Chancellor's New Energy Vision: Green Hydrogen and Carbon Capture Take Centre Stage

Today the Chancellor charted a clearer course for the UK’s energy future, anchored by substantial investments in green hydrogen and carbon capture.

Rachel Reeves announced the government’s pledge to “making Britain a clean energy superpower,” unveiling a new, multi-year investment in carbon capture and storage, alongside £500m funding for 11 green hydrogen projects across England, Scotland and Wales.

These initiatives include projects in Bridgend, East Renfrewshire and Barrow-in-Furness, positioning the UK among the world’s leaders in commercial-scale green hydrogen, with the dual aims of sustainable job creation and economic growth.

The Great British Energy initiative, to be headquartered in Aberdeen, aims to make the city a nucleus of innovation in the transition to cleaner energy. The UK government has allocated £100m capital funding in 2025/26 for clean energy project development and a further £25m to help set up GB Energy. In addition, there's multi-million-pound funding for an Aberdeen investment zone.

While the previously announced £22 billion carbon capture and storage projects pledge reflects a firm commitment to emissions reduction, the budget offered limited guidance for the oil and gas sector, leaving North Sea operators with ongoing uncertainties.

Announced a couple of months ago, the revised Energy Profits Levy (EPL) increases the headline rate to 38%, establishing an effective tax rate of 78% for energy profits. From November 1, 2024, the EPL investment allowance will apply only to decarbonisation projects, with a reduced decarbonisation allowance rate of 66%. Additionally, the sunset date is extended to March 31, 2030, and tax relief will be available for contributions made to decommissioning funds for oil and gas assets repurposed for carbon capture, usage, and storage projects.

Although the government’s focus on hydrogen and carbon capture shows strong intent, a more comprehensive roadmap could provide the clarity needed to support economic resilience and environmental goals as the sector faces financial and regulatory challenges.

To ensure a just transition for the North Sea sector, fiscal support and clear, adaptable policies for oil and gas companies are critical. Such measures could help these companies not only manage their ongoing responsibilities but also gradually realign their business models toward renewable energy and decarbonisation targets.

As the government pushes forward with ambitious environmental goals, ensuring oil and gas companies have the resources and incentives needed to shift to greener practices will be essential for a balanced and sustainable transition that protects jobs, regional economies and energy security.

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