State could pay out £6 billion if courts block flagship carbon capture project that will leave Britain further from climate goals

The British government will risk billions of pounds to shield two of the world’s biggest oil companies in case a contentious plan to store carbon emissions under the North Sea is blocked in court, leaked documents show.  

BP and Equinor, the Norwegian state energy company, are behind a £8 billion scheme to build a gas-fired power plant in Teesside in northeast England that will pump its carbon dioxide pollution into a cavern beneath the seabed.

The UK has made a big bet on carbon capture: in October the government promised up to £22 billion in support for the technology over 25 years. That plan will be tested next March when the Court of Appeal hears a challenge by Andrew Boswell, an environmental consultant who argues that the Teesside project is unlawful because it breaches climate commitments. 

Now confidential documents seen by SourceMaterial show that the Department for Energy Security and Net Zero will underwrite BP and Equinor’s loans if the courts block the development. This support enabled the companies’ final approval of the investment last week. 

The government guarantee, which could leave taxpayers liable for up to £6 billion, is “reckless and extraordinary”, Boswell told SourceMaterial.

Christopher Jones, an energy specialist at the University of Manchester, said the government could be taking “a lot of risk” on unproven technology. 

“The industry has been talking about the technology for 20 years but it’s never got to the point of being viable,” he said. “It’s only going to be viable if someone else is assuming the risk.”

Legal uncertainty may still hang over Teesside even as the power station starts up in 2027 if Boswell’s challenge reaches the Supreme Court. BP and Equinor were unwilling to shoulder the legal risk alone, the documents show. 

The government and the companies “have been working at pace to propose solutions” aimed at “protecting lender’s interest”, BP and Equinor’s financial adviser Société Générale wrote to a group of 15 banks including Natwest. 

Industry minister Sarah Jones said last month that to kickstart the industry the government had to take “some of the initial risk inherent in developing a carbon capture usage and storage market”.

‘Double counting’

The dispute over Teesside hinges on how much carbon dioxide will be captured and remain under the seabed, and whether the government’s calculations fully take into account “upstream” emissions from the extraction of gas burned at the power plant. 

Finance documents seen by SourceMaterial show Société Générale provided banks with data implying a far lower climate impact than estimates accepted by the government when it approved the plan.

In a letter approving the project, the government acknowledged that the BP joint venture had been guilty of “double counting”. Even if the carbon capture plans work, the overall project will have a “significant adverse effect on carbon emissions”, taking Britain further from its climate goals, the letter said.

“It’s scandalous that this is being done for an industry that may never save carbon emissions”

A spokesman for Net Zero Teesside, the BP-Equinor partnership that will operate the power station, said that the lower emissions figures reflect the latest project engineering. The underlying assessments have not been made public. 

The plans assume 90 per cent of carbon dioxide emissions will be captured, a rate that has never been achieved, said Boswell.

“It is scandalous that this is being done for an industry that may never save any carbon emissions,” he said. 

‘Huge risk’

Equinor recently revealed that it mistakenly overstated the amount of carbon dioxide it captured over five years elsewhere in the North Sea by 30 per cent.

To be consistent with Britain’s climate commitments, projects like Teesside have to trap “around 95 per cent” of carbon dioxide emitted, said Jones at the University of Manchester. 

“There’s a huge risk that the technology doesn’t perform at that level,” he said. “We haven’t seen the evidence beyond the technical drawings that this can be achieved.” 

A spokesman for Northern Endurance, the BP-run carbon capture project, said that the companies “agreed a solution with government” allowing “these nationally significant infrastructure projects to proceed to financial close”.

A government spokeswoman said that construction is set to begin next year. 

“All contracts have undergone robust due diligence processes, prioritising value for money for taxpayers and economic growth,” she said.  

Headline picture: Philip Silverman/iStock