Industrial carbon capture utilisation and storage in the UK: The importance of wage responses in conditioning the outcomes of a new UK CO2 transport and storage industry emerging in a labour supply constrained economy

Abstract

Carbon capture usage and storage (CCUS) is emerging as an important solution in delivering deep emissions reductions in energy-intensive industries, enabling hydrogen production, and possibly directly capturing existing carbon dioxide (CO2) from the atmosphere. The potential for associated new industry activity – for example in CO2 Transport and Storage (T&S) – could also be important in transitioning economies with legacy investment in oil and gas extraction. This paper addresses the question of how introducing a nascent T&S industry may impact the wider UK economy in the presence of persisting national labour supply constraints. It does so by refining a multi-sector economy-wide computable general equilibrium (CGE) model of the UK to run scenarios focussed on the emergence of a nascent sector, involving identification of benchmark activity – here, the existing oil and gas industry – where that nascent sector is not currently represented in national accounting data. Crucially, the CGE model embeds a theoretically and empirically tested wage bargaining function to consider how cost and price pressures triggered will condition dynamic outcomes for producers, consumers and government budgets. Results suggest that emergence of a new T&S industry is likely to deliver sustained net gains in UK employment and GDP. However, maximising T&S-linked jobs gains while minimising displacement of employment and price pressures elsewhere in the economy requires policy action to alleviate labour supply and skills constraints. This reinforces policy and industry recommendations around the need for net zero workforce planning and attention to the potential fiscal implications of taking action, or not/in different timeframes.