storage and a framework for the economic licensing of CO2 transport and storage activities.
	The Oil and Gas Authority (OGA) and ministers in the Devolved Administrations (the Department for the Economy in Northern Ireland) remain the relevant licensing authorities for regulating CO2 storage under the powers set out in the Energy Act 2008 to ensure the secure geological storage of CO2.
	To help meet the ambitions set out in paragraph 7, the Government confirmed development of the industrial carbon capture business model to provide carbon capture facilities with financial assistance to support the deep decarbonisation of industrial and commercial activities that often have no viable alternatives, such as chemicals, refining, cement, and residual waste management processes.
	As a gas that can be used as a fuel without emitting harmful greenhouse gases, hydrogen will be critical in reducing emissions from heavy industry, as well as in power, transport, and potentially heat.
	Under the British Energy Security Strategy 4 , the Government announced ambitions for up to 10GW of low carbon hydrogen production capacity by 2030, subject to affordability and value for money, with at least half of this from electrolytic hydrogen.
	The Government consulted in 2021 on the commercial model to unlock private investment and address market barriers to deploy low carbon hydrogen production at scale. The Government’s response 5 , published in 2022, confirmed the design of a contractual producer-focused business model to provide revenue support to a range of low carbon hydrogen production pathways to facilitate hydrogen use in a broad range of sectors.
	In the British Energy Security Strategy, the Government set out its intention to design new business models for hydrogen transport and storage. The Government consulted in 2022 on high-level design options for both the hydrogen transport business model and the hydrogen storage business model. The Government’s response, published in 2023, set out minded to positions for the business models. An external subsidy mechanism will be required to support the business models. This external subsidy mechanism will be delivered through business model contracts. This external subsidy mechanism will be delivered through business model contracts. Alongside these contracts, it is considered that another element of the hydrogen transport business model should be a Regulated Asset Base (RAB) to facilitate and support the financing of certain hydrogen pipeline projects.
	Part 2 of the Act introduces spending powers to provide financial assistance to support the establishment of CCUS, low carbon hydrogen production and hydrogen transport and storage. The Act also provides delegated powers to establish the detailed framework for business models, including the designation and duties of a counterparty to enter into and manage business model contracts with carbon capture entities, CO2 transport and storage companies, low carbon hydrogen producers, hydrogen transport providers and hydrogen storage providers. It also provides powers to raise a levy or levies to fund the hydrogen business models – production, transport and storage. The hydrogen production business model will initially be Exchequer funded, with the intention to transition to levy funding. The Government will hold a public consultation before making regulations introducing the levy. A decision on funding for the hydrogen transport and storage business models has not yet been taken. Powers are also provided to appoint allocation bodies to administer future more competitive allocation processes for hydrogen production and carbon capture revenue support contracts.
	Part 2 Chapter 5 establishes powers for the OGA to require carbon storage licensees to retain and report information and samples gathered as part of activities associated with the geological storage of carbon dioxide, and to enable the NSTA to publicly disclose this information after a suitable confidentiality period. Provisions in Part 2 will also allow the OGA to identify and discourage potentially undesirable changes of ownership and control of carbon storage licensees before they take place. This Part also provides the OGA with powers to require that relevant information acquired by carbon storage licensees as part of their licensed activities, is appropriately retained and reported, and is able to be publicly disclosed after a suitable confidentiality period. These powers will ensure valuable information collected by storage licensees is appropriately preserved and, in due course, made available for the benefit of the sector more broadly.