The Department for Energy Security and Net Zero (DESNZ) has opened a call for evidence concerning licence exemptions for Carbon Dioxide (CO2) transportation and storage. Interested parties who wish to benefit from exemptions should respond to the call for evidence, which runs until 11 October 2023.

In this update, we outline the regulatory environment for carbon capture, usage and storage (CCUS), what constitutes a 'licensable means of transportation' and where license exemptions will apply.

Regulating CCUS

The Government expects a number of CO2 transport and storage networks (T&S networks) to be developed as part of the growing market for CCUS. The Energy Bill – which is currently in Parliament – will introduce a regulatory regime for the transportation and storage of CO2.

Each CO2 T&S network will operate as a natural monopoly, so the proposed regime of economic regulation will be necessary to prevent anti-competitive behaviour, and to provide protections to users of the T&S networks. A key component of this new regime will be the new CO2 T&S licence, which will authorise operation of a CO2 T&S network, and require the licensee to allow third party access, subject to regulated charges.

At the time of writing this update, clause 2 of the Energy Bill creates the following regulated activities for which a licence would be required:

  • operating a site for the disposal of CO2 by way of geological storage; and/or
  • providing a service of transporting CO2 by a licensable means of transportation.

For which purpose, a licensable means of transportation means a pipe or system of pipes (or any other means of transportation that may be specified by the Secretary of State in secondary legislation) that are used for transporting CO2 all (or part) of the way to a site for the geological storage of CO2.

DESNZ published updated proposals for the licence conditions and other aspects of the regulatory model earlier this year.

Licence exemptions

While recognising the importance of regulating CCUS, DESNZ is also aware that excessive regulation – particularly at an early stage – may discourage investment. In order to ease the financial burden on new entrants, DESNZ proposes to create exemptions, either for a limited period or on a permanent basis. Without these exemptions there is a risk of harm to investment.

DESNZ also notes that the Energy Bill sets out that exemptions may be granted, subject to conditions, and that such conditions could provide for lighter-touch regulation.

Those familiar with natural gas and/or electricity regulation in the UK, will have an understanding of the equivalent regimes that apply to those markets, through a combination of 'class exemptions' (exemptions of general application) and 'individual exemptions' (which apply to named entities).

The call for evidence sets out the proposed exemptions in detail, but the proposals include the following:

  • Class exemptions for spur pipelines (of particular types, to be specified) which connect emitters to a licenced CO2 T&S network.
  • A potential class exemption for any R&D activities/projects that might otherwise be captured by the licenced regime.
  • Potential individual exemptions for specific named projects (to be confirmed).
  • An application process via which the Secretary of State could grant future individual licence exemptions by way of secondary legislation.

Next steps

The call for evidence is open until 11 October 2023. Responses provided will be used to develop detailed policy proposals, which will then be consulted on.

If you need advice on the developing area of CCUS and related regulatory issues, our team of energy specialists can assist. We regularly advise a range of clients (including generators, suppliers, networks and government) on energy regulatory matters. Please contact Gus Wood or Russell Evans for more information, or to discuss any specific issues these regulatory changes may present for your business.