UK and US: Industrial clusters key in race to cut emissions

Matt Lewy, Womble Bond Dickinson partner and energy specialist, teamed up with Dave Edwards, director of US-based firm Air Liquide and Ed Reed, editor at Energy Voice, for the first episode of the new Bigger Faster Better podcast series from Energy Voice.

Together, the group discussed the benefits of industrial clusters in accelerating the global energy transition, how the UK and US are approaching this mammoth undertaking, and how each country can learn from the other to further the global sustainability agenda.

The UK: a carbon capture leader

Matt explained how the UK is beginning to drive forward carbon capture utilisation and storage (CCUS) at scale, positioning itself as a global leader despite the technical challenges involved:

“There have been a lot of false starts for this technology as it is very nascent. [But] the government has recognised it's a natural monopoly and it needs to work hand in glove effectively with a couple of projects at scale to get it running. They are getting the regulatory model up and running to make it bankable. This is all good news.”

In the UK, there was a shortlist of industrial clusters proposing a variety of ways to tackle emissions by combining carbon capture and storage (CCS) solutions and hydrogen projects. The government awarded priority funding to two clusters – the HyNet and East Coast CCS developments in England - last October.

For Matt, the first two projects are just the beginning:

“Listening to commentary in the market, it appears the initial CCS clusters will move forward fairly rapidly. The reality is the government is not saying it will only develop two clusters, it is just saying that these will be the starting point so that lessons can be learned from the nascent regulatory regime, planning process and construction phases in particular”.

Hopefully the two CCS projects being championed by the UK government will take a final investment decision (FID) around 2025 with operations starting towards the end of the decade.

“It seems a Scottish CCS cluster could also get bundled in quite quickly. Therefore, three clusters might be developed in one go,” Matt said.

The US: hydrogen leads the way

Meanwhile across the pond, the Federal Government is demonstrating strong leadership with the introduction of an Infrastructure Bill that will trigger what Dave calls a “monumental investment, particularly in hydrogen”.

Some industrial clusters have already emerged in the US, including around petrochemical and refining facilities in the Gulf Coast. Significantly, the Gulf of Mexico with its depleted oilfields and existing infrastructure will be a natural place for further CCS developments.

According to Dave, around $8bn of investment has been earmarked by the US government for at least four industrial hubs to be developed, with the country now moving towards the proposal process for these clusters and awards expected over the next 12-18 months.

“It's a really novel and large-scale approach, very much different to what we have seen historically in the US,” Dave explained, “We’re not only going through an energy transition, but also a policy transition from state focused to federal focused policies.”

Accelerating hydrogen capabilities at pace

In contrast to the UK, Dave says the US is focused on hydrogen, with more than 95% of hydrogen produced from fossil fuel-based production in the US at present. He also said there is a large focus on investment in new production methods, particularly utilising the existing wind and solar infrastructure.

So, is the UK at risk of playing catch-up when it comes to hydrogen? Matt thinks there is a definite lag with hydrogen when compared to CCS:

“What the UK government are tacitly admitting is that the feedstock will be natural gas to start with. It will be blue hydrogen created by our natural gas supply network with CCUS attached to it.

“The UK is some way behind some other jurisdictions, at least in their regulatory developments and mapping. It’s a slightly different way to look at the energy transition compared to say the US”.

The need for private investment and policy

For Dave, “there will be no energy transition in the US if it is not ultimately driven by private investment.”

He warned that:

“[While] these hub investments can be a fantastic opportunity to accelerate the initial investment and accelerate the usage, the outcome has to be a market that allows growth to be sustainable and meet the needs of society. That's really the challenge of the hubs - whether they result in a market.”

“We have many of the same goals that other countries have for decarbonisation. But the pace at which it will happen will entirely be determined by the private investment side of the market, and that to a larger degree will be driven by early-stage policy.”

“In the US, everybody is in general agreement that an energy transition will occur. Which policies are necessary to get there might see some disagreement, but the idea that it will ultimately be driven by private investment is a universally agreed position.”

For Dave, this can be made a reality in a variety of ways: “Whether it is done by a funding opportunity launched by the Department of Energy to kick things off or longer-term policy, such as tax incentives or values on carbon, these are likely to be supported broadly.”