Advertisement

UK Fears Biden Subsidies May Lure £2 Billion of Climate Cash

(Bloomberg) -- UK officials have raised fears that Drax Group Plc may divert £2 billion ($2.4 billion) of planned investment in carbon capture to the US, lured by President Joe Biden’s massive package of green subsidies.

Most Read from Bloomberg

A delegation of US senators is scheduled to visit Drax power station in Selby, northern England, next week, where they will be shown the company’s plans for new bioenergy carbon capture and storage (BECCS) technology, people familiar with the matter said.

The March 16 visit has sparked concerns at the Department for Business and Trade that Drax will be lured by new incentives to invest in the US instead of the UK, the officials said, requesting anonymity talking about internal government discussions. Asked specifically about Drax on Friday, Prime Minister Rishi Sunak said that Britain remains a “very attractive” investment prospect.

At stake is the £2 billion Drax has said it would invest fitting carbon capture equipment to its UK plant as part of a plan that would ultimately support as many as 10,000 jobs. The company says the equipment will be able to capture 95% of the carbon dioxide emitted by its biomass-fired power plant and bury it under the North Sea.

A spokesperson for Drax declined to comment. Spokespeople for the UK energy and business departments did not immediately respond to a request for comment.

UK Carbon Capture

Drax is waiting first for the approval for a place on the UK government shortlist for a BECCS program, known as Track-1. That in turn could bolster Drax’s investment with government subsidies. A decision is due in the coming weeks, a person familiar with the matter said.

Biden’s Inflation Reduction Act offers subsidies and tax credits to the tune of $370 billion for a range of green technologies, enticing European firms to invest on the other side of the Atlantic.

That’s led to increasing pressure on Sunak’s government to respond, especially as the European Union is preparing its own response — leaving the UK at risk of being squeezed between two bigger economic powers.

Sunak said on Friday that he’s raised the issue of subsidies with both the US and EU.

“My general view is that it’s better for all of us to maintain free and open markets,” he told reporters traveling with him to France for a meeting with President Emmanuel Macron. Britain “remains a very attractive place for companies to invest and grow and our job is that this always remains the case.”

Read More: UK in Talks With US to Limit Damage From Wave of Green Subsidies

Drax, for its part, has said it is studying opportunities for BECCS in the US, where it’s recently committed $300 million to expand its pellet production.

Limiting Damage

A UK government official warned that ahead of next week’s Budget, there are concerns about Britain becoming a less attractive place to invest, and losing investment to the US.

Biden’s legislation has increased the subsidy amount for a ton of carbon captured to $85 from about $50, significantly increasing the incentive for Drax to roll out its technology in the US. Its UK power plant produces about 6% of Britain’s electricity.

Graham Stuart, a UK energy minister, said in an interview this week that the country was in talks with the US to limit damage to British supply chains from American policies. The UK’s own climate watchdog has criticized ministers for a lack of urgency in improving Britain’s competitiveness, saying it’s putting net zero goals at risk.

(Updates with comments from Sunak starting in third paragraph.)

Most Read from Bloomberg Businessweek

©2023 Bloomberg L.P.