The Carbon Dioxide Transport and Storage (Financing of Costs of Offshore Decommissioning) Regulations 2026

The Carbon Dioxide Transport and Storage (Financing of Costs of Offshore Decommissioning) Regulations 2026 (SI 2026/632) mark a pivotal development in the UK's carbon capture, utilisation, and storage (CCUS) legal framework. These Regulations establish a mandatory regime for the creation and management of offshore decommissioning funds, specifically designed to cover the long-term costs associated with the decommissioning and post-closure obligations of offshore carbon dioxide transport and storage infrastructure. Building upon existing decommissioning liabilities under the Petroleum Act 1998 and the CO2 storage licensing regime of the Storage of Carbon Dioxide (Licensing etc.) Regulations 2010, these new rules provide the financial assurance deemed essential for the sustainable growth of the UK's CCUS industry, aligning with the nation's ambitious net-zero targets and the comprehensive framework introduced by the Energy Act 2023.

The United Kingdom's commitment to achieving net-zero emissions by 2050 has placed carbon capture, utilisation, and storage (CCUS) technologies at the forefront of its decarbonisation strategy. With ambitious targets to capture and store between 20 and 30 million tonnes of CO2 annually by 2030, the development of a robust and comprehensive regulatory framework for CCUS is paramount. A critical component of this framework is ensuring that the significant long-term liabilities associated with the decommissioning of offshore CO2 transport and storage infrastructure are adequately financed, thereby safeguarding taxpayers and promoting investor confidence in this nascent industry.

The statutory obligation for the decommissioning and abandonment of offshore installations in the UK has historically been governed by Part 4 of the Petroleum Act 1998. This Act establishes a regime where the Secretary of State can issue notices requiring persons with an interest in an offshore installation or pipeline to submit an abandonment programme for approval, making them jointly and severally responsible for carrying out the work. While the Petroleum Act 1998 primarily focused on oil and gas infrastructure, its principles laid the groundwork for managing end-of-life liabilities in the offshore energy sector.

For carbon dioxide storage specifically, the Storage of Carbon Dioxide (Licensing etc.) Regulations 2010 (SI 2010/2221), enacted under the Energy Act 2008, established the initial licensing regime for offshore CO2 geological storage. These regulations set out requirements for exploration, storage permits, monitoring, reporting, corrective measures, and crucially, site closure and post-closure obligations, including provisions for financial security. However, the rapid expansion of the CCUS sector necessitated a more explicit and dedicated financial assurance mechanism for decommissioning. The Energy Act 2023 subsequently provided a comprehensive legislative foundation for CCUS, encompassing licensing for CO2 transport and storage operations, establishing funding mechanisms, and designating the Office of Gas and Electricity Markets (Ofgem) as the economic regulator for these activities. This Act also explicitly outlines requirements for the secure decommissioning of CO2 infrastructure, reinforcing the sustainability of these projects.

The Carbon Dioxide Transport and Storage (Financing of Costs of Offshore Decommissioning) Regulations 2026 (SI 2026/632), which came into force on June 15, 2026, directly address the financial assurance gap by making provision for the establishment of offshore decommissioning funds. These Regulations mandate the creation and maintenance of funds specifically to meet the decommissioning and post-closure costs associated with offshore carbon dioxide-related infrastructure. This move is consistent with the "polluter pays" principle, aiming to ensure that the costs are borne by those who benefit from the infrastructure, rather than the taxpayer.

The development of these Regulations followed extensive public consultation, which covered fundamental design proposals for the decommissioning funds, including their scope, capital accrual mechanisms, management, and how they would be drawn upon. The government's response to these consultations clarified aspects such as the treatment of onshore decommissioning costs, the allocation of shortfall and windfall risks, and the approach to investing capital within these funds. This iterative policy development underscores the complexity of establishing a robust financial regime for a long-term, high-cost activity like offshore decommissioning, which in the oil and gas sector alone is forecast to cost £44 billion, with £27 billion expected by 2032.

The 2026 Regulations integrate with the broader regulatory landscape by building on the existing decommissioning obligations established in Part 4 of the Petroleum Act 1998 and the licensing requirements of the Storage of Carbon Dioxide (Licensing etc.) Regulations 2010. The Energy Act 2023 further solidifies this framework by requiring economic licences for CO2 transport and storage, with Ofgem overseeing pricing and cost-efficiency, and ensuring operators maintain fair practices. The establishment of these funds is a crucial step in operationalising the Energy Act 2023's mandate for secure decommissioning and providing the necessary financial stability for the substantial government investment in CCUS clusters, which totals up to £21.7 billion over 25 years.

Furthermore, these Regulations complement other recent legislative efforts, such as the Carbon Capture Utilisation and Storage and Offshore Hydrogen Production (Miscellaneous Amendments) Regulations 2026 (SI 2026/327), which extend existing offshore safety requirements to CCUS installations and CO2 pipelines. Together, these legislative instruments create a comprehensive regulatory and financial ecosystem designed to manage the full lifecycle of offshore CCUS projects, from initial licensing and operation through to safe and environmentally sound decommissioning and post-closure monitoring.

The Carbon Dioxide Transport and Storage (Financing of Costs of Offshore Decommissioning) Regulations 2026 represent a critical advancement in the UK's legal and regulatory framework for carbon capture, utilisation, and storage. By mandating the establishment of offshore decommissioning funds, the Regulations provide essential financial assurance, mitigating long-term liabilities and fostering the investment confidence necessary for the successful deployment of CCUS technologies. This move solidifies the "polluter pays" principle within the CCUS sector and aligns with the UK's overarching net-zero ambitions.

For legal practitioners, these Regulations necessitate a thorough understanding of the new financial obligations and their integration with existing decommissioning and licensing regimes. Companies involved in offshore CCUS projects must now meticulously plan for and contribute to these decommissioning funds, ensuring robust financial provisioning throughout the project lifecycle. Advising clients on compliance, fund management, and the interplay with the broader Energy Act 2023 framework will be paramount as the UK's CCUS industry continues to mature and expand.