CO2 storage will function as a natural monopoly in the early market, due to high capital costs, geographical constraints, and cross-chain risks, and that may remain the case even as the market matures. And while the regulated asset base (RAB) model is essential for early storage development it will have to evolve as the market matures, but it is not clear how or when that would happen. In European countries attempts to move too quickly, particularly into non-regulated models, have been largely unsuccessful.
These were views from 26 respondents to a call for evidence from government and Ofgem on forms of economic regulation for CO2 storage.
The respondents said competition in the storage market is possible but is a long-term prospect, likely to emerge only as demand grows, more stores are developed, and enabling conditions such as cross-border CO2 flows, stable carbon pricing and clear allocation processes are established. Introducing it too early could increase system costs by creating duplication, underutilisation of assets, and higher financing risk.
The respondents said clear and predictable regulatory frameworks are essential for unlocking investment, with transitional government support and risk sharing mechanisms needed to build investor confidence.