September 30, 2022

Response to the UK Government’s proposal for CDR deployment incentives

Our response to the consultation focuses on principles for success and opportunities for the UK to lead.

Earlier this year, the UK Government announced a consultation on ‘business models’ for engineered greenhouse gas removals, the term preferred by the UK government for carbon removal and related activities. This follows a period of increasing interest and commitment by the UK Government to support carbon removal, including a £100M program to support early-stage research, development, and deployment, as well as a research hub, CO2RE.

We at Carbon Gap have been following these developments closely and pleased to see the UK Government’s increased attention to carbon removal, as well as their commitment to providing more significant deployment support for the field in a similar way to how the Government supported renewable energy deployment. While there are many differences between the fields, carbon removal needs to follow a similar process of cost declines as production scales and government support will be critical to accelerate this process.

The below includes a summary of our response to the Government’s consultation, which highlights how this policy proposal can be made better, but also the broad suite of other supports that are needed if carbon removal is to play the role that it needs to play in humanity’s toolbox for addressing climate change.‍

As part of its policy work on reaching net zero, the UK Government consulted on the design of a business model to leverage government support in attracting private investment and enabling deployment at scale of carbon removal projects (referred to by the UK Government as greenhouse gas removal (GGR)). Read the summary of Carbon Gap’s recommendations to the Government.

The Government’s GGR Business Model policy is an important step in enabling and supporting the emergence and deployment, at scale, of a diverse portfolio of innovative GGR methods, vital for achieving the UK’s net zero target. The UK has a unique opportunity to position itself as a global leader in GGR solutions, capitalising on its world-class science and research infrastructure and its access to large volumes of CO2 storage sites – while at the same time benefiting from its newly-found regulatory nimbleness and the ability to act quickly to seize opportunities.

We believe that the Government has an important role in kick-starting investment in GGR. The Business Model will be successful if it unleashes private project finance capital to efficiently finance GGR projects. An approach that is truly method-neutral and that focuses on the delivery of stored carbon, will allow for the development of various types of projects, which will be crucial to build a portfolio of well-demonstrated GGR methods and to understand their costs and relative advantages and disadvantages, both for the public and for providers of private finance.

Creating the conditions for engineered greenhouse gas removal to scale

However, to establish a robust and liquid market for GGR, we believe there are several other policy instruments that need to be prioritised as well:

  • The establishment of Government-approved Measurement, Reporting and Verification (MRV) and Life cycle assessments (LCA) guidelines, and a certification scheme for credits, is among the single most valuable actions the Government could take – and a key one for establishing the UK’s attractiveness to innovators, developers and investors.
  • A clear pathway and a detailed timeline for the transition to a compliance market for carbon removals would provide a guaranteed market for GGR project developers to sell into at market prices.
  • Without the completion of infrastructure for carbon management (such as transport and storage infrastructure) and an appropriate permitting regime, the market in the UK will not be able to grow.

Finally, the Government should ensure that it leverages GGR development to benefit those communities transitioning from dependence on fossil fuel production and promotes GGR’s potential for positive social impact and co-benefits. The Government should ensure that the benefits of GGR are fairly distributed and that affected communities have access to decision-making power and processes.

These policies can take place both within and outside of the confines of the Business Model. A mechanism such as the various contracts-based mechanisms the Government is proposing will be helpful in achieving GGR deployment targets, but will be insufficient on its own.

Designing the Business Model

A contracts-based Business Model, as proposed by the Government, can indeed provide the necessary revenue certainty for project developers, and encourage innovation. But it presents significant challenges, notably for smaller projects and those that may be at an earlier stage in their development. The Government’s expected mechanism of establishing prices – closed-door negotiations with project developers – also invites gaming, potentially eroding public trust.

We, therefore, urge the Government to consider policy support that provides a suitably high, stable, and flat price for removals. This would not necessarily cover the full cost of the removal, incentivising market development, and would be paid upon delivery of stored carbon, subject to certification. At the very least, such direct payments should be available for projects under a specific size threshold and stage of development that risk being weighed down by administrative obligations that are too burdensome.

Regardless of the mechanisms the Government opts for, we strongly advise that it incorporates the following principles in the final policy design:

  1. Retain a strong incentive to sell credits. Either the provider or the Government must retain a strong incentive to sell GGR credits for the highest price possible, to maximise the degree to which the costs of removing carbon are borne by polluters, not the taxpayers.
  2. Ensure clarity of title to the GGR credits. If private GGR providers take charge of marketing and contracting removal credit sales on voluntary markets, or the Government takes on this responsibility (or directly retires credits and applies them to the most expensive to abate emissions in the economy), the clarity of title to the credits will be crucial for the ability to clear the credit inventory.
  3. Rapidly transition to non-project level cost discovery. Flat prices should be established for bucketed families of comparable GGR methods based on findings from project-level cost discovery, as well as publicly available research and input on appropriate price levels.
  4. Internationally compatible & competitive. The policy should minimise bespoke requirements and maximise compatibility with international policies, including MRV and certification schemes, to reduce the regulatory and administrative burden on UK GGR projects. The Government should prioritise international cooperation to ensure that common principles and best practices methodology design are shared.
  5. Geographically flexible. If support is available even if one or more of the GGR steps occur outside of the UK (e.g., the capture of carbon in the UK with storage flexibly sited in the UK, Iceland, Norway, or the Netherlands depending on availability), it eliminates possible policy support competition. In this hypothetical example, the majority of jobs and physical plant investment still occur within the UK.
  6. Flexibility and transparency on which methods are eligible. The UK should rapidly ensure it can support methods beyond BECCS and early DACCS technologies. A nimbler business model than e.g., the US’s 45Q, whose restrictive eligibility requirements limit support to select GGR methods and can only be modified via legislation, would ensure the UK has a competitive edge.

Finally, the primary inclusion criteria for this Business Model should be the character of the stored carbon, namely that it be highly durable with a vanishingly low reversal risk and long-term expected residence time.

Carbon Gap looks forward to continuing its conversation with the UK Government as it prepares its policy on accelerating investment in GGR projects. For more details on our proposed approach and other key considerations, download our full response to the public consultation here.