UK finance minister Jeremy Hunt announced Wednesday a raft of measures that his government says are designed to boost resilience to future energy price shocks, including increased investment in carbon capture schemes, support for new nuclear plants and an extension of energy efficiency programmes. But the government's controversial windfall tax on offshore oil and gas profits did not get a mention in today's budget statement.
As anticipated, the UK finance minister announced plans to further develop the UK's carbon, capture, utilisation and storage (CCUS) industry. "I am allocating up to £20bn ($24bn) of support for the early development of CCUS, starting with projects from our east coast to Merseyside to north Wales, paving the way for CCUS everywhere across the UK as we approach 2050," Hunt said, adding that this will support up to 50,000 jobs and attract private-sector investment. The government's existing target to capture 20mn-30mn t/yr of CO2 by 2030 remains intact, he said.
The planned investment marks a sharp rise from the government's previous commitment of £1bn for CCUS funding, although some businesses have pledged more. The CCUS projects selected "will also receive funding while operating through their contract length", which will last around 10-15 years depending on the project, the finance ministry told Argus today. "This funding will help support the construction and operation of this vital CCUS technology across a number of industrial projects. It is not a specific payment for capturing carbon but an envelope of funding covering support through capital grants, contracts for difference and other sector specific business model contracts," the ministry added.
The £20bn of funding will be spread out over 20 years, according to UK energy minister Grant Shapps, while an energy ministry official added that it is not possible to know the exact funding profile for CCUS projects as this is still under negotiation. A shortlist of projects for the first phase of CCUS deployment will be announced this month, while other projects will be able to "enter a selection process for Track 1 expansion launching this year", the government said. The government will also select two additional CCUS clusters to add to the HyNet and East Coast clusters, which were selected as the UK's first two CCUS projects in October 2021.
Among the other energy-related announcements in today's budget was the launch of what the government is calling the "Great British Nuclear" initiative. It is designed to "bring down costs and provide opportunities across the nuclear supply chain to help provide up to one-quarter of our electricity by 2050", Hunt said. He also announced the launch of the UK's first competition for small modular reactors.
Road fuel excise duty rates are to be kept at current levels for another 12 months through the extension of a temporary 5 pence/litre cut introduced last year. Meanwhile, the UK's Climate Change Agreement scheme, which gives eligible businesses tax relief on energy efficiency measures, is to be extended by two years. And Hunt also confirmed that the government's Energy Price Guarantee, which capped typical yearly household energy bills to £2,500, will be kept in place for an additional three months until the end of June.
Critical thinking
Responding to the budget, environmental activist group Greenpeace was critical of what it said was "the stranglehold [that] fossil fuel and nuclear lobbies have" on the government.
"Squandering taxpayers' money on nuclear reactors that don't even exist yet and fanciful carbon capture is irresponsible, and does nothing to reduce our emissions now. Committing to £20bn over 20 years is frankly pathetic compared to the green growth investments being made in the US, EU and China," a Greenpeace spokesperson said. "The government must instead prioritise renewables, invest in a smarter grid, and insulate people's homes at the scale we need to keep us warm, save money on bills, and bring down carbon emissions."
Notable by its absence from Hunt's budget statement was the status of the Energy Profits Levy, a windfall tax on North Sea oil and gas profits which was increased to 35pc from 25pc from the beginning of January. Earlier this month, North Sea producer Harbour Energy complained that its 2022 profit had been "all but wiped out" by the levy. UK North Sea operators met government ministers in December to try to set an oil price floor under which the windfall tax would not apply, a measure that Hunt is reportedly considering.
