Industrial Carbon Capture Sample Clauses

Industrial Carbon Capture. Industrial carbon capture (ICC) is likely to be vital for UK industrial decarbonisation due to few viable alternatives for large scale emissions abatement in heavy industry. The challenge however is that the costs incurred for carbon capture currently do not correspond to any increase in product value (for being low carbon) and therefore cannot be passed to consumers. The benefit is due to avoidance of carbon pricing, which is currently insufficient to cover the costs incurred, and also an advantage to the facility of becoming well-positioned for future low-carbon product markets. To overcome these market failures and challenges additional incentives are required. In 2020, the UK government proposed the use of a Contract for Difference (CfD) style business model for industrial carbon capture that it referred to as the “ICC Contract”.50 This is first being developed specifically for initial and early-stage projects, to reflect the low maturity and high initial investments required. The objective is to incentivise the industry to invest in carbon capture technology whilst being able to maintain international competitiveness and deliver value for money. Additionally, motives are linked to ‘levelling up’ the UK economy and driving investment in new industrial facilities. The business model only applies to cases where CO2 is exported to a T&S network for permanent sequestration, with utilisation currently not included. It is expected that the industrial emitter would have an agreement with the T&SCo in which it pays for use of the network and in which ownership of emissions and liability for any subsequent emissions is transferred to the T&SCo. The ICC contract is expected to be an adaption on the Contract for Difference mechanism in which payment is provided based on the quantity of CO2 avoided, thus imitating avoidance of the carbon price. A fixed strike price would be negotiated bilaterally per tonne of CO2 captured, reflecting the costs of carbon capture for the project. The reference price is expected to roughly follow the trajectory of the market carbon price. The capture facility then receives the difference between the strike price and the reference price, as illustrated in Figure 21. It is further proposed that the contract term would have an overall duration of 15 years, but that this would be split between an initial period (approximately 10 years) where the return on capital costs can be included, and a later period where only operational and CO2 T&...