'Spectacular shambles' as Labour's carbon capture funding descends into chaos
The Acorn project’s initial £200m will now be funded through loans rather than the promised government grant.
The UK Labour government has been accused of overseeing “a spectacular shambles” as its Budget unravelled with two ministers at odds over funding for a key North Sea project.
Following Wednesday’s Budget, the Acorn carbon capture and storage project, to be based at St Fergus near Peterhead, will have its £200m of promised grant funding switched into a repayable loan.
The UK government last year vowed to take “a final investment decision” on the remainder of the funding needed to construct the facility, which could support up to 15,000 jobs, by the end of the parliament, but ministers are now leaving it up to the developer to come forward with a blueprint for how the project will work instead.
The UK government’s message on the funding has descended into chaos after chief secretary to the Treasury, Emma Reynolds, wrongly told BBC Radio Scotland that the £200m of grant funding remains in place.
Asked if the funding remains intact as grant funding, Ms Reynolds said: “We’re not cutting the grant funding.”
READ MORE: UK Budget 2026: 'Hammer blow' for North Sea as Labour under fire over carbon capture funding row
But the UK government’s department for energy security and net zero (DESNZ) eventually clarified that the £200m, other than the small amount already handed over to the Acorn developers, will now become a loan through financial transaction.
First Minister John Swinney told MSPs he was “very concerned by the uncertainty” by the funding arrangements row within the UK government.
He added: “What the Acorn carbon capture project requires just now is certainty - certainty of direction, certainty of time, certainty on funding.
“The UK government has added significant confusion to all of those elements and has undermined the certainty that was in place.”
Storegga, the lead developer, is trying to sell its stake in the project - with a switch from government grant funding likely to make the project more attractive to a potential investor.
A DESNZ source told The Scotsman that with grants going to fund the defence investment plan, “we’ve had to sacrifice some capital”.
They added: “Any grant funding they've got at the moment remains in place, but the future support is financial transaction.
“It's also a different approach from government. It’s saying, rather than handing over what are vast amounts of money for fairly high risk projects, we’re instead putting in equity or loan funding so the risk is a bit more spread there.”
Asked directly if a final investment decision would still be taken to fully fund the project beyond the development stage as set out in last year’s spending review, the source said the £200m is “what’s on the table at the moment”.
They added: “The developers need to come up with how this project’s going to work.”
Scottish Secretary Douglas Alexander added to speculation the UK government could walk away from investment in the carbon capture project over concerns the technology is too risky to fully back with public money.
Speaking to journalists, Mr Alexander said: “Respectfully, there have been significant challenges in relation to Acorn - both in relation to the market-readiness of the technology and in relation to the commercial arrangements around the project.
“We have a responsibility to think carefully about the use of public money at the same time as ensuring that we continue to facilitate the transition of the North Sea.”
Russell Borthwick, chief executive of Aberdeen and Grampian Chamber of Commerce, said: “This is a spectacular shambles. Ministers are contradicting one another over Acorn, leaving businesses and investors trying to decipher what the government’s own Budget actually means.
“At the heart of this confusion is a project critical to the future of North East Scotland’s industrial transition, with thousands of jobs and billions of pounds of investment dependent on getting it right.
“Acorn, Scotland's only carbon capture cluster, cannot be left in political limbo. Ministers must urgently set out a clear funding plan and timetable for delivery, and explain why its funding terms are being changed while grant support for other clusters is protected.”
SNP Energy spokesperson, Graham Leadbitter, described the move as an “obvious betrayal of Scottish industry”, warning that the confusion within the UK government over its own Budget “makes that betrayal ten times worse”.
He added: "This morning Labour ministers spoke of grant funding remaining in place for Acorn, now we know even that minuscule investment has been converted into loans.
“The UK Labour government is ‘prioritising’ English industry and if they have any substance they must explain what on earth is going on.
“How these Labour MPs from Scotland can stand behind a budget that will back CCUS sites in England with a £9.4bn investment while public money for Acorn is axed is astonishing.”
He added that “attempts to defence the indefensible is unedifying and nobody is buying it”.
Mr Leadbitter added: “By choking off public funding in favour of English sites they have made a political choice to actively damage Scotland’s industrial base and ruin our just transition.
“This whole mess has left the industry and the project in the lurch. We need MPs who will stand up for Scotland, not lie down to Westminster.”
UK energy minister, Martin McCluskey, has written to the Scottish government and called for a meeting over the matter, and has warned criticism of the funding changes “risks undermining confidence at precisely the point when we should be helping the project secure the investment and partnerships it needs”.
He added: “I urge you to avoid talking the project down and to make clear that there remains a route to further government support.
“A change in the form of government investment should not be presented as the removal of the UK government support for Acorn.”
An Acorn spokesperson said: “Today’s Budget announcement does not change Acorn’s current development programme, which continues with UK Government support through grant funding announced in the June 2025 Spending Review.
“We will continue to work closely with the UK and Scottish Governments to agree the next phase of the project, including securing long-term funding via loan or equity investment, as outlined in the Budget 2026 and subject to business case and approval.”
Comments
Want to join the conversation? Please or to comment on this article.