CCUS Track 1 Contingent Liabilities: Padeswood

Today, I am pleased to have laid a departmental minute with an update on the contingent liabilities associated with the carbon capture usage and storage track 1 clusters, HyNet and East Coast Cluster. This update is in anticipation of our signing contracts with the Padeswood cement project, which we expect soon, subject to timely conclusion of negotiations and resolution of outstanding conditions. Padeswood is a key demonstrator for decarbonisation of the cement industry, on which the security of the UK’s net zero transition is dependent. The addition of further CO₂ capture projects like Padeswood was planned and is part of the Government’s plan to maximise our investment in the HyNet cluster.

CCUS is the only feasible method for decarbonising many hard-to-abate sectors, including cement. Located in north Wales, Padeswood will be the first at-scale UK cement plant incorporating carbon capture and storage technology. The project presents a high value opportunity for the UK to secure a strong global foothold, in a growing customer market, for low-carbon cement production.

His Majesty’s Government’s CCUS programme is the first of its kind and consequently we have sought to overcome multiple market barriers which inhibit the development of a CCUS market in the UK. The costs of constructing and operating CCUS currently exceed the costs of emitting CO₂—Government support is necessary to address these challenges and enable CCUS deployment at scale. Parliament agreed in November 2024 to accept five contingent liabilities within the CCUS track 1 contracts in order to reduce investor risk in CCUS technologies by bearing some of the initial risk inherent in developing a CCUS market, as well as the cross-chain risk existing across the participants in the CCUS network.

Parliament was notified on 13 November 2024 of the five CLs outlined below, which are associated with the various CCUS track 1 contracts. These were:

The supplemental compensation agreement, which is a long-term mechanism within the Government support package that enables the management of leakage risks at the geological store during operations and the post-closure period.

The revenue support agreement, which addresses demand-risks by providing for payments to CO₂ transport and storage companies if their allowed revenue is not covered by user fees.

The discontinuation agreement, which provides a right for the Secretary of State to discontinue support to the transport and storage companies and entitles investors to be compensated for their investment.

The decommissioning shortfall agreement, which covers potential decommissioning fund shortfall which might arise if decommissioning is required before the fund has been fully built up.

The discontinuation of capture project contracts, which allows for payment of compensation to capture projects for any losses due to a qualifying change in law or prolonged CO₂ transport and storage unavailability.

Now that HMG is near finalisation of negotiations with the Padeswood project, I am updating Parliament on our exposure to these contingent liabilities.

The table below shows the impact of signing contracts with the Padeswood project for the discontinuation of capture project contracts contingent liability. It is important to note that while the table below represents the maximum possible exposure, the probabilised exposures and likely crystallisations are far lower. There are robust risk management frameworks in place. Our assessments indicate that there are no liabilities that are likely to be realised and the vast majority are very remote.

The increase in maximum exposure outlined above is necessary to allow us to decarbonise, not deindustrialise, our cement industry. The adoption of the five contingent liabilities summarised above is already allowing HMG to deliver a first-of-a-kind CCUS sector, which we know will be vital for delivering on our net zero targets, as well as supporting jobs and growth in our industrial heartlands.

[HCWS776]