Teesside Collective commissions study into CCS subsidies

Teesside Collective has commissioned a study into a possible subsidy mechanism to support the development of industrial carbon capture and storage (CCS).

Management consultants Pöyry have been enlisted to “refine and develop” the Hybrid Incentive Model outlined in Teesside’s 2015 ‘blueprint’ for industrial CCS.

“CCS uses proven technologies being used around the world – its main challenge is financing,” said director of business investment at Tees Valley Combined Authority Neil Kenley.

“Teesside Collective’s Hybrid Incentive Model for industrial CCS is intended to kick-start investment in shared infrastructure. We are determined to make this a reality and achieve lowest cost decarbonisation for the UK.”

Under the model, CO2 emitters would be able to secure contracts for difference – similar to those used to subsidise low-carbon generators – which would entitle them to a guaranteed price for each tonne of CO2 they captured and permanently stored.

A contract counterparty set up by the government would pay the difference between the strike price and the cost saved by avoiding having to buy carbon allowances through the EU Emissions Trading System.

The proceeds of the subsidy would be used by emitters to pay a volume-based usage fee to the transport and storage provider to cover its variable costs. Its fixed and upfront investment costs would be recouped through a capacity subsidy paid by the counterparty.

Teesside Collective issued a tender for a pilot carbon capture project in August. Progress on the development of CCS in the UK is currently dependent on the industrial sector, after the government axed a £1 billion commercialisation competition for the power sector in November last year.

The National Audit Office said in July that the cancellation would add billions to the cost of decarbonisation. There have been repeated calls for the government outline a national CCS strategy in the wake of the decision.

The Committee on Climate Change warned in July that CCS is “critically important” to the UK meeting its emissions targets. It said it would be “essential” for the technology to be under active development in Britain if the government decided on a hydrogen gas grid as the best way to decarbonise heating. A state-backed company should be set up to kick-start the development of CCS, according to a study by Lord Oxburgh published in September.

Norway announced earlier this month that it would press ahead with plans to develop a full-scale industrial CCS project.