Is CCS ready to scale beyond first of a kind projects?

Private capital gap threatens carbon capture rollout

Carbon capture and storage faces a critical challenge. The project pipeline is growing rapidly. Investment potential runs into billions. However, most projects cannot reach final investment decision without new financing models.

The Sustainable Markets Initiative published a report in February 2026 highlighting this structural problem. Their Financial Services Task Force examined why private capital remains on the sidelines despite growing momentum in CCS deployment. The findings reveal that current funding approaches cannot support the scale of projects needed for net zero.

Early carbon capture facilities relied almost entirely on government subsidies. This model worked for demonstration projects. Nevertheless, it cannot sustain the hundreds of facilities now in development. The gap between public funding and private investment threatens to stall progress across multiple regions.

Recent data shows the global pipeline includes over 600 projects at various stages. Investment reached approximately $6.4 billion in 2024. Furthermore, 117 projects aim to reach final investment decision before 2027. These numbers suggest strong interest in the technology. The challenge lies in converting interest into operational capacity.

Growing pipeline meets limited capital availability

The carbon capture pipeline expanded by 54% year on year. This growth reflects increasing recognition that industrial decarbonisation requires capture technology alongside renewable energy. However, project developers face significant hurdles securing late-stage development capital.

Independent capture developers particularly struggle with revenue certainty. Traditional project finance requires predictable cash flows. Carbon capture projects often lack long-term offtake agreements or stable carbon pricing. Consequently, banks hesitate to provide commercial lending without substantial government backing.

Regional leaders are emerging with different approaches. The UK has established business models for transport and storage infrastructure. Nordic countries are developing cross-border CO2 shipping networks. The US Gulf Coast benefits from existing pipeline infrastructure and geological storage sites. These regions are shifting toward market-based frameworks rather than pure subsidy models.

Germany announced a €6 billion industrial decarbonisation programme launching mid-2026. This initiative includes support for carbon capture in cement, chemicals, and steel production. Other European nations are watching closely to see if this scale of investment can attract matching private capital.

Capture costs currently range from $40 to $120 per ton of CO2. These figures often exceed carbon prices in emissions trading systems. Without additional incentives or premium offtake agreements, projects struggle to demonstrate commercial viability. Rising carbon prices may eventually close this gap, but the timeline remains uncertain.

Why conventional project finance structures fall short

Traditional energy project finance depends on proven technology and contracted revenue streams. Carbon capture projects face challenges on both fronts. While the core technology is established, each industrial application presents unique integration requirements. Moreover, revenue sources remain fragmented and unpredictable.

Most early projects secured government contracts covering the majority of capture costs. These agreements provided the certainty needed for debt financing. However, government budgets cannot support hundreds of new facilities. Private capital must fill the gap, but current market structures do not offer sufficient risk mitigation.

The pre-FID phase presents particular difficulties. Projects need capital to complete engineering studies, secure permits, and negotiate commercial agreements. This development capital typically comes from equity investors or corporate balance sheets. For independent developers without major corporate backing, this funding often proves impossible to secure.

Revenue uncertainty compounds the problem. Carbon capture projects might sell CO2 for enhanced oil recovery, secure long-term storage contracts, or monetise carbon credits. Each revenue stream carries different risks and regulatory considerations. Banks struggle to underwrite projects with such varied and untested commercial structures.

Contract mismatches create additional complexity. Industrial emitters want flexibility in their capture obligations as production levels vary. Storage operators need long-term volume commitments to justify infrastructure investment. Financial institutions require fixed payment obligations to support debt service. Reconciling these competing needs within a single project structure proves extremely difficult.

Practical implications for UK industrial businesses

UK manufacturers in cement, chemicals, steel, and refining face mounting pressure to decarbonise. Many processes generate unavoidable CO2 emissions that cannot be eliminated through electrification alone. Carbon capture represents one of the few viable options for these sectors to meet net-zero targets.

Businesses evaluating carbon capture face significant upfront costs. Engineering studies alone can run into millions before any construction begins. Companies must also negotiate access to transport and storage infrastructure, which remains limited outside specific industrial clusters. Consequently, many firms delay investment decisions while waiting for clearer commercial frameworks.

Supply chain implications extend beyond direct emitters. Customers increasingly demand low-carbon products, particularly in public sector procurement. The government’s Procurement Policy Note 06/21 requires suppliers bidding for major contracts to publish carbon reduction plans. For heavy industries, credible plans likely need to include carbon capture or risk losing competitive tenders.

Firms with operations in industrial clusters may find earlier opportunities. The UK government has prioritised development of transport and storage networks in regions like Teesside, Humberside, and Merseyside. Companies located in these areas can potentially connect to shared infrastructure, reducing individual project risk and cost. Those outside cluster regions face longer timelines and greater uncertainty.

Financial planning must account for lengthy development periods. From initial feasibility to operational capture typically takes five to seven years. During this time, carbon prices may rise, regulations may tighten, and competitor facilities may come online. Businesses need to assess whether early investment provides competitive advantage or whether waiting for proven commercial models makes more sense.

Some sectors face regulatory drivers beyond carbon pricing. The EU Carbon Border Adjustment Mechanism will impose tariffs on imports from regions with weaker climate policies. UK producers competing with European manufacturers may need carbon capture to maintain market access. Similarly, product standards in construction and automotive sectors increasingly specify embodied carbon limits.

What the evidence tells us about scaling challenges

Several key findings emerge from recent analysis of the carbon capture market. First, the technology itself is not the primary barrier. Operating facilities demonstrate that capture, transport, and storage work at industrial scale. The obstacle is financing deployment at the pace required for net-zero transitions.

Second, government support alone cannot bridge the gap. Public budgets face competing demands from renewable energy, grid infrastructure, and adaptation measures. While catalytic public investment remains essential, private capital must provide the bulk of funding. Current market structures do not offer sufficient returns to attract this investment at scale.

Third, successful projects share common characteristics. They typically have anchor industrial emitters with strong balance sheets, access to established transport and storage infrastructure, and long-term offtake agreements that provide revenue certainty. Projects lacking these elements struggle to reach financial close regardless of technology readiness.

Fourth, regional coordination matters significantly. Individual facilities often cannot justify dedicated transport and storage infrastructure. Shared networks serving multiple emitters spread costs and reduce risk. Regions that coordinate planning across industrial clusters therefore attract investment more easily than isolated projects.

Fifth, carbon pricing trajectories create planning challenges. Projects need prices to reach certain levels to generate returns. However, policies set price floors and ceilings for different reasons than project economics. This disconnect between climate policy and project finance creates uncertainty that delays investment decisions.

Core facts about current market conditions

• The global carbon capture pipeline grew 54% year on year, with operational facilities and projects under construction expanding significantly across multiple regions.
• Currently, 117 projects aim to reach final investment decision before 2027, concentrated in the UK, Nordic countries, and US Gulf Coast regions.
• Total investment in carbon capture reached approximately $6.4 billion in 2024, though this remains far below the annual funding needed for net-zero alignment.
• Capture costs range from $40 to $120 per ton of CO2, often exceeding carbon prices in emissions trading systems without additional policy support or premium offtakes.
• Early carbon capture projects relied on nearly 100% government funding, a model that cannot scale to support hundreds of facilities globally.
• The Sustainable Markets Initiative published recommendations in February 2026 for mobilising private capital through dedicated development funds and structured offtake agreements.
• Germany announced a €6 billion industrial decarbonisation programme for mid-2026, including substantial support for carbon capture in heavy industry sectors.

Strategic financing approaches under consideration

The Sustainable Markets Initiative proposed three specific interventions to address the financing gap. These recommendations emerged from consultation with banks, project developers, and industrial emitters. Each targets a distinct barrier preventing private capital deployment.

A dedicated pre-FID development capital fund would provide equity or subordinated debt to projects completing engineering and commercial work. This fund would accept higher risk than commercial lenders while requiring rigorous technical and commercial validation. Success would enable projects to reach financial close with conventional project finance. The structure aims to recycle capital as projects reach operation and generate returns.

Aggregated demand mechanisms would pool offtake commitments from multiple buyers. This approach addresses the problem of individual industrial emitters lacking sufficient scale or credit quality to anchor projects alone. A central entity would contract with multiple buyers and provide standardised agreements to capture projects. This structure mirrors successful models in renewable energy where corporate power purchase agreements enabled project finance.

A knowledge-sharing platform would document lessons from early projects. Financial institutions need detailed information about operational performance, cost outcomes, and commercial structures that succeed. Currently, this information remains fragmented across different projects and regions. A centralised resource would reduce due diligence costs and increase lender confidence in the sector.

C.S. Venkatakrishnan, who chairs the SMI Financial Services Task Force and serves as Barclays Group CEO, emphasised the urgency of private capital mobilisation. He noted that the primary remaining challenge is enabling private investment influx to match the project pipeline. The report proposes practical actions rather than theoretical frameworks.

Jennifer Jordan-Saifi, SMI CEO, highlighted that carbon capture can enable sustainable transition but requires confidence, collaboration, and capital to move from ambition to action. Her comments reflect growing recognition that technology readiness alone does not guarantee deployment without appropriate financial structures supporting investment decisions.

Some analysts suggest catalytic public equity could unlock substantially larger private investment. Estimates indicate one dollar of well-structured public equity might mobilise up to $30 in total investment through leverage and co-investment. However, this multiplier effect depends on commercial structures that current projects often lack. The policy and commercial framework must evolve alongside financial innovation to achieve this leverage ratio in practice.

Questions businesses should consider now

Companies in emission-intensive sectors need to evaluate whether carbon capture fits their decarbonisation strategy. This assessment should start with technical feasibility. Not all industrial processes suit carbon capture. Concentration of CO2 in exhaust streams, available space for equipment, and proximity to transport infrastructure all affect viability and cost.

Financial capacity deserves careful examination. Can your business support multi-year development costs before any capture begins? Do you have access to patient capital willing to accept long payback periods? Small and medium manufacturers may find these requirements challenging without external financing or shared infrastructure arrangements.

Competitive positioning matters significantly. Will early adoption provide advantage in customer relationships or regulatory compliance? Alternatively, does waiting for proven commercial models reduce risk more than any first-mover benefit? This calculation differs by sector and market position. Commodity producers face different dynamics than specialty manufacturers with direct customer relationships.

Supply chain exposure requires attention. If major customers demand carbon footprint reductions, can you meet requirements without capture? Conversely, if customers show little interest in embodied carbon currently, will this change within your investment timeframe? Public sector suppliers should particularly consider how procurement criteria may evolve given existing carbon reduction plan requirements.

Regional factors influence timing and approach. Businesses located near developing transport and storage infrastructure should actively engage in cluster planning. Those in other regions might explore shipping captured CO2 or wait for infrastructure expansion. Geographic location may ultimately determine whether carbon capture proves commercially viable for specific facilities.

Partnership opportunities deserve exploration. Can multiple facilities share infrastructure costs? Might sector associations coordinate to aggregate demand and improve commercial terms? Collaborative approaches often succeed where individual projects struggle. However, coordination takes time and requires alignment on technical standards and commercial terms across different companies.

Our net-zero programme helps businesses evaluate decarbonisation options including carbon capture feasibility for specific operations. We work with companies to assess technical requirements, potential costs, and regulatory implications before significant capital commitment.

Further Reading

The Department for Energy Security and Net Zero publishes updates on UK carbon capture policy and funding programmes. Their guidance documents explain eligibility criteria for various support mechanisms. Additionally, they provide information about planned transport and storage infrastructure development in industrial clusters.

The Sustainable Markets Initiative’s February 2026 report offers detailed analysis of financing barriers and proposed solutions. This document includes case studies from early projects and specific recommendations for financial institutions. The full report is available through the SMI Financial Services Task Force section of their website.

The Global CCS Institute tracks project pipelines and provides data on operational facilities worldwide. Their annual reports analyse deployment trends, costs, and policy developments across different regions. This resource helps businesses benchmark potential projects against international experience and understand how different regulatory frameworks affect project economics.

The UK CCS Association represents developers and industrial emitters working on carbon capture projects. They provide technical guidance, policy analysis, and networking opportunities for businesses evaluating investment decisions. Their members include major industrial companies as well as specialist project developers working on specific facilities.

For businesses assessing carbon reporting requirements and how carbon capture might affect compliance obligations, regulatory guidance from the Environment Agency provides essential information. Their publications explain monitoring, reporting, and verification requirements for captured and stored CO2. Understanding these obligations early helps businesses budget appropriately for operational compliance costs.