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Carbon Capture, Usage & Storage Programme: Accounting officer assessment 2022 (HTML)

Updated 12 June 2023

Department for which the accounting officer who made the assessment is responsible:

Department for Business, Energy and Industrial Strategy

Project title:

Carbon Capture, Usage & Storage Programme

Main scheme project stage:

Outline Business Case approved by PIC in March 2022 and MPRG in May 2022.

Introduction

It is normal practice for Accounting Officers to scrutinise significant policy proposals or plans to start or vary major projects, and then assess whether they measure up to the standards set out in Managing Public Money. From April 2017, the government has committed to make a summary of the key points from these assessments available to Parliament when an Accounting Officer has agreed an assessment of projects within the government’s Major Projects Portfolio.

This Accounting Officer Assessment was made for the Carbon Capture, Usage and Storage Programme, following its Outline Business Case stage. I have made the assessment as the Accounting Officer for the Department for Business, Energy and Industrial Strategy.

Background and Context

The Programme is designed to deliver the government’s commitment to delivering two CCUS clusters in our industrial heartlands by the mid-2020s (‘Track 1’) and at least two further clusters by 2030 (‘Track 2’), with the objective of capturing and storing 20-30Mt of CO2 per year by 2030.

These clusters are expected to support CCUS-enabled (‘blue’) hydrogen, gas fired power CCS, industrial carbon capture, waste CCUS and engineered Greenhouse Gas Removals.

Assessment against the Accounting Officer standards

Regularity

The process to identify CCUS clusters for government support is being carried out as business as usual expenditure, pursuant to common law powers. The expenditure on the programme is also in line with existing CCUS budget. New primary legislation is needed to provide Secretary of State with the power to grant economic licences to CO2 transport and storage network operators and establish Ofgem as the regulator for CO2 transport and storage. New primary legislation is also needed to provide the Secretary of State with powers to bring forward the hydrogen production and industrial carbon capture business models. A new spending power is being sought to enable financial assistance for the delivery of these proposals. This legislation was introduced in Parliament in July 2022.

Business model implementation work, currently being undertaken by the Low Carbon Contracts Company Ltd (LCCC) in advance of bespoke primary powers, is enabled by s.50 of the United Kingdom Internal Market Act 2020. This was approved by the Exchequer Secretary to the Treasury in May 2022.

Overall assessment: My assessment is that the regularity test is satisfied.

Propriety

The CCUS Programme has been approved at both Strategic Outline Business Case and Outline Business Case stage by the BEIS Projects and Investment Committee. The Programme received conditional approval to proceed to the Full Business Case stage from the Major Project Review Group in May 2022. The Programme has received all the required Cabinet Office Commercial Spend Controls. As a result, this has my approval to proceed.

Overall assessment: My assessment is that the propriety test is satisfied.

Value for money

There is a clear rationale for government intervention in CCUS due to market failures arising from first mover disadvantage for firms establishing a new market, and insufficient pricing in of externalities such as carbon emissions by market mechanisms. The cost benefit analysis conducted for the Strategic Outline Business Case demonstrated that CCUS offers a good value for money decarbonisation option to achieve a Net Zero consistent trajectory, relative to a “do nothing” counterfactual, and is, in fact, essential to meeting Net Zero targets. The preferred option was a total ambition of supporting four clusters by 2030 funded by both public and private funds, as this would provide sufficient confidence of being on a credible Net Zero trajectory, bring in private sector expertise and develop private market funding. The benefits of CCUS clusters primarily accrue from carbon abatement, and there is potential for wider economic benefits to be delivered, such as jobs and investment across regions of the UK. This was tested further, following standard Green Book appraisal techniques, at Outline Business Case stage, demonstrating that the two Track-1 clusters have potential to offer a good value for money outcome to society, taxpayers and consumers. It is recognised that at this stage there remain a number of uncertainties including, in particular, the amount of subsidy that will ultimately be required to establish initial Transport & Storage Companies (T&SCo) and emitter projects. However, given the strength of the estimated net present value and benefit-cost ratio (2.6), and plans to resolve outstanding uncertainties as the programme progresses, the use of public and consumer funding alongside private investment to achieve the programmes strategic objectives remains justified. Value for money will be tested at key points throughout programme delivery to inform decision making on T&SCo and emitters comprising CCUS clusters, ensure affordability of the level of support to be provided, and ensure sound use of public funds.

Overall assessment: My assessment is that the value for money test is satisfied.

Feasibility

The UK is in an enviable position, having one of the greatest CO₂ storage potentials of any country in the world.

Unlocking this potential through the development of CO₂ transport and storage networks could generate strategic national assets that could have the potential to store both domestic, as well as internationally imported, CO₂.

The UK is home to a range of innovative and high value manufacturing companies; firms across the UK are developing cutting edge CCUS technologies. We also have world leading academic institutions, focused on solving key questions to reduce the costs of CCUS deployment.

As a programme CCUS is complex and as such it presents many technical, financial and operational risks. The recent Cluster Sequencing-Phase 2 announcement has highlighted that despite these risks, the government is committed to CCUS in the long term.

Prior to the Outline Business Case approvals, the Programme underwent a Gateway 2 review in February 2022, which resulted in an Amber rating. The review tested the programme’s readiness to move onto the next phase and provided sufficient confidence in delivery subject to the completion of a number of recommendations. We continue to work with the Infrastructure and Projects Authority to assess deliverability and mitigate risks to enable delivery.

The delivery of the CCUS Programme is a combined effort between industry, BEIS and other organisations including other government departments and arm’s length bodies. BEIS officials are working closely with our delivery partners to support their readiness.

Overall assessment: My assessment is that the feasibility test is satisfied, although I note the risk to achieving the full targets.

Conclusion

As the BEIS Accounting Officer I have considered the assessment of Carbon Capture, Usage & Storage Programme and approved it on 31 March 2022.

I have prepared this summary to set out the key points which informed my decision. If any of these factors change materially during the lifetime of this project, I undertake to prepare a revised summary, setting out my assessment of them.

The summary included in this letter will be published on the government’s website (GOV.UK). Copies of this letter will be deposited in the Libraries of the House and sent to the Comptroller and Auditor General and Treasury Officer of Accounts.

Sarah Munby
Permanent Secretary, BEIS
31 March 2022