The Government has announced up to £21.7bn of support for the UK’s first carbon capture and storage (CCS) projects in Merseyside and Teesside with the aim of creating thousands of jobs, attracting private investment and helping meet climate goals.
Carbon capture is recognised internationally as an indispensable key technology for mitigating climate change but companies need to evaluate the risk management considerations in this expanding sector.
Managing these risks requires careful planning, stakeholder engagement, thorough environmental impact assessments, and contingency measures to ensure that CCS projects contribute effectively to reducing carbon emissions while minimising potential negative outcomes.
Robust insurance should be considered in consultation with a specialist insurance broker to manage risk and control potential exposure.
The CCS technology captures the emissions from burning fuels for energy or from industrial processes such as cement production and uses or transports them for storage permanently underground including disused oil fields under the sea.
When assessing carbon capture and storage (CCS) projects, numerous risk management considerations must be evaluated due to the technical, environmental, financial, and regulatory complexities involved.
Below are some of the key risk considerations:
- Technical Risks:
Capture Efficiency: The effectiveness of the technology in capturing CO2 from industrial processes or power generation needs to be assessed. Inefficiencies could lead to lower capture rates than planned.
Storage Integrity: Ensuring that CO2 is securely stored underground or in other permanent facilities without leakage is critical. Monitoring the long-term behaviour of storage sites is essential.
Transportation Risks: Pipelines or ships used to transport CO2 from capture sites to storage locations pose risks, including leaks, corrosion, and accidents.
Technology Maturity: CCS is still an evolving field, and the technological maturity of the capture, transport, and storage solutions must be thoroughly evaluated to avoid project failures.
- Environmental Risks:
Leakage and Contamination: CO2 leaks from storage sites could have environmental consequences, including groundwater contamination or negative impacts on local ecosystems.
Seismic Activity: Injecting large volumes of CO2 into geological formations can potentially induce seismic events, particularly if the site is near fault lines or has underlying geological weaknesses.
Lifecycle Emissions: Even with carbon capture, the full lifecycle emissions of a project (e.g., related to energy use, material production, and transportation) must be considered, as the process itself can be energy-intensive.
- Regulatory and Legal Risks:
Permitting and Compliance: Securing necessary permits and ensuring compliance with local, national, and international regulations can be challenging, particularly as policies around carbon capture evolve.
Long-Term Liability: Legal frameworks around who is responsible for monitoring and mitigating any leakage or environmental harm over the long-term can be unclear, posing potential liability risks for companies involved in CCS projects.
Carbon Pricing and Policy Changes: Fluctuations in carbon pricing and policy shifts, such as changes to emissions targets or subsidies for CCS, can affect the financial viability of projects.
- Financial and Economic Risks:
High Capital and Operational Costs: Carbon capture projects require significant upfront investment and ongoing operational expenses. These costs can be a major risk, particularly if expected returns (e.g., from carbon credits or subsidies) do not materialize.
Market Risks: The economic model of CCS projects may rely on the price of carbon credits or emissions reductions, which are subject to market fluctuations and policy changes.
Cost Overruns: As with any large infrastructure project, there is a risk of cost overruns due to unforeseen technical issues or delays, which can affect the financial sustainability of the project.
- Social and Stakeholder Risks:
Public Perception and Acceptance: Local communities and environmental groups may oppose carbon capture projects due to concerns over safety, environmental impact, and long-term storage risks.
Land Use and Property Rights: Securing rights for storage sites and transportation infrastructure (e.g., pipelines) can lead to disputes with landowners or other stakeholders.
Reputational Risks: Companies involved in CCS must manage the reputational risks associated with the perceived effectiveness of the project and its alignment with broader sustainability goals.
- Operational Risks:
Monitoring and Maintenance: Ongoing monitoring of CO2 storage sites to ensure there are no leaks, as well as regular maintenance of capture and transportation infrastructure, is critical to the long-term success of the project.
Supply Chain Risks: Interruptions in the supply chain for materials or technology required for CCS can delay or impact project performance.
- Geopolitical Risks:
Cross-Border Projects: For projects that involve transporting CO2 across borders, geopolitical risks and regulatory differences between countries can complicate project implementation and operational continuity.
International Collaboration: Many CCS projects rely on partnerships between governments, international organizations, and private companies, which can introduce coordination and cooperation challenges.
W Denis are one of the largest independent insurance brokers in the UK and arrange competitive insurance solutions. To discuss this further with a broker at W Denis, please make arrangements with Daniel Moss at [email protected] or on 0044 (0)113 2439812
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Mark Dutton
Executive Director / Group Head of Broking & Business Development
T. +44 (0) 7831 366 469
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