Kirsty O’Connor / No 10 Downing Street
Chancellor John Healey has cut funding for UK carbon capture, utilisation and storage (CCUS) and hydrogen projects by £700m ($932m) to boost defence.
Delivering the first Budget under prime minister Andy Burnham’s government, Healey confirmed that capital grants for hydrogen projects would be cut by £500m. And a £200m commitment from former chancellor Rachel Reeves last year for the Acorn CCUS cluster in northeast Scotland will now be scrapped, the Treasury has confirmed.
The £9.4bn for the HyNet cluster in northwest England and the East Coast Cluster across Teesside that Reeves announced last year will be protected, as will development funding for the Viking cluster in Humberside.
The cuts came as part of a broader £2bn saving the Department of Energy Security and Net Zero was told to make in June in order to boost spending on defence, shortly after Healey resigned as defence secretary in protest over the size of his then-department’s budget.
Instead of providing grants, Healey said that any future CCUS or hydrogen projects that require state support, including Acorn, will have to secure either a loan or equity investment from the government.
IChemE CEO Yvonne Baker said she was “concerned” about the cuts. “Industry needs greater clarity on how emerging technologies will be supported through to commercial deployment. We urge the government to work closely with industry and the engineering profession to ensure these changes do not delay viable decarbonisation projects or undermine critical skills and expertise.”
Acorn’s future has been uncertain since lead developer Storegga, backed by Mitsui, Snam and ADNOC, withdrew from the project last December. A replacement has yet to be found. It proposed to capture CO2 emissions from industrial emitters in Scotland’s central belt, which would then be transported by pipeline to the St Fergus gas terminal near Peterhead in the country’s northeast, before being piped offshore for storage in the depleted oil reservoirs in the Acorn and East Mey fields.
The announcement to scrap Acorn’s funding came within days of the Scottish government’s approval of plans to build a new 900 MW gas-fired power station in Peterhead, which developers SSE and Equinor have promised will be supported by carbon capture. It is unclear whether the plans will be impacted by the government’s Acorn decision, although SSE has previously said the power station is “contingent on delivery” of the wider Scottish CCUS cluster, of which Acorn is a key component.
Russell Borthwick, chief executive of Aberdeen and Grampian Chamber of Commerce, said scrapping Acorn was an “abject betrayal”.
The UK oil and gas industry, central to northeast Scotland’s economy, received a boost last week after the government approved production plans at the Jackdaw gas field, which Healey described today as a “pragmatic, common-sense” approach to the North Sea, while a decision on the Rosebank oil field west of Shetland is expected soon. The Budget also confirmed £2bn of investment in a new “energy wealth fund” that will use oil and gas tax revenue to invest in clean energy projects.
Borthwick added: “We now call on the UK government to act without delay and approve Rosebank and other oil and gas projects, use the billions of pounds of resulting revenues to turbocharge renewables across this region and deliver the managed and just transition we have repeatedly been promised. Anything less would be unforgivable.”
Energetic debate
Healey also announced that he would scrap a previously planned levy on gas grid operators intended to fund hydrogen production. Instead, the government will now provide grants directly to projects it decides to support, including £27m already committed for several projects running in 2027-28.
On energy more broadly, Healey said the government’s “priority is first and foremost cheaper energy”. To address the UK’s high industrial energy prices – some of the highest in the world and which Healey wants to bring in line with the rest of Europe – he confirmed today that previously announced plans for discounted electricity from next April will be backpaid for 2026-27. Under the British Industrial Competitiveness Scheme, 10,000 of the UK’s most energy-intensive manufacturing firms will be eligible for up to 25% discounts on electricity.
However, manufacturing trade group Make UK said Healey had “failed to address any of the fundamental costs holding back investment and growth in manufacturing”, citing the Employment Rights Act and increases to employer national insurance brought in by the previous government.
