UK Carbon Capture and Hydrogen Grants Fall by £700m as Acorn Funding Ends

The UK’s planned support for carbon capture, utilisation and storage (CCUS) and hydrogen has shifted from grants toward loans and equity, with £700m in previously planned funding removed. The change leaves existing support for several projects intact but puts the future of Scotland’s Acorn cluster in doubt and changes how new projects may need to secure public backing.

Which allocations change

Capital grants for hydrogen projects have been reduced by £500m. Separately, a £200m allocation for Acorn, announced last year by former chancellor Rachel Reeves, has been withdrawn. The two changes account for the £700m reduction in planned funding for CCUS and hydrogen.

Funding of £9.4bn for the HyNet cluster in northwest England and the East Coast Cluster across Teesside is protected. Development funding for the Viking cluster in Humberside is also set to continue. The distinction matters: the change does not remove all support from the UK’s industrial carbon management plans, but it does narrow the grant funding available and alters the route for projects that still need public finance.

Under the approach announced by Chancellor John Healey, future CCUS or hydrogen projects seeking public support would have to pursue a loan or equity investment. Acorn is included in that group. Those financing arrangements differ from a capital grant: project developers would need to work with a repayable loan or an investment stake, rather than relying on grant funding for the relevant costs. The announcement does not specify the terms, selection criteria or financial structure that would apply to future support.

Acorn’s proposed carbon transport chain

Acorn was designed to connect industrial carbon dioxide sources in Scotland’s central belt to offshore storage. Captured CO2 would travel by pipeline to the St Fergus gas terminal near Peterhead, then move offshore for storage in depleted reservoirs in the Acorn and East Mey fields. That chain depends on several linked parts: capture equipment at industrial sites, transport infrastructure, access to the terminal and storage capacity offshore.

The project’s development position was already uncertain. Lead developer Storegga, backed by Mitsui, Snam and ADNOC, withdrew last December, and no replacement developer has been identified. Losing the £200m allocation adds a financing challenge to the need to assemble a new project team. Without a lead developer, it is not clear who would coordinate the capture, pipeline and storage components or take responsibility for bringing them forward as one system.

Acorn’s funding change also lands alongside plans for a 900 MW gas-fired power station in Peterhead. The Scottish government approved the plans within days of the funding announcement; developers SSE and Equinor have said the plant will be supported by carbon capture. The available details do not establish whether the change to Acorn’s funding affects those plans. The practical question is whether the power station’s proposed capture arrangement can proceed independently or depends on infrastructure associated with the Acorn system.

Hydrogen support and energy costs

The funding changes accompany a separate shift in how hydrogen production would be supported. Healey said a planned levy on gas grid operators, intended to fund hydrogen production, would be scrapped. Instead, grants would go directly to projects selected for support. That approach includes £27m already committed for several projects running in 2027–28. The announcement provides that figure and timing, but does not identify the projects or set out how future grant decisions will be made.

For project developers, the removal of a dedicated levy changes the funding mechanism: support would depend on direct grant decisions rather than proceeds from the planned charge on gas grid operators. Together with the reduced grant budget and the proposed use of loans or equity for future projects, this makes the financing route a central part of project planning. The announcements do not provide enough detail to compare the cost or eligibility conditions of the different options.

The wider energy measures include discounted electricity for energy-intensive manufacturers. Healey said previously announced discounts, scheduled to begin next April, would be backpaid for 2026–27. Under the British Industrial Competitiveness Scheme, 10,000 manufacturing firms are eligible for electricity discounts of up to 25%. Those discounts address electricity costs for qualifying users; they do not replace the project finance removed from hydrogen and CCUS plans.

What to watch next

The next concrete test for Acorn is whether a replacement developer emerges and whether the project can assemble a finance plan under the new terms. Its proposed pathway links industrial capture to pipelines and offshore storage, so progress at any one stage depends on the other parts being deliverable. The lost grant makes that coordination harder to fund, while the announcement leaves open whether a loan or equity investment could support a revived proposal.

The protected allocations for HyNet, the East Coast Cluster and Viking show that work on other UK carbon management projects continues under the announced changes. For engineers and manufacturers assessing these plans, the key distinction is between projects with protected funding and future proposals that may need to compete for a different form of public finance. Details on finance terms, project selection and Acorn’s prospective developer will determine how much of the planned infrastructure can advance.