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1、August 2020 CARBON CAPTURE,USAGE AND STORAGE A Government Response on potential business models for Carbon Capture,Usage and Storage Crown copyright 2020 This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated.To view this licence,visit national

2、archives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team,The National Archives,Kew,London TW9 4DU,or email:psinationalarchives.gsi.gov.uk.Where we have identified any third-party copyright information you will need to obtain permission from the copyright holders

3、concerned.Any enquiries regarding this publication should be sent to us at:ccusbusinessmodelsconsultationbeis.gov.ukContents Contents _ 3 Ministerial Foreword _ 5 Section 1:Executive Summary _ 6 Introduction _ 6 Deploying CCUS in the 2020s _ 7 Parameters,Integration,and Usage _ 7 CO Transport and St

4、orage _ 8 Power CCUS _ 8 Industrial CCUS _ 9 Low Carbon Hydrogen Production _ 9 Section 2:Deploying CCUS in the 2020s _ 11 Benefits of CCUS _ 11 Government action _ 12 Impacts of COVID-19 _ 14 CCUS delivery action plan _ 15 Section 3:Parameters,Integration and Usage _ 16 Parameters _ 16 Integrating

5、CCUS Business Models _ 18 Carbon Utilisation _ 19 Section 4:CO Transport&Storage _ 20 Introduction _ 20 Consultation Responses _ 21 Progressing the Business Model _ 27 Next Steps _ 28 Section 5:Power CCUS _ 30 Introduction _ 30 Consultation Responses _ 31 Next steps _ 35 Section 6:Industrial CCUS _

6、37 Introduction _ 37 Consultation responses _ 38 Progression of Business Models _ 42 Next Steps _ 44 Section 7:Low Carbon Hydrogen Production _ 46 Government Response on potential business models for Carbon Capture,Usage and Storage3Introduction _ 46 Consultation Responses _ 47 Government Response o

7、n potential business models for Carbon Capture,Usage and Storage4Ministerial Foreword The UK has a proud record in tackling climate change and protecting the environment.We were the first major economy in the world to set a target in law for net zero emissions,ending the UKs contribution to global w

8、arming in three decades.We know that deploying Carbon Capture Usage and Storage(CCUS)and low carbon hydrogen production will play an essential role in meeting our net zero commitment,but it can help us achieve so much more.CCUS has the potential to deliver a stronger,greener UK by transforming our i

9、ndustrial heartlands,supporting clean growth and providing new economic opportunities for British companies and supply chains through international investment.It is a technology where Britain can lead the world.Targets are important but on their own they are not enough.They must be backed by clear a

10、nd decisive action.It is time for the UK to catalyse the potential of CCUS.This government response represents a significant milestone.It sets out the progress we have made on business models to incentivise CCUS and our new CCS Infrastructure Fund,announced at Spring Budget 2020.It also outlines our

11、 ambitious delivery plans for 2020 and beyond as we seek to deploy CCUS in the UK across this decade.This year has brought unprecedented challenges.The impacts of Coronavirus(COVID-19)are felt in nations across the globe and virtually no industries are untouched.These challenges mean it is now more

12、important than ever that we take decisive action on climate change.CCUS will be a crucial part of our green recovery.It is essential that we act now to put ourselves on track to meet our net zero emissions target by 2050,as well as driving growth across the UK and providing high skill,well-paying jo

13、bs for all sections of our society.Government Response on potential business models for Carbon Capture,Usage and Storage5Section 1:Executive Summary Introduction Carbon Capture,Usage and Storage(CCUS)can play an essential role in reaching net zero.It can be an engine to drive cleaner,sustainable gro

14、wth,transforming our industrial heartlands.It can also unlock new jobs and innovative businesses,raising productivity and competitiveness across the UK.We are committed to deploying CCUS this decade.We are determined to realise the key strategic opportunities of CCUS in a way that is affordable and

15、value of money for the consumer and taxpayer.Alongside the CCS Infrastructure Fund,announced at Budget,we will continue to develop and implement new CCUS business models.The consultation,Business Models for Carbon Capture,Usage and Storage,published in 2019,was a necessary first step in this process

16、.It sought views on possible new business models for CCUS and outlined governments work in developing potential business models for low carbon hydrogen production.Summary of responses received We received 72 responses to the consultation on CCUS business models.Around a quarter of responses were fro

17、m large business,and a further quarter from SMEs,with the remainder being from special interest groups,trade associations,academics,private individuals and other interested parties.Summary of stakeholder engagement We conducted a series of engagements,alongside the CCUS consultations,with key stakeh

18、olders and interested parties.We held over 15 events with a combined attendance of approximately 350 individuals.These events focussed on the questions and issues set out in the consultation.This response also takes into account additional engagement that has taken place during 2020.This includes on

19、going work with the CCUS Expert Groups and early engagement with industry on the CCS Infrastructure Fund,announced at Budget.BEIS will continue to work with the relevant devolved administrations to ensure that the proposed policies take account of devolved responsibilities and policies across the UK

20、 to facilitate successful deployment.Overview This Government Response comprises six sections:(1)Deploying CCUS in the 2020s;(2)Parameters,Integration and Usage;(3)CO Transport and Storage;(4)Power CCUS;(5)Industrial CCUS;and(6)Low Carbon Hydrogen Production.A summary of each section is set out belo

21、w.Government Response on potential business models for Carbon Capture,Usage and Storage6Deploying CCUS in the 2020s Section 2 of this consultation response sets out the governments position on deploying CCUS in the 2020s.Key findings:Government recognises the critical importance of CCUS and low carb

22、on hydrogen toour current net zero strategies.In our view,they will play a vital role in levelling up theeconomy,enabling the low carbon economic transformation of our industrial regions,and supporting high value jobs.As the Budget makes clear,we are committed to investing at least 800 million tofac

23、ilitate deployment of CCUS in at least two UK sites across the decade.We will workwith industry as we progress work to develop the design and delivery of the Fund.The delivery of operational CCUS clusters will require co-ordinated,strategic planning.For government,key strategic priorities include ti

24、mely deployment and delivering valuefor money by maximising CO capture per pound of government investment,unlockingprivate sector investment,maximising future learning for clusters and reducing impacton consumers and taxpayers.We will engage with industry,and advisors wherenecessary,to ensure that t

25、he priorities of industry,including the development ofpathways to decarbonisation and markets for low-carbon goods,are supported throughthe deployment of CCUS-enabled industrial clusters.A detailed delivery plan is set outon page 15.BEIS will continue to work with the relevant devolved administratio

26、ns to ensure that theproposed policies take account of devolved responsibilities and policies across the UKto facilitate successful deployment.Parameters,Integration,and Usage Section 3 sets out the parameters that will guide the governments ongoing development of CCUS and hydrogen business models.I

27、t also explains our current position on integrating business models,and how the use of CO can be harnessed as part of the CCUS chain.Key findings:Government has developed a set of key principles to guide decision-making throughoutthe design process for CCUS business models and the CCS Infrastructure

28、 Fund,basedon our initial parameters.A key feature of the ongoing design work will be to seek toensure that the business models and Fund incentivise decarbonisation and costreductions whilst minimising market distortions.They are set out in greater detail onpage 17.Through our engagement with CCUS a

29、nd Hydrogen Expert Groups we have continuedwork to design a portfolio of business models for CO Transportation and Storage(COT&S),power,industry and low carbon hydrogen.The resolution of integration issues,such as cross chain risk,will be critical to thesuccessful delivery of CCUS-enabled industrial

30、 clusters.We will continue to work withGovernment Response on potential business models for Carbon Capture,Usage and Storage7the CCUS Expert Groups and our technical,commercial and legal advisers,as well as other stakeholders to advance the development of solutions to address these issues.CO Transpo

31、rt and Storage Section 4 of this consultation response outlines the Governments proposed approach to CO T&S.Key findings:CO T&S networks are integral to the efficient and cost-effective decarbonisation of our economy.These networks can enable the deployment of firm and flexible low carbon power in a

32、 low cost,flexible electricity system;support at-scale low carbon hydrogen for use across the economy;provide a pathway for negative emissions through Bio-Energy CCUS(BECCS)and Direct Air Capture with Carbon Sequestration(DACCS);and support the low carbon economic transformation of the UKs industria

33、l heartlands.Government will progress work on the T&S business model,and is currently minded,for an enduring model,to support T&S infrastructure being operated through an economic form of regulation,drawing on experiences from other regulated network models.In developing this option further we will

34、consider the application of CCS Infrastructure Fund for the early projects to support improved value for money.Power CCUS Section 5 of this consultation response outlines the governments approach to power CCUS.Key findings:We will decarbonise the electricity system predominantly through deploying re

35、newables but in order to maintain security of supply and keep costs low we will need to balance renewable intermittency.To do this we will need system flexibility,energy storage and non-weather dependent,low carbon power generation.We consider that thermal power with CCUS(power CCUS)is one technolog

36、y which can provide this type of power at scale.That is why government announced at budget that,using consumer subsidies,it will support the construction of the UKs first CCUS power plant.That support will be subject to the Control on Low Carbon Levies and establishing value for money for the consum

37、er.Government will continue to develop a CCUS power business model,and we are currently minded to progress work on a mechanism which consists of a payment for availability of low carbon generating capacity,and a variable payment.A combination of these payments could enable a plant to operate flexibl

38、y,providing value to a low carbon electricity system with growing renewable capacity,and still provide sufficient certainty to investors.We are working in collaboration with industry,through the Expert Group on Power CCUS,to do this.Government Response on potential business models for Carbon Capture

39、,Usage and Storage8 In doing so,we will seek to avoid locking consumers into higher cost pathways to low carbon electricity.Over the medium term,we will keep under review our strategy for bringing forward power CCUS as part of a low carbon electricity system.As with the Contract for Difference(CfD)f

40、or renewables,this may mean that the approach outlined in this Government Response is adapted over time as the market evolves.Industrial CCUS Section 6 of this consultation response sets out the governments approach to Industrial CCUS.Key findings:CCUS is an important technology to decarbonising ind

41、ustry,particularly those hard to abate sectors cement,chemicals,steel and iron and refineries.It is why we are committed to progressing CCUS in industrial clusters over the decade,supported by the CCS Infrastructure Fund.Government will progress work on a business model for industrial CCUS,and is mi

42、nded,for initial projects,to proceed with an approach that combines upfront capital support and an industrial CfD.An industrial CfD would provide support to cover the ongoing operational costs as well as allowing capex investment from the industrial owner to be recovered.We will work closely with in

43、dustry in designing and testing the industrial contract proposal and,in doing so,the approach outlined in this government response may be adapted.While outside of the consultation,in addition to deployment of Industrial CCUS in clusters,government also commissioned a study into CCS deployment at dis

44、persed industrial sites,which has been published alongside this document1.The business model for Industrial CCUS is designed to support industrial sites within and outside of clusters Low Carbon Hydrogen Production Section 7 of this consultation response outlines the governments approach to enabling

45、 low carbon hydrogen.Key findings:There is a clear role for a business model to stimulate private sector investment in low carbon hydrogen production.Government will,therefore,progress work to assess potentially viable options to support deployment of low carbon hydrogen production capacity.This cou

46、ld include support through the CCS Infrastructure Fund.1 CCS deployment at dispersed industrial sites by Element Energy on behalf of the Department for Business,Energy and Industrial Strategy(August 2020).Government Response on potential business models for Carbon Capture,Usage and Storage9Industry

47、broadly agrees that the business model should be focused on the costs of lowcarbon hydrogen production,though consideration must be given to the wider valuechain.The scope of the business model should include provision for all low carbon productionmethods.There is a lack of consensus on an appropria

48、te hydrogen business model,and we willwork closely with industry to assess potential options.Government Response on potential business models for Carbon Capture,Usage and Storage10Section 2:Deploying CCUS in the 2020s Benefits of CCUS The UK is at the forefront of action on climate change.We are red

49、ucing our emissions faster than any other major economy and are the first major economy to set a net zero greenhouse gas emissions target.We have broken the cycle of economic growth and rising emissions,cutting our emissions by more than 40%while growing our economy by two thirds.To sustain this tra

50、ck record,we need to unleash innovative technologies that tackle emissions and bring clean growth right across the UK.It is increasingly clear that CCUS will have a significant role to play in a net zero world,particularly in supporting the decarbonisation of industry and power,the production of low

51、 carbon hydrogen and Greenhouse Gas Removal(GGR)technologies2:Business and industry are significant contributors to the UKs carbon emissions,accounting for 25%of UK emissions3.By capturing and permanently storing these CO emissions,CCUS can transform our industries into zero carbon global leaders,en

52、abling key sectors(including Energy Intensive Industries,power,heat and transport)to be competitive in a net zero economy;In power,Combined Cycle Gas Turbines(CCGTs)currently provide reliable and dispatchable power to homes and businesses right across the UK.However,in 2018,CCGTs emitted around 45 M

53、tCO/year,equivalent to over 12%of all UK emissions4.We anticipate that natural gas will continue to provide an important source of dispatchable generation in the future.CCUS,therefore,could help decarbonise this capacity by capturing up to 95%of emissions,while continuing to provide important system

54、 benefits;Low carbon hydrogen could transform the UKs energy system.It could offer significant flexibility and optionality in hard to decarbonise sectors,which will be crucial in the transition to net zero.However,some current hydrogen production methods,such as methane reformation and biomass gasif

55、ication,create CO as a by-product.CCUS could help solve this emissions problem by capturing the CO before it is emitted into the atmosphere;and There are some parts of the economy that may be difficult to decarbonise by 2050.BECCS and DACCS technologies could directly reduce CO concentrations in the

56、 atmosphere,delivering negative emissions which will set us on track to meet our net zero target.CCUS also has the potential to drive regional productivity,delivering a stronger,greener UK.It could help transform our industrial heartlands,stimulating the development of new supply chains(domestically

57、 and internationally)and attracting inward investment.As a country we are particularly well positioned to take advantage of this opportunity.We have significant stores for CO,particularly in depleted oil and gas reservoirs deep underground off the UK coastline.The 2 Such as bioenergy with CCS(BECCS)

58、and direct air capture with carbon sequestration(DACCS).3 Final UK greenhouse gas emissions national statistics,available at:https:/www.gov.uk/government/collections/final-uk-greenhouse-gas-emissions-national-statistics#2020 4 BEIS internal analysis using DUKES and UK Greenhouse Gas Inventory data.G

59、overnment Response on potential business models for Carbon Capture,Usage and Storage11departments recently published CCUS Energy Innovation Needs Assessment5 shows that the UK could potentially store more than 78 billion tonnes of CO6.To put this into context,we could store equivalent of current tot

60、al UK CO emissions each year for over 200 years.Harnessing this natural advantage,the UK could capture up to 10 billion of a c.200 billion market in 20507.Delivering net zero,and unlocking the potential of CCUS,will involve an enduring partnership between the public and private sector.Government act

61、ion As a government we recognise the need for strategic infrastructure investment.That is why we have set an ambition to establish a net zero carbon cluster by 2040 the first of its kind in the world backed by up to 170 million of government funding.It is why we have also provided 315 million for th

62、e Industrial Energy Transformation Fund to support heavy energy users become more energy efficient and cut their carbon emissions.In August last year we announced a new 250 million Clean Steel Fund to support the UK steel sector to transition to lower carbon iron and steel production through new tec

63、hnologies and processes,including CCUS and hydrogen.At the same time,we also announced a new 100 million Low Carbon Hydrogen Production Fund to support the deployment of low carbon hydrogen production capacity.This investment is just the start.The announcement of a new CCS Infrastructure Fund provid

64、es additional support and contributes to what we believe is a huge industrial opportunity,which will support the Industrial Decarbonisation Challenge.In addition,we have committed to support the deployment of the UKs first privately financed CCS power station,using consumer subsidies.In Spring 2021,

65、we will launch our industrial decarbonisation strategy,setting out how government will work with industry to decarbonise in line with our ambitions for net zero.The CCS Infrastructure Fund At Budget in March 2020,the Chancellor announced at least 800 million for a new CCS Infrastructure Fund.The Fun

66、d will facilitate the delivery ofCCUS in at least two clusters,one by themid-2020s;and a second by 2030 including the infrastructure to support the construction of the UKs first private financed gas CCS power station by 2030.Alongside the required business models for CCUS,the Fund will provide a pat

67、hway to the deployment of low carbon technologies which can support:-the Industrial Clusters mission to establish the worlds first net-zero carbon industrial cluster by 2040 and at least one low-carbon cluster by 2030;-the UK reaching net zero emissions by 2050;and 5 The Energy Innovation Needs Asse

68、ssments(EINAs)support evidence and analysis on the role of different technologies in the UKs future energy system.The CCUS EINAS report published in 2019 is accessible via the link below:https:/www.gov.uk/government/publications/energy-innovation-needs-assessments 6 Pale Blue Dot:Progressing Develop

69、ment of the UKs Strategic Carbon Dioxide Storage Resource(2016)The report is accessible via this link:http:/www.eti.co.uk/project/strategic-uk-ccs-storage-appraisal/7 The Energy Innovation Needs Assessments(EINAs),(2019)is available at:https:/www.gov.uk/government/publications/energy-innovation-need

70、s-assessments Government Response on potential business models for Carbon Capture,Usage and Storage12-economic revitalisation in our most industrialised regions,helping to level up the economy and enabling a clean,resilient recovery from COVID-19.We have now commenced work to design the Fund.We have

71、 begun some early engagement with the sector and intend to continue this dialogue throughout 2020.At this stage we do not wish to exclude any technologies from being eligible for funding and are considering how the CCS Infrastructure Fund may best be used to support T&S,industry,power and low carbon

72、 hydrogen CCS projects.As we design the Fund,we will work with the sector to determine the gaps in funding that are unlikely to be delivered by private finance,or the alternative sources of government funding outlined above.We will consider the impact of our approach on the taxpayer and the consumer

73、.In their 2018 Progress Report to Parliament8,the Committee on Climate Change(CCC)assessed that“deploying CCS at scale in the 2030s will require deployment of CO infrastructure and initial capture projects at a level of around 10 MtCO per annum being captured and stored by 2030”and reaching 20 MtCO

74、per annum by 2035 to allow for progress towards the deployment levels we will require by 2050.The CCUS Cost Challenge Taskforce report identified this staged approach as crucial to allow the creation and de-risking of the CCUS industry before expansion during the 2030s.The CCCs 2020 report9 re-itera

75、tes that CCUS is“a necessity,not an option for the UKs net-zero objectives”,requiring significant progress in the 2020s to deliver a major T&S infrastructure servicing multiple clusters.Recognising this requirement to scale up at pace over the coming decade,the CCS Infrastructure Fund will be an int

76、egrated element of our work to establish enduring business models.It will be deployed to support strategic requirements for CCS infrastructure where government can play an enabling role in bringing down the risk and costs of CCS.To support this,we will produce a value for money framework that will s

77、tart from our high level principles(see page 17)and a measurable set of assessment criteria that meets our objectives for the Fund.Outline of key phases of expected work for the Fund design:CCUS Delivery We want to ensure that the UK has the right delivery capability to enable our ambition to deploy

78、 CCUS from the mid-2020s.This includes the capability within central government,but also within local authorities and devolved administrations across the UK,the private sector,and investment community.In our consultation,we asked the question:What capabilities are needed for the delivery of CCUS in

79、the UK?We received 42 responses to this question from stakeholders,with most respondents broadly agreeing with our proposed capabilities.Some respondents identified 8 The CCCs 2018 progress report to Parliament can be found at:https:/www.theccc.org.uk/publication/reducing-uk-emissions-2018-progress-

80、report-to-parliament/9 The CCCs 2020 progress report to Parliament can be found at:https:/www.theccc.org.uk/publication/reducing-uk-emissions-2020-progress-report-to-parliament/Government Response on potential business models for Carbon Capture,Usage and Storage13additional capabilities needed to en

81、able CCUS deployment.In particular,some respondents suggested government commitment to reduce the political risk and the implementation of required legislation were essential capabilities for CCUS deployment.We have recently appointed external commercial,technical and legal specialist advisory teams

82、 to support us to work towards our CCUS ambitions.We will continue to assess further government capability requirements and will also work with industry to ensure that the private sector also has the relevant delivery capability,drawing on a range of evidence sources and learnings from across the wo

83、rld to inform our policy development,including the Global CCS Institutes new report:Overview of organisations and policies supporting the deployment of large-scale CCS facilities.10 Developing business models for CCUS We must also develop a sustainable commercial framework,together with a clear risk

84、 allocation,for CCUS.We must ensure that CCUS business models enable UK companies to compete and grow in the global economy while reducing their carbon footprint.It is essential that these models can:Stimulate future private sector investment in CCUS,driving scale-up and market development;De-risk(t

85、o an appropriate level)the delivery and successful commercial operation of CO infrastructure;Support initial carbon capture projects;Support cost reductions;and Catalyse,along with other enablers,the project pipeline and the domestic supply chain,permitting timely delivery and a ramp up in deploymen

86、t during the 2030s as required.The consultation last year on potential business models for CCUS,and the principles for a low carbon hydrogen business model,was an important step forward.This government response,in turn,is a significant milestone as we look to develop a policy framework that will hel

87、p realise the key strategic opportunities of CCUS and low carbon hydrogen.We believe that targeted,focused and two-way engagement through the newly-established CCUS Expert Groups can accelerate the delivery of CCUS business models.The intention is to pool knowledge,capability and resources to progre

88、ss decision making on the business models,within the parameters of government value for money considerations.The CCUS Expert Groups were launched in February 2020,and Hydrogen Expert Group in May 2020,with subsequent,ongoing meetings focusing on power CCUS,industrial capture and CO transport and sto

89、rage and low carbon hydrogen.Impacts of COVID-19 Virtually no industries are untouched by the global impacts of COVID-19.Lockdown measures taken by countries,including the UK,to reduce transmission of COVID-19 has led to significant 10 GCCSIs report(published June 2020)can be found at:https:/ Respon

90、se on potential business models for Carbon Capture,Usage and Storage14reductions in the demand for oil,gas and some industrial commodities,while demand for some commodities,such as chemicals,have seen increased demand.Whilst it is too soon to fully understand what the impacts of COVID-19 will be on

91、these sectors,we recognise that there may be constraints on both industry and government in the coming months.We will consider this as we continue to work with industry to progress the CCUS business models and the design of the CCS Infrastructure Fund.The challenges posed by COVID-19 do not minimise

92、 the importance of innovative,green technologies.CCUS deployment in the 2020s is an essential part of a clean resilient recovery,driving job creation in the UKs industrial heartlands,bolstering the value of goods and services in regions,and tackling emissions to put us on track to meet our net zero

93、target.CCUS delivery action plan This decade will be critical for CCUS;one in which the public and private sectors need to transition from planning,to the operational delivery of the UKs first CCUS clusters.To achieve this over the course of 2020 and 2021,government has developed a CCUS delivery act

94、ion plan,which is currently proposed as follows:Development of commercial frameworks and delivery capability,and continued engagement with projects on this,along with framing the scope and objectives of the CCS Infrastructure Fund during 2020;Award funding under the second phase of the Industrial De

95、carbonisation Challenge by the end of 2020;Provide an update on commercial frameworks for industry,CO T&S networks and power by the end of 2020;Update on our assessment of potential business models to deploy low carbon hydrogen by the end of 2020;Publish a draft value for money methodology and crite

96、ria and metrics for assessing affordability of CCUS enabled industrial clusters at the end of 2020;and Progress business models for CCUS and low carbon hydrogen at pace,with a view to finalising business models within the next two years,in line with expected FIDs for projects.BEIS will continue to w

97、ork with the relevant devolved administrations to ensure that the proposed policies take account of devolved responsibilities and policies across the UK to facilitate successful deployment.Government Response on potential business models for Carbon Capture,Usage and Storage15Section 3:Parameters,Int

98、egration and Usage Parameters Our approach to investable and sustainable business models is informed by our overarching objectives for CCUS deployment:supporting the net zero transition;building resilience through decarbonisation of the wider economy;and contributing to the levelling up of the UK ec

99、onomy.Flowing from these overarching objectives are a number of ambitions for the 2020s,including:establishing at least two clusters by 2030,with the first by the mid-2020s;supporting the UKs first power CCUS project using consumer subsidies;and,importantly,enabling the capture and storage of suffic

100、ient volumes of CO to put us on a pathway to net zero.In 2019,we set out the following parameters to guide our approach to CCUS business models:The models should be market based and incentivise CCUS to provide value to the economy.They should drive decarbonisation and be compatible with market opera

101、tion and existing market frameworks.The design of the models should instil confidence among investors and should attract innovation and new entrants to the market.The models should be cost efficient providing value for money for taxpayers and bill payers,driving cost reductions and attracting new in

102、vestment.There should be appropriate and fair cost sharing between the government and CCUS developers,being mindful of impacts on taxpayers and bill payers.There should be an appropriate allocation of risk between the government and CCUS developers,that evolves as the CCUS industry matures.The model

103、s should have the potential to become subsidy free.Question One sought views on whether we had identified the right parameters to guide the development of CCUS business models.We received 50 answers to this question.Respondents views coalesced around what the parameters should reflect and avoid.Some

104、 respondents argued that the parameters should ensure:efficient and cost-effective delivery of the governments 2050 net zero target;that industry stays and grows within the UK;that there is appropriate and fair cost sharing;that government sets standards and precedents for the rest of the world to f

105、ollow;and that the parameters should facilitate learning and cost reductions.Government Response on potential business models for Carbon Capture,Usage and Storage16Other respondents suggested that the parameters should reflect:the specific characteristics of First of a Kind(FOAK)projects as well as

106、subsequent deployment;CCUS ability to support a wider range of options and choices for decarbonised energy;the value of jobs created and retained;and that the parameters should reflect not just value to economy but also value to society and the environment.Respondents also stressed that the CCUS par

107、ameters should account for the full chain value of each component in the chain.For example,the strike price from an abated gas generator should account for the wider economic benefits of supporting strategic infrastructure,the benefits of skills jobs in the UK,and the facilitation of economic benefi

108、ts felt by local areas.Finally,some respondents noted that these CCUS parameters should seek to avoid investment leakage;cross subsidisation across CCUS components;and the distortion of economic competition.Governments view:We welcome respondents views on these parameters.In light of these consultat

109、ion responses and further engagement,we propose the following key principles to guide our decision-making throughout the design of the CCUS business models and the CCS Infrastructure Fund:Decarbonisation our policies should incentivise efficient capture,utilisation and storage of CO where production

110、 is necessary but should not incentivise production of CO or result in perverse outcomes.Sustainable financing our policies should instil confidence among investors and attract new domestic and international entrants to the market in a sustainable manner,and have the potential to be subsidy free.Eco

111、nomy our policies should create value to the UK economy and support high-value jobs.Cost reductions our policies should harness opportunities to drive down cost through innovation,learning by doing and competition as appropriate.Market and flexibility our policies should be market based and minimise

112、 distortions in existing markets.They should be compatible with existing market frameworks but retain the flexibility to respond to market conditions and public needs as markets and the economy evolve.Value for money our policies should be cost-efficient,providing value for money for taxpayers and c

113、onsumers,and provide a risk-adjusted fair return to investors whilst recognising the first of a kind nature of the sector that with industry,we need to develop.Fair and reflective costs the cost of deploying CCUS should be reflective and fair,and not undermine UK industrial competitiveness.We contin

114、ue to regard these as guidelines,recognising that there may be trade-offs,and will consider these principles alongside our objectives as we continue to design CCUS business models and develop the CCS Infrastructure Fund.Government Response on potential business models for Carbon Capture,Usage and St

115、orage17Integrating CCUS Business Models Question 2 sought the views of respondents on how they thought the business models might be integrated.Respondents views were varied and included:Support for a simple business model across the power and industrial sectors,as well as hydrogen production;Belief

116、that the integration of business models will be crucial;Recognition that the interface between models will need careful definition(including the treatment of risk);Inappropriateness of integrating business models given the very wide range of CCUS activities;and that applying a single set of paramete

117、rs for all users may not work;Preference for a business model that separates CO T&S from capture;Belief that,while a separated business model could be the default,there are circumstances where a fully integrated model may have benefits e.g.for localised projects aimed at storing carbon emissions fro

118、m offshore oil and gas production;and Requirement for government to understand how business models co-ordinate and integrate across the CCUS chain for first projects.Governments view:Our view is that CCUS and low carbon hydrogen will likely play an essential role in decarbonising a number of key sec

119、tors of the economy.It is clear that previous attempts to commercialise CCUS,utilising a full chain model11,have not been successful.Our intention,therefore,is to create a series of individual business models for power,industry,low carbon hydrogen,and transportation and storage.This approach is cons

120、istent with,and takes account of,the range of advice previously submitted to government(such as from the National Audit Office,Lord Oxburghs Parliamentary Group on CCS,the CCUS Cost Challenge Taskforce and Parliamentary committees).In designing these individual business models,we recognise that each

121、 model should interact efficiently across the CCUS chain.We will be working with industry across 2020 to understand and optimise these dynamics.From a practical perspective,project developers will need to work with local and regional authorities and other relevant bodies to coordinate the activities

122、 of the CCUS-enabled industrial cluster.In particular,there should be a co-ordinated understanding,across each cluster,of how individual capture facilities interface with any CO T&S network.We understand the need for potential anchor projects to have a reasonable level of confidence in the future pi

123、peline to take final investment decisions.The appropriate allocation of risk across the chain will be a key focus of activity as we continue to develop the business models.11 i.e.a model encompassing all aspects of the capture,transportation and storage together.Government Response on potential busi

124、ness models for Carbon Capture,Usage and Storage18Carbon Utilisation Carbon Capture and Utilisation(CCU)involves the recycling of captured CO into other products,such as cement,polymer processing,fertilisers and synthetic membranes.An Ecofys/Imperial College London report for BEIS estimated that the

125、 total size of the UK market in 2016 was in the range of 400-500 ktCO/yr12 A Carbon180 report estimates the potential available market for products in sectors where carbon utilisation could be applicable to be worth over$5 trillion worldwide13.Although an emerging market,government recognises the ec

126、onomic potential and climate change benefits of CCU.As the UK decarbonises to meet its net zero target,we want to create value for UK companies.We also want to create thousands of future-proof,planet-saving,profit-making jobs all around the UK.That is why government is funding innovation in this are

127、a.Through BEIS Energy Innovation Programme(2010-2015,2016-2021),we have directly funded approximately 5.6m to CCU innovation projects.In June 2019,we provided 4.2 million to Tata Chemicals to help construct the first commercial,purpose-built CCU facility in the UK.Once operational in 2021,40,000 ton

128、nes of CO a year will be captured and used to make soda ash and sodium bicarbonate that is used by glass,food,pharmaceutical and chemical manufacturing sectors.Through R&D and innovation funding the UK is now home to Econic Technologies14,Carbon8 Systems15,and CCm Technologies16,three world-leading

129、innovators in carbon utilisation.Government intends to further explore the opportunities for carbon utilisation.For instance,there are still uncertainties around the extent to which some CCU technologies reduce and permanently store CO.We want to engage with the sector in 2020 to understand lifecycl

130、e emissions,consider what future innovation support might be required,and ensure that there is a stable and efficient regulatory framework that supports the development of carbon utilisation.12https:/assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/799293/SISUK

131、17099AssessingCO2_utilisationUK_ReportFinal_260517v2_1_.pdf 13 https:/carbon180.org/reports 14 http:/econic- originally funded Econic Technologies 100k in 2012-2013.Econic Technologies has been funded in the following UKRI programmes:https:/gtr.ukri.org/organisation/BA3803E9-A589-435F-850E-95D42DFC9

132、575 15 http:/c8s.co.uk/,Carbon8 Systems has been funded in the following UKRI programmes:https:/gtr.ukri.org/organisation/8E147ECF-44EF-482C-A5FE-1C81AE2A390A 16 https:/ccmtechnologies.co.uk/,BEIS is funding CCm Technologies 540k through the Energy Entrepreneur Fund(EEF)scheme.CCm Technologies has b

133、een funded in the following UKRI programmes:https:/gtr.ukri.org/organisation/A1A00770-EE4C-4BC6-877E-DD42619E77AA Government Response on potential business models for Carbon Capture,Usage and Storage19Section 4:CO Transport&Storage Introduction CO Transportation and Storage(T&S)networks are integral

134、 to the efficient and cost-effective decarbonisation of our economy.These networks can enable the deployment of firm and flexible low carbon power in a low cost,flexible electricity system;support at-scale low carbon hydrogen for use across the economy;provide a pathway for negative emissions throug

135、h Bio-energy with CCUS(BECCS)and Direct Air Capture with Carbon Sequestration(DACCS);and support the low carbon economic transformation of the UKs industrial heartlands.CO T&S networks also have the potential to become strategic national assets.With an estimated 78 billion tonnes of CO storage capac

136、ity in the UK Continental Shelf17,the UK can lead the world both in the provision of CO services,and in the storage of domestic and,potentially,international CO emissions.Governments commissioned analysis suggests that this transportation and storage potential could be worth up to 14 billion in UK e

137、xports by 205018.Likewise the shipping of CO can play an important strategic role in unlocking the potential for CO storage services,providing additional revenue streams for CO T&S business models and stimulating collaboration across our industrial clusters and with our European neighbours.That is w

138、hy,in partnership with the Netherlands and Norway,we proposed a provisional amendment to the London Protocol to allow for cross-border transportation and storage of CO which was successfully passed at the International Maritime Organisation in October 2019.This represents a significant milestone for

139、 cross-border transport of CO.We recognise that the development of CO T&S networks in the UK will be complex infrastructural undertakings that are likely to involve a variety of approaches,including the development of new onshore and offshore infrastructure,the potential for re-use of existing oil a

140、nd gas infrastructure and use of CO shipping to extend a networks reach.We have consulted separately on the re-use of oil and gas assets for CCUS projects and our government response is published alongside this document.19 The diversity of our industrial regions and the future low carbon transition

141、currently means that planned COT&S networks are being developed by different entities.This means that each CO T&S network,over its lifetime,will need to be flexible enough to accommodate multiple and different types of users with varying demand profiles and will need to be able to anticipate and acc

142、ommodate future CO volumes which may require expansion of the network.Each network will therefore have its own unique characteristics.We are mindful of these characteristics as we develop the design of an enduring business model for CO T&S.In the consultation we set out that we would explore whether

143、 a different business model to the fixed price model of the previous CCS Competition could be an investable proposition when 17 Energy Technologies Institute LLP,Taking stock of UK CO Storage,2017 https:/www.eti.co.uk/insights/taking-stock-of-uk-CO-storage 18 Source:Table 8 of the CCUS EINAS,availab

144、le at:https:/www.gov.uk/government/publications/energy-innovation-needs-assessments.19 The response to the consultation on the re-use of oil and gas assets for CCUS projects can be found at:https:/www.gov.uk/government/consultations/carbon-capture-usage-and-storage-ccus-projects-re-use-of-oil-and-ga

145、s-assets Government Response on potential business models for Carbon Capture,Usage and Storage20considering the requirements for CO T&S networks and we sought views on a number of models.THE MODELS EXPLAINED Regulated Asset Base(RAB)The T&S company would receive a licence from an economic regulator,

146、which grants it the right to charge a regulated price to users in exchange for delivering and operating the T&S network.To prevent monopolistic disadvantages,the charge is set by an independent regulator who considers allowable expenses,over a set period of time,to ensure costs are necessary and rea

147、sonable.Model variants could include the provision of financial support to decrease the upfront capital expenditure.Government-owned model Government would set up a regulated publicly owned CO T&S network,which would be responsible for delivering and operating the T&S infrastructure.Central to this

148、model is the privatisation of the network as the CCUS market matures.Cost Plus Open Book Direct operational payments from government to cover all properly incurred costs annually,on an open book basis,with an addition of agreed profit margins and return on investment.Widely used in transport and inf

149、rastructure projects.Waste sector type contractor Payment of a fee per unit of CO injected and stored.An arrangement could be established where funding from local authority budgets can be supported by private finance credits.Hybrid A combination or evolution of various models could be adapted to inc

150、orporate positive traits of some models and minimise negative aspects of others.In this chapter we have considered the consultation responses relating to CO T&S and indicated which model we are minded to progress.We have also outlined the next steps required to design and implement a model which adh

151、eres to our core business model parameters.Consultation Responses Overview We asked four questions on CO T&S in our consultation.These were:(1)Have we identified the most important challenges in considering the development of CO networks?(2)Do you agree that a T&S fee is an important consideration f

152、or any CO T&S network?In your view,what is the optimal approach to setting the T&S fee?(3)Of the models we have considered for CO T&S,do you have a preference,and why?And(4)Are there any models that we have not Government Response on potential business models for Carbon Capture,Usage and Storage21co

153、nsidered in this consultation which you think should be taken forward for CO T&S,and why?The majority of respondents provided views on these questions,including respondents primarily concerned with industrial decarbonisation,hydrogen production or power CCUS.We are grateful to those who responded.Al

154、l the points raised by respondents have been considered,and this chapter summarises the most significant issues raised.Identifying the most important challenges for the development of CO networks Question 5 asked respondents if we have identified the most important challenges in considering the deve

155、lopment of CO networks.There were 39 responses to this question.A significant majority agreed that the key challenges set out in our consultation were the most important.Several respondents wanted to draw attention to specific challenges,such as:The need for CO T&S networks to cater for internationa

156、l users particularly to encourage the shipping of CO where appropriate and addressing issues posed by the London Protocol;The reliability and sustainability of CO supply,highlighting the need for the network to operate to agreed standards to provide greater certainty of volume.To support this,it is

157、argued that the T&S operator should take responsibility for compression and quality checks of CO composition and pressure;and The importance of assessing scalability and determining the optimal size of T&S infrastructure to allow for anticipatory investment.It is suggested that this could avoid pote

158、ntial stranded asset risks and additional costs associated with the mismatch between supply and demand if assets are oversized or undersized.The importance of a T&S fee Question 6 asked respondents if they agree that a T&S fee is an important consideration for any CO T&S network,and what they view a

159、s the optimal approach to setting the T&S fee.35 respondents answered this question.The vast majority agreed that the T&S fee is an important consideration for any CO network and its business model.However,there was no clear consensus on the optimal approach to setting or structuring the fee.Notable

160、 themes included:That any T&S fee should have a fixed capacity element which,in certain circumstances during early network development,could be funded by government to recover capital expenditure and return on investment;That each capture project is charged a fee(e.g.on a/tonne of CO basis)for use o

161、f a T&S network to help ensure investor certainty;That a fixed T&S fee should be charged initially,which evolves to a fee based on utilisation of the network.An alternative could be a fixed maintenance type fee topped up based on usage;Government Response on potential business models for Carbon Capt

162、ure,Usage and Storage22 That a volumetric fee should be implemented underpinned by a minimum send or pay obligation;That assistance towards a T&S capacity fee is necessary for industrial CO capturers to ensure that first movers are not at a competitive disadvantage;and A mixed response to the Cost C

163、hallenge Taskforce proposal for the first anchor project in a cluster initially pay a higher fee which reduces as more emitters join the network.Respondents did not make specific comments on the design of the RAB-based formula for T&S fees proposed by the Cost Challenge Taskforce,which we set out in

164、 our consultation.Preference for proposed models Question 7 asked respondents if they have a preferred model of those considered for CO T&S and why.45 respondents answered this question,with the majority stating a clear preference of a model for CO T&S.Out of these respondents:There was a strong pre

165、ference towards a RAB model for delivering CO T&S.However,there was no consensus on the ownership structure for the RAB or level of government support which might be required;Some provided a view on a specific type of RAB model.A significant proportion favoured the Private Sector RAB model or the Pr

166、ivate Sector RAB model combined with a government grant.A few respondents expressed support for a Public RAB model;The majority of respondents who did not prefer a RAB stated preference towards government-owned model;There was a broad preference not to pursue the full-chain model used in previous CC

167、S competitions due to potential increased costs of the project and investor uncertainty arising from cross-chain risks;Some suggested that different models may be required for different CCUS projects,based on regional economic variations,and that the model should differentiate between FOAK and NOAK

168、CCUS projects,taking different risk profiles into account;and A limited number of respondents stated they do not have a preference for a model.A few stated that any of the three business models proposed by the CCUS Advisory Group could be suitable.Other models for consideration Question 8 asked resp

169、ondents if there are any models not considered in the consultation that should be taken forward for CO T&S,and why.26 respondents provided a response to this question.Of these responses:The majority referenced models already considered in this consultation or did not suggest any new models;and A few

170、 respondents suggested a different model to consider for taking forward CO T&S these were splitting transport and storage into two separate business models and creating a model where shipping plays a significant role in the structure.Government Response on potential business models for Carbon Captur

171、e,Usage and Storage23Governments View As discussed in our consultation,the development of CO networks in the UK presents a number of unique challenges to be addressed when designing a business model which supports their long-term deployment across our industrial heartlands.Our view,and the challenge

172、 we face,is that each T&S network must be able to accommodate multiple and different types of users with varying demand profiles and the business model must be sufficiently flexible to recognise various potential network designs and growth profiles.Developers,investors and users of T&S networks must

173、 also have visibility over the allocation of T&S specific risks such as stranded asset risks,varying build out rates between a capture plant and T&S infrastructure,potential long-term storage leaks and unknown liabilities.We recognise that the business model must also provide investors with confiden

174、ce over the reliability and sustainability of CO supply which is important for revenue certainty.We agree with respondents to this consultation on the need for the network to operate to agreed standards to provide greater reliability of volume.We also share the view on the importance of assessing sc

175、alability and determining the optimal size of T&S infrastructure in order to allow for anticipatory investment which could avoid potential stranded asset risks and additional costs associated with the mismatch between supply and demand if assets are oversized or undersized.Finally,we acknowledge tha

176、t whilst large upfront capital expenditure will be required initially to construct onshore and offshore T&S infrastructure,once built the operational costs and the incremental costs of network expansion would be expected to be lower.It will be important that the financing and funding model reflects

177、this and can support investment and returns across the life of these assets.A regulated T&S network Our view is that given CO T&S networks are likely to be operated as regional monopolies,which encompass a range of different network users and emitters operating under different commercial models,we a

178、re minded to progress the development of a new regulated network model under which future T&S networks can be developed and operated.We believe this would enable the development of regional T&S networks that can provide certainty to both investors and the network users in terms of revenue flows,risk

179、 allocation and service provision.We would expect each regulated network for CO T&S to adhere to a core set of indicative principles set out below:Regulated:by an independent body to oversee industry and support deployment in line with government policy.Defined in legislation where appropriate.Codif

180、ication:the high-level relationship between owners,operators and regulators is clearly articulated.Transparency:an evidence-based approach leading to well understood mechanisms/methodologies including revenue calculations.Opportunity for stakeholders to comment,engage and potentially challenge decis

181、ions.Stability:providing a framework for long term stable investment in a project that is likely to have a long operating life.Adaptability:given cost uncertainty in the short run any framework will need to include reviews and allow for the possibility of expansion.Government Response on potential b

182、usiness models for Carbon Capture,Usage and Storage24 Equitable risk sharing:investors to own an appropriate level of risk which is clearly understood and commensurate with returns received by investors.Provision of a fair return to investors over the lifetime of the project The enduring model would

183、 also need to recognise the unique differences between the CO T&S business compared to other existing regulated networks,including the diverse user base operating under different capture business models,the unique T&S specific risks and the broad regulatory landscape under which T&S networks will op

184、erate.Financing and Funding To establish a commercial framework that enables and supports stable investment in projects that are likely to have a long but potentially varied operating lives,it is vital that the right financing and funding structures are in place.These will help ensure that both upfr

185、ont costs of building the infrastructure are met and allow a system to generate revenue to pay for T&S assets over their lifecycle effectively.The CCUS Cost Challenge Taskforce20,the BEIS Select Committee on CCUS21 and the CCUS Advisory Group22 all shared the view that due to the characteristics of

186、a CO T&S network,a RAB funding model would be a suitable funding model in the long-term and should be considered in more detail.The majority of respondents to this consultation also identified the RAB funding model as their preferred model for operation of CO T&S networks,however there was no consen

187、sus on how government capital could be used for construction of T&S networks.The RAB model referred to in this document is a generic economic regulation model.The model would consist of a regulated revenue stream determined by a building block approach,paid to the T&S company(T&SCo)during operation

188、by users of the T&S network,determined by an economic regulator.This is to mimic the incentives that would be faced by the market if it were competitive.The starting point of the economic regulation funding model is that the model would consist of a number of building blocks and would be regulated b

189、y an economic regulator.Each building block represents a category of cost incurred by the project company in the course of performing its business functions.The building blocks would be scrutinised by the relevant economic regulator to ensure that costs are efficient and are the constituents of Allo

190、wed Revenue.As a starting point,we would draw on applicable elements of economic regulation models for greenfield projects(e.g.offshore transmission assets and interconnectors)and brownfields project(e.g.gas and electricity transmission and distribution networks under RIIO)with adjustments to facili

191、tate the specific characteristic of T&S projects.Our qualitative analysis has shown that a regulated network funding model can be an effective tool to address natural monopoly issues associated with regional T&S networks,with the following key benefits:20 Delivering clean growth:CCUS Cost Challenge

192、Taskforce report,July 2018 https:/www.gov.uk/government/publications/delivering-clean-growth-ccus-cost-challenge-taskforce-report 21 BEIS Select Committee Report:Carbon Capture Usage and Storage:third time lucky?April 2019 https:/www.parliament.uk/business/committees/committees-a-z/commons-select/bu

193、siness-energy-industrial-strategy/inquiries/parliament-2017/inquiry9/22 Investment Frameworks for the Development of CCUS in the UK,CCUS Advisory Group,July 2019 http:/www.ccsassociation.org/news-and-events/reports-and-publications/Government Response on potential business models for Carbon Capture,

194、Usage and Storage25 It is a proven tool to address challenges associated with natural monopolies The presence of an economic regulatory regime to regulate fees charged by the owner of the natural monopoly infrastructure and create other mechanism to mimic that of perfectly competitive markets has be

195、en adopted successfully in other natural monopoly sectors such as electricity,gas and water sectors;Expansion of CCUS We believe the model can provide flexibility to accommodate uncertainty,notably demand and operational costs(due to FOAK application).A price control review feature within a RAB mode

196、l could incentivise efficient deployment of capital(work expansion to meet anticipated need in the future and therefore support future growth of the CCUS market);Cost reduction The model could provide the flexibility and ability to address future uncertainty by allowing for financing costs to be low

197、er than a traditional contractual funding model.Flexibility of the RAB model could also allow efficiency gains and cost reduction benefits(as part of transition from FOAK to NAOK)through learning-by-doing to be incorporated as part of future price control reviews of early projects,providing a clear

198、path for increased efficiency(i.e.output/)similar to the regulated utilities sectors.Familiarity Investors and private sector developers are familiar with the RAB model,observed under other sector such as electricity,gas and waters.Adopting a similar approach for CO T&S could reduce the financing pr

199、emium required due to familiarity and track record of the funding model in other sectors.Unlock private sector investment The building block approach can allow for recovery of financing costs and therefore facilitate large debt raises,as well as provide a clear statement of the investors sunk cost i

200、n the T&SCo(i.e.the value of the RAB would reflect an efficient deployment of capital from the investors).This,coupled with the economic regulators political independence and duty to finance as observed in other regulated utilities sector established would minimise the political risk of government a

201、djusting the T&S fees and reducing the ability of the investor to recover their capital investment in the T&SCo.This reduces the degree of HMG behaving opportunistically in seeking to lower the price of service at marginal cost.This model would be attractive to those with longer term investment hori

202、zons.For these reasons,we will continue to analyse the potential benefits of the T&S network being funded through a regulated network model in the long term.We believe that a T&S network developed under a regulated funding model has the potential to exhibit risk-reward investment characteristics sim

203、ilar to regulated utilities with adjustments for construction risks and CCUS specific risks.We are also considering the benefits and feasibility of using government capital through the CCS Infrastructure Fund for example,to help to facilitate the timely deployment of early projects.Economic and mark

204、et regulator In accordance with our indicative core principles for a new regulated network model for T&S,an independent body is likely to be required to oversee the development of the network and support deployment in line with government policy.We consider that both an economic regulator and a mark

205、et regulator will be required.The economic regulator would be responsible for overseeing the economic regulatory regime for the T&S network.The market regulator would oversee the connection of capture plants to the T&S network,similar to the Oil and Gas Government Response on potential business mode

206、ls for Carbon Capture,Usage and Storage26Authority(OGA)s role in awarding offshore CO storage licences.The economic regulator and market regulator roles could be performed by a single entity.Government is considering whether to utilise an existing regulatory body to oversee the operation of CCUS T&S

207、 networks.This option would minimise the delays inherent in,and avoid the additional costs of,establishing a new regulatory body.Existing regulators also have a proven track record.We believe this could also help create market confidence and attract investment.An alternative option could be to estab

208、lish a new regulatory body to undertake this function.Progressing the Business Model Funding model Whilst we are minded to develop a business model for T&S networks that draws from established forms of economic regulation,such as the RAB funding model(given the aforementioned features of a T&S netwo

209、rk which lend themselves well to such a model),we also recognise there are a particular challenges for CO T&S which must be addressed through the design of the model.This will be a key focus of our ongoing work.We recognise,for example,that as we build out the network from a small user base,one of t

210、he unique features of a CCUS T&S network is that it could serve customers from many different industries operating under distinct business models(industrial CCUS,power CCUS,hydrogen production with CCUS),both domestically and potentially from abroad,and having slightly different demand profiles over

211、 the life of the asset.This presents a challenge when designing the revenue mechanism for a possible T&SCo.We will need to consider the implications of the possibility that the first emitters connecting to a T&S network(anchor projects)may be loaded with the initial costs of using the network.We als

212、o need to consider how to manage demand risk and how this might be viewed by investors in network infrastructure.We will continue to engage with industry on these and other issues as we develop the appropriate funding model.T&S risks and risk allocation Our expectation is that CO T&S networks will h

213、ave similar characteristics to other types of regulated assets.To deliver these characteristics,a suitable risk sharing framework needs to be developed.In developing this risk framework we currently believe that it should be based on the principle that risks should be allocated to the party that is

214、best able to manage them.A sustainable and enduring T&S business model must therefore provide confidence to investors through the effective management of T&S risks.There needs to be clear visibility around the principal construction and operational risks and the overall costs of developing T&S netwo

215、rks.Further,it will be important to ensure that there is a transparent and equitable allocation of those risks and costs between the owners and users of the network-one which enables private sector investment and is capable of evolving over time,while providing value for money for the taxpayer and c

216、onsumer.We will work with the CCUS T&S Expert Group to develop a shared understanding of the risks associated with the development of T&S networks,their quantum,and likelihood.Supporting network roll-out Government Response on potential business models for Carbon Capture,Usage and Storage27There is

217、a role for government to support and incentivise the investment of CO infrastructure,particularly for first clusters.To ensure T&S networks are investable propositions in the UK we will consider government intervention to address the inherent market failures,including using the CCS Infrastructure Fu

218、nd alongside sustainable commercial frameworks to help unlock capital investment.That could for example(as one scenario)involve the Fund being used to oversize T&S capacity so early customers do not end up paying very high unit charges.Another example could be to provide grant funding to wholly buil

219、d segments of the early network.To improve our understanding of the sector and deployment potential,we have embarked on a price discovery phase and commenced work to explore standardisation opportunities for T&S in order to develop a common understanding of the construction and operation costs and r

220、isk associated with deploying T&S networks across the UK.Having a more in depth understanding of the deployment potential in the UK will help to ensure government is able to support roll out in the most effective way.Regulating T&S networks We are working closely with regulatory bodies across the UK

221、 to ensure the right regulatory framework and associated guidance is in place to support CCUS projects across the value chain and through the entire life cycle of projects.This is particularly important for enabling the timely deployment of T&S networks which are complex infrastructure undertakings

222、spanning a variety of regulatory regimes and approvals processes.As part of this process,we have recently established a CCUS Regulation Forum to ensure,where possible,that a coordinated,comprehensive and consistent approach is taken across the UK and we will continue to engage with industry to ensur

223、e the appropriate enabling framework is in place.Next Steps As we move towards the implementation phase for CCUS in the UK,and utilising commercial,technical and financial expertise(including our CCUS Expert Groups)we will work to determine the optimal regulatory pathway.This will include an assessm

224、ent of:How to establish a new regulated network model that enables and supports stable investment in projects that are likely to have a long(but potentially varied)operating life;and the most suitable ownership,financing and funding structures to underpin this;The role and duties of an economic regu

225、lator,particularly how prices/cash flows and allocation of risks are established and how revenue certainty could be maintained in the landscape;The role and duties of a market regulator,particularly how prospective network users connect to the gathering network and how third party access agreements

226、are managed;How to ensure that any regulatory regime is capable of adapting over time as the market for CO storage services expands,while ensuring value for money for the taxpayer/consumer;and How any regulatory regime can incentivise cost reduction,innovation and good quality performance.Government

227、 Response on potential business models for Carbon Capture,Usage and Storage28We will also continue our work on price discovery and risk allocation in the second half of 2020,primarily through the T&S CCUS Expert Group as well as our commercial,legal and technical advisors,to develop a common underst

228、anding of:The construction and operation costs of T&S networks in the UK,including an understanding of the full technical specification of any T&S network.;The risks inherent in the development of T&S networks,their quantum,and likelihood.Government recognises that effective management of T&S risks

229、will be vital for the development of a sustainable T&S business model,providing confidence to investors.Government and the private sector will need good visibility of the principal construction and operational risks;How accessing the CCS Infrastructure Fund,and other forms of government intervention

230、,can reduce costs to consumers;How best to provide revenue certainty to developers and their investors,including through the design of any potential T&S fees,information about what circumstances a T&S fee might apply and how they could be charged on users of the T&S network;and How any support or in

231、centivise mechanism can transition from FOAK CCUS projects to mature T&S networks serving multiple capture facilities.In undertaking this work we aim to:Provide an update on the business model for CO T&S networks for CCUS in Q4 2020.Government Response on potential business models for Carbon Capture

232、,Usage and Storage29Section 5:Power CCUS Introduction Decarbonising our electricity sector has been a UK success story.From 2016 to 2018,we drove down the electricity grid carbon intensity by over 22%,from 268 to 208gCO/kWh23.We know that more must be done,however,if we are to deliver our overarchin

233、g net zero target.That is why at the Budget in March 2020,government announced it will support the construction of the UKs first CCS power plant by 2030,using consumer subsidies.Whilst we cannot predict today exactly what the generating mix will look like in 2050,we can be confident that renewables

234、will play a key role.However,in order to decarbonise whilst maintaining security of supply and keeping costs low,we will need to balance renewable variability against demand.To do this we will need system flexibility,energy storage and non-weather dependent,low carbon power generation.We consider th

235、at thermal power with CCUS(power CCUS24)is one technology which can provide this type of power at scale.This view is shared by other organisations,such as the CCC.Government recognises that market failures prevent the deployment of the first power CCUS projects in the UK.Consistent with the over-arc

236、hing parameters,as set out in the Introduction to this government response,we are committed to developing power CCUS business models that can:Incentivise and enable power CCUS to dispatch after low marginal cost technologies such as renewables and nuclear,but ahead of other unabated power plants as

237、part of a flexible electricity system;Provide sufficient certainty to investors to unlock private sector investment and expertise;Provide the minimum necessary support,compatible with fiscal rules,and have a pathway to reducing support;Consider how to enable a competitive allocation process,incorpor

238、ating learning from the success of the process for allocating renewable CfDs competitively to secure best value for money and reduce costs over time;Ensure that costs are affordable for electricity consumers and/or taxpayers;and Through consumer subsidies,support the construction of the UKs first pr

239、ivately financed CCS power station,to be operational by 2030.Any business model must be sensitive to ongoing technological innovation and the range of technology options for electricity system decarbonisation.Technological and operational 23https:/assets.publishing.service.gov.uk/government/uploads/

240、system/uploads/attachment_data/file/840015/DUKES_2019_MASTER_COPY.pdf.Page 96 24 In this document we use the term power CCUS to cover technologies which have CCUS technology applied directly to a thermal power plant,including pre-combustion,post-combustion,and oxy-fuel technologies.This encompasses

241、both new build CCUS power plants and retrofitted CCUS power plants.In addition,hydrogen-fired power plants which are standalone from hydrogen production infrastructure could be considered under the power CCUS business model discussed in this document,however,this will depend on the development of a

242、hydrogen production business model.Government Response on potential business models for Carbon Capture,Usage and Storage30process improvements for power CCUS,trade-offs between post-combustion CCUS and hydrogen-fired technologies,and the development of novel technologies could potentially change how

243、 we seek to decarbonise the electricity system.Innovation also has the potential to alter the options available to us to decarbonise that system cost effectively,bringing forward new,lower cost and more efficient generating technologies.It will also stimulate the market to identify additional revenu

244、e streams from low carbon electricity generation assets.It is important,therefore,that we avoid locking consumers into higher cost pathways to low carbon electricity.Over the medium term we will keep under review the approach we take to bring forward power CCUS as part of a low carbon electricity sy

245、stem,including considering the appropriateness of other market mechanisms,such as the Capacity Market.As with the CfD for renewables,this may mean that the model outlined here is adapted over time as the market evolves.THE MODELS EXPLAINED In our consultation document we proposed two models based on

246、 the Contract for Difference scheme:a Standard Contract for Difference for CCUS(“Standard CfD”);and a Dispatchable Contract for Difference for CCUS(“Dispatchable CfD”).The Standard CfD is closely based on the existing CfD design for renewables.It consists of a difference payment between the wholesal

247、e electricity price and an agreed strike price in order to give investors certainty of returns.Where wholesale prices are lower than the strike price,a payment would be made from the Low Carbon Contracts Company(LCCC)to the generator.In the case where wholesale prices are higher than the strike pric

248、e,the generator would pay back to the LCCC.In the case of CCUS,the strike price would be calculated to incorporate the Levelised Cost Of Electricity(LCOE)of the generation and carbon capture elements of the plant.In addition,our consultation paper suggested this mechanism may require fuel price inde

249、xation to be incorporated,in order to ensure that the plant would operate at times of high fuel prices and to ensure consumers would benefit from lower costs at times of lower fuel prices.The alternative model,the Dispatchable CfD,aims to incentivise the flexible generation of the power plant by pro

250、viding two payments:one for low carbon availability;and one to incentivise a power CCUS plant to dispatch ahead of an unabated equivalent plant but behind renewables and nuclear.This aims to enable plants to play either a baseload or the mid-merit role we primarily see CCUS as performing.Consultatio

251、n Responses Overview We asked four questions on power CCUS in our consultation.These were:(1)Have we considered the most important challenges in considering the development of CCUS power projects?(2)Of the models we have considered for power CCUS,do you have a preference,and why?(3)In your view,shou

252、ld any potential funding model(s)be applicable across all power CCUS technologies(including but not limited to CCGT with post-combustion capture,BECCS,and pre-combustion capture or hydrogen turbines)?and(4)Are there any models that we have not considered in the consultation which you think should be

253、 taken forward for power CCUS,and why?Government Response on potential business models for Carbon Capture,Usage and Storage31The majority of respondents provided views on these questions,including respondents primarily concerned with industrial decarbonisation or hydrogen production.Identifying the

254、most important challenges for developing power CCUS projects Question 9 asked respondents to provide views on whether BEIS had identified an appropriate range of challenges for power CCUS.37 responses were received.The overall approach set out in the consultation document was welcomed.The majority o

255、f respondents agreed the value of power CCUS in decarbonising the electricity system is its ability to provide mid-merit,dispatchable,low carbon power.Decarbonising mid-merit power enables greater renewable deployment and could contribute to lower total electricity system costs.However,balancing the

256、 inherent uncertainty of this dispatchable role with the need to provide sufficient certainty to investors to ensure deployment of power CCUS can proceed is a key challenge for the business model.The majority of respondents also agreed that gas-fired power CCUS would be an effective technology to pu

257、rsue in providing low carbon dispatchable power,though respondents also recognised that alternatives may become more viable in the future.Some respondents also highlighted a number of additional challenges that government should consider when developing a power CCUS business model.These included:The

258、 LCOE metric is not effective for valuing firm,flexible generation.By focusing on/MWh,technologies like offshore wind and power CCUS are compared without consideration of the type of generation that they provide,e.g.firm dispatchable vs.intermittent generation.It was proposed that dispatchable gener

259、ation should therefore be valued with another metric or approach to avoid an imbalanced comparison;BECCS was not considered explicitly enough in relation to the power CCUS business models;Energy Intensive Industries(EIIs),as major electricity consumers,could pay a significant portion of the total su

260、pport that that may be allocated for power CCUS;and Capturing the fossil fuels burned in power plants only reduces emissions in the downstream element of the supply chain.Upstream practices,such as the extraction and transport process,are also considerable greenhouse gas emitters,(notably in the for

261、m of methane which has a greater Global Warming Potential(GWP)than CO).Preferences for proposed models Question 10 asked respondents to discuss their preferred model out of those considered.57 responses were received:Of those which expressed a preference,the majority of responses preferred the Dispa

262、tchable CfD,agreeing with the principle of incentivising power CCUS facilities to dispatch after renewables and nuclear,but before unabated equivalent generation;Some respondents stated that the standard CfD could also be a financially acceptable alternative,but recognised that this could lead to po

263、wer CCUS facilities being incentivised to run when there is limited system need;Some respondents who indicated a preference for the Dispatchable CfD stated support for the principles behind the model but noted that it may be complex to administer;and Government Response on potential business models

264、for Carbon Capture,Usage and Storage32 Some respondents also proposed a support mechanism for BECCS power projects.Proposals advocated BECCS plants running as baseload to maximise the production of negative emissions,supported by a negative emissions top-up to either the Standard CfD or Capacity Mar

265、ket payments.Inclusion of power CCUS technologies under one model Question 11 sought views on the value of creating a model that would be applicable across all power CCUS technologies,including CCGT with post-combustion capture,BECCS and pre-combustion capture or hydrogen turbines.33 responses were

266、received:Of those which expressed a view,the majority of respondents saw the advantage of a unified approach across a range of technologies,though many of these thought that such a model may not apply to BECCS.The primary reason given for a unified approach was to support competitive tension between

267、 the technologies and to avoid technology lock-in.Hydrogen power generation was notably referenced in this regard,with respondents advocating that it should be able to compete with post-combustion plants under a unified model.Other models for consideration Question 12 sought views on whether there w

268、ere alternatives to the Standard and Dispatchable CfDs that respondents wished BEIS to consider for supporting power CCUS.31 responses were received:The majority of respondents did not propose alternative models.A minority suggested models primarily for incentivising BECCS,such as a standard CfD acc

269、ompanied by an additional negative emissions payment,as discussed in question 10.A small minority of respondents suggested that the Regulated Asset Base model was their preferred alternative to any form of CfD for bringing forwards investment in power CCUS.Governments View Government recognises the

270、need to incentivise the deployment of power CCUS in the UK.Consistent with the over-arching parameters(see Section 3),our current preference is for a revenue mechanism which:Incentivises power CCUS to operate flexibly,dispatching after renewables and nuclear,but ahead of other unabated power plants

271、as part of a flexible electricity system;Has the capacity to be competitively allocated;Provides fair return on investment with appropriate risk allocation and without overcompensation;and Ensures that the costs are affordable for electricity consumers.Any power CCUS business model would be subject

272、to value for money and affordability assessments.In making such assessments,government will assess the total system costs of power CCUS.Government Response on potential business models for Carbon Capture,Usage and Storage33We will conduct further work in 2020 to understand,in detail,the structure of

273、 a revenue mechanism for power CCUS.However,based on the above objectives,we are minded to progress work on a mechanism which consists of a payment for availability of low carbon generation capacity,and a variable payment.A combination of these payments could enable a plant to operate flexibly,provi

274、ding value to a low carbon electricity system with growing renewable capacity,and still provide sufficient certainty to investors.Further detail on how these elements of a prospective mechanism could look is given below.Availability Payment A payment for availability of low carbon generation capacit

275、y could provide investors with sufficient certainty,by providing a known stable investable level of return.In addition,if renewable capacity grows between now and 2050,and power CCUS plants are required to dispatch in a mid-merit role,developers can expect load factors to decrease overtime,which cou

276、ld further reduce the certainty of revenue from the direct sale of electricity.The proposed availability payment could be a stable regular payment from a counterparty to the generator.This could be paid based on the availability of low carbon generation plant,could be set relative to the cost of the

277、 generation and capture plant,taking into account capture rate availability,and could be indexed to inflation.Therefore,it is likely that the availability payment may be reduced,for example,in the case of unscheduled outages of the plant or underperformance against an expected capture rate.Variable

278、Payment In order to avoid overcompensation,a variable payment may be needed to incentivise power CCUS plants to operate flexibly,dispatching after renewables and nuclear,but ahead of an unabated equivalent plant.In the absence of a sufficiently high carbon price,power CCUS facilities could be uncomp

279、etitive with unabated plants.In this case,a variable payment could be needed to account for a power CCUS plants additional costs,relative to those of an equivalent unabated plant.This payment could place power CCUS plants ahead of an unabated plant in the merit order.The proposed variable payment co

280、uld be provided as a top up on wholesale market revenue to reduce the effective short-run marginal cost of a power CCUS plant if this is greater than the short-run marginal cost of an equivalent unabated plant.This could then incentivise a power CCUS plant to dispatch in the market ahead of an unaba

281、ted equivalent.However,if carbon prices are sufficiently high,the variable payment is unlikely to be required as market signals would indicate the power CCUS plant should already be dispatching ahead of an unabated equivalent,and would receive returns through the direct sale of electricity in the wh

282、olesale market.In order to ensure fair returns to investors,based on the risk allocation,a cap of some form could be placed on the revenues that the plant could receive.It is anticipated that the calculation of both the variable payment and any cap may have to be undertaken on a regular basis to tak

283、e account of changes in the fuel and carbon price relative to electricity prices.These could be calculated relative to an equivalent unabated reference plant.Reference plant Further work is required to identify an appropriate reference plant(s)against which any variable payments could be benchmarked

284、.As an example,for a CCGT with post-combustion CCUS plant,this could be an equivalent class CCGT,or the most efficient CCGT available on the Government Response on potential business models for Carbon Capture,Usage and Storage34market at the time of contract signature.The characteristics of the refe

285、rence plant(such as efficiency factors and variable operational cost)could be used as a comparator for those of the power CCUS plant under consideration,and be used with fuel and carbon reference prices to calculate any variable payment to be provided.Transport and Storage(T&S)Fee Further work is ne

286、cessary to determine the optimal means to support and incentivise the deployment of CCUS T&S infrastructure in the UK,and what implications this has for any payments from a power CCUS plant to a T&S operator,such as whether any fee is incorporated into the power plant support mechanism or is adminis

287、tered separately.As explained in the chapter on T&S,we will provide a core set of principles on the ownership and funding model for T&S by the end of 2020.We expect that this will set out under what circumstances,a T&S fee might apply,and,if it should,whether it should comprise of a fixed and variab

288、le element.Outages We are currently considering how the payments under the business model would be affected by outages,and in particular,how these reflect allocation of cross-chain risks.This includes consideration of,for example,whether the proposed availability payment would still be paid to the p

289、ower CCUS plant in the event of a T&S operational outage,where that outage is not the fault of the power CCUS operator.Further consideration is needed,for example,to what might happen in the event of a T&S outage,and whether a plant could run unabated,but then may not be eligible for any proposed va

290、riable payments.In addition,further work is needed to establish what may happen if there are permanent outages of the T&S network,which could lead to a plant running unabated indefinitely and so leading to a permanent reduction in or termination of the availability payment.BECCS in the power sector

291、We will explore the best use of sustainable biomass for BECCS in the power sector,along with its other applications such as heat or hydrogen production.Any mechanism to support such deployment will need to align with wider biomass and GGR policy.Vivid Economics proposed a number of options in a rece

292、nt study commissioned by BEIS25,which will inform the development of our strategic approach to negative emissions.We will publish a call for evidence on negative emissions technologies later this year.Next steps As we move towards the implementation phase for CCUS in the UK,and utilising commercial,

293、technical and financial expertise(including our CCUS Expert Groups)where necessary,we will:Continue to work with the Expert Groups to finalise the optimal revenue mechanism to incentivise the deployment and operation of power CCUS in the UK,including consideration of the risk sharing framework and d

294、etails of the initial contracts such as the duration;25 https:/www.gov.uk/government/publications/greenhouse-gas-removal-policy-options Government Response on potential business models for Carbon Capture,Usage and Storage35 In order to inform future policy on greenhouse gas removals(GGRs),a call for

295、 evidence on negative emissions technologies and carbon pricing is expected to be launched later this year,covering GGR power technologies such as BECCS as well as other GGRs such as DACCS.This will build on evidence gathered through the HM Treasury consultation on Carbon Emissions Tax.26 Continue t

296、o assess these contracts,and the process for awarding them,in the context of power CCUS technology development and a future evolving electricity system.This could include,for example,more closely integrating power CCUS mechanisms with other schemes within the wider electricity market in future.Conti

297、nue to consider technological improvements and changes and how these may change our approach;and Develop draft standard terms for future power CCUS contracts.To help develop the chosen model with industry,we will be seeking input from industry through the BEIS led Power CCUS Expert Group which we es

298、tablished in February 2020.We will also discuss with individual stakeholders,in particular project developers and the investment community.We will aim to:Provide an update on the business models for power CCUS in Q4 2020.26 The HM Treasury consultation on Carbon Emissions Tax can be found at:https:/

299、www.gov.uk/government/consultations/carbon-emissions-tax Government Response on potential business models for Carbon Capture,Usage and Storage36Section 6:Industrial CCUS Introduction Business and industry account for 25%of UK greenhouse gas emissions.Whilst energy efficiency improvement options for

300、industry are currently available,options for deep decarbonisation are more expensive and less developed.As we transition to a net zero economy,CCUS will be fundamental to securing the long-term competitiveness of energy intensive industries,supporting clean growth around the UK,protecting existing j

301、obs and generating new jobs and economic opportunities.CCUS is not currently investable for most industrial sectors as the high cost of deploying CO capture and transporting and storing the CO cannot be passed on to consumers by businesses operating in competitive global markets.Businesses are also

302、likely to be deterred from investing by uncertainty over the future carbon price and how it will affect both their overall competitiveness and the case for deploying CCUS.Additionally,businesses may face challenges raising capital finance to invest in CCUS until costs come down as a result of higher

303、 deployment,proven results and more efficient supply chains.This is exacerbated by there being a minimal premium attached to low carbon industrial products.In order to address these specific challenges and support the deployment of industrial carbon capture,a business model for industrial CCUS is ne

304、eded.Whilst this government response focuses on CCUS,we aim to develop a model that would be capable of evolving to support industrial decarbonisation through other low carbon technologies.In the CCUS business models consultation,we highlighted three potential business models for industrial CCUS:CO

305、Contract for Difference model,a tradeable CCS certificates plus obligation scheme and a cost plus open book model.THE MODELS EXPLAINED Contract for Difference(using a CO reference price):A CfD strike price is agreed per tonne of CO abated,based on the expected costs of building and operating the ind

306、ustrial carbon capture assets.The emitter partly funds the cost of capture by selling any excess free CO allowances(or equivalent)27 and the government(through a CfD counterparty)pays the difference between the CfD strike price and a defined reference price(linked to the prevailing CO allowance pric

307、e)for an agreed period of time.Tradeable CCS Certificates Plus Obligation:An obligation is created requiring emitters to surrender a specified number of CCUS certificates based on the size of their emissions.These certificates are awarded to emitters deploying CCUS on a per tonne of CO abated basis.

308、Parties within the obligation scheme can choose whether to deploy CCUS to earn certificates or purchase them from other emitters that have a surplus.27 This element of the model is subject to the design of the UKs future carbon pricing policy.Government Response on potential business models for Carb

309、on Capture,Usage and Storage37Cost Plus Open Book:Capital costs are co-funded on the basis of open book project information sharing and the emitters capital costs are repaid with agreed returns.The emitter is directly compensated by government for properly incurred operating costs.In addition to the

310、 models set out by government,the CCUS Advisory Group(CAG)set out their own recommendations for potential models.These were:a model based on a CO Contract for Difference supported by a partial government grant for early projects;and a model based on a regulated decarbonisation service company.CAG CO

311、 Contract for Difference supported by upfront government grant:Capital costs are financed by the private sector,supported for early projects by partial government grant,with government making payments to the emitter over an agreed period once the plant is operational to cover repayment of the privat

312、e sector capital plus an agreed return(under an open book approach).Ongoing operating costs are covered by a CO Contract for Difference.CAG Regulated Decarbonisation Service Company:A company is established to raise private sector finance to invest in CO capture projects on industrial sites and prov

313、ide a“decarbonisation service”to industrial emitters.Revenue support flows from government to the service company,which eliminates the need for industrial producers to invest directly in the capture plant.Consultation responses Overview The Department received a large number of high-quality response

314、s to these questions,including responses from research bodies,iron and steel,cement and chemical sectors,oil and gas companies,CCUS projects,cluster partners,trade bodies and others,which formed a critical foundation to deciding which business model we are minded to progress.The consultation asked f

315、ive questions of industry.These were:(1)Have we considered the most important challenges in considering the development of CCUS for industry?(2)Of the models we have considered for industry CCUS,do you have a preference,and why?(3)Are there any other models that we have not considered in this consul

316、tation which you think should be taken forward for industry CCUS,and why?(4)In your view,are there any models which best work across all industrial sectors where CCUS could have a role to play?and(5)What actions should government and industry take to establish demand for low carbon industrial produc

317、ts?Identifying the most important challenges for the development of CCUS for industry Question 13 asked what the most important challenges were when considering the development of CCUS for industry.There were 43 responses to this question.Government Response on potential business models for Carbon C

318、apture,Usage and Storage38Most responses to this question agreed that CCUS will be fundamental to the decarbonisation of industry and acknowledged that the Department had considered many of the key challenges that would need to be addressed in developing an industrial CCUS business model.Briefly sum

319、marised,these challenges covered the need to:Provide an appropriate level of financial incentive to attract investment whilst driving efficiency gains and cost reductions;Appropriately share risk and costs between industry and government;Take into account differing abatement costs across sectors;Ove

320、rcome the difficulties posed by the high upfront capital costs of projects;and Support industry to long term subsidy free decarbonisation.There are a number of further challenges that were stressed by respondents:It is essential that the business model supports and promotes clean growth within energ

321、y intensive industries and does not damage their international competitiveness.Many of our industries operate in global commodity markets which restricts their ability to pass on costs to consumers,and so careful consideration must be given to avoid carbon offshoring.Energy intensive industries are

322、made up of industries that include a wide range of complex and technical processes requiring different technological solutions for decarbonisation.The final business model must be able to account for differences in the cost of capture between industries by differentiating and providing flexibility o

323、n the level of support,whilst also taking into account cost effectiveness of CO abated as a key metric for providing financial support.The business model should help industry to manage their carbon price risk as we transition to net zero,and not overly expose them to fluctuations in the Emissions Tr

324、ading System(ETS)certificate prices.Preference for proposed models Question 14 asked industry to choose a preferred model out of the models set out by the Department and to state reasons for choice.There were 28 responses to this question.Many respondents to this question chose not to state a prefer

325、ence on a business model and instead focussed on the challenges a business model would need to address.From those that did,there was broad support for a CfD,cost plus open book,and the two models put forward by the CAG.Responses relating to the models proposed by the CAG will be covered in the next

326、question.Industrial CfD The CfD was seen as having the potential to provide a good balance between revenue certainty for emitters and value for money for taxpayers.Its compatibility with carbon pricing was also noted as a positive.The main benefit of this approach was its proven track record in supp

327、orting the deployment of,and cost reduction in,low carbon electricity generation in the power sector and the ability for it to move from bilateral negotiation to competitive auctions.Government Response on potential business models for Carbon Capture,Usage and Storage39Whilst it was widely suggested

328、 that a CfD could be a suitable method of addressing the ongoing operational costs,there were concerns over the treatment of capital expenditure for early projects.Respondents stated that if a CfD were to be used to cover the capital expenditure needed for the initial infrastructure build,then the s

329、trike price would need to be front loaded so as to facilitate a more rapid payback of capital spend.However,there were some views that front loading the strike price would make projects appear more expensive.There were concerns that a fixed price CfD could be difficult to negotiate given the differe

330、nces in costs across industry and the current uncertainty over project costs.Respondents also highlighted the need to ensure that the business model incentivises true decarbonisation and does not create any perverse incentives to produce more CO in order to receive a greater level of subsidy.Althoug

331、h certainty on the availability of operating cost support is needed,industry respondents highlighted that there are lock in risks that need to be carefully considered.These lock in risks include the risk that,under contract,an emitter could be obligated to supply CO to a T&S network after substitute

332、 decarbonisation options such as alternative technologies or production methods have been developed.Respondents considered that the CfD model has a number of potential significant benefits such as the ability to drive cost reductions and appropriately subsidise industry for costs incurred by deployi

333、ng CCUS and the potential to support a number of industrial decarbonisation technologies.Cost Plus Open Book The cost plus open book model was seen as the simplest to understand and implement.It was supported primarily due to the bilateral arrangements of the model and the bespoke nature of each contract making it easier to take into account any site-specific factors affecting the viability of a p