Planning for the end: building out a new regime for UK offshore CCUS decommissioning
Since the award of the first carbon capture, utilisation and storage ("CCUS") licences, it has been clear that the UK Government intends to underpin the funding requirements for decommissioning requirements in those licences with legislation.
After a long wait, the UK Government has now established that statutory architecture by introducing the Carbon Dioxide Transport and Storage (Financing of Costs of Offshore Decommissioning) Regulations 2026 (SI 2026/632) (the "Regulations").
Due to come into force on 10 July 2026, the Regulations implement the offshore decommissioning fund provisions in section 92 of the Energy Act 2023, setting out how the costs of decommissioning offshore CO₂ transport and storage ("T&S") infrastructure are anticipated, funded and controlled throughout a project's lifecycle.
As envisaged, the UK is turning away from the regime traditionally applied to offshore oil and gas and towards that applied to offshore renewables, by requiring T&S licensees to fund decommissioning liabilities during the life of the project and manage them proactively, rather than addressing them reactively at end of life.
This Legal Update sets out why the UK Government has chosen this path, the key provisions of the Regulations and what they mean for CCUS T&S, and examines the similarities and key differences between the CCUS regime and that of offshore renewables and oil and gas installations.
For more of CMS’s commentary on the development of CCUS T&S, you can read our articles on recent developments in non-pipeline transportation of CO2, and on open access to CCUS T&S infrastructure.
Government’s justification for a Funded Model
Given the complex geology associated with offshore CCUS, the associated decommissioning liabilities are long-dated, technically uncertain and potentially significant, with storage site monitoring expected to continue for at least 20 years after closure.
Under international treaties like UNCLOS and OSPAR, the UK Government has committed to, and therefore bears ultimate financial responsibility for, the decommissioning and removal of offshore installations in the UK’s EEZ. To avoid these significant fees falling on the UK taxpayer, the Government's answer is a funded decommissioning model.
As set out in the Regulations, a proportion of the fees charged by a T&S licensee to its users is to be set aside in a dedicated offshore decommissioning fund, accruing over the initial licence period of around 25 years. If decommissioning is not properly carried out by the licensee, the UK Government can utilise the fund to carry out the required decommissioning, with a view to ensuring that the long-term costs associated with CCUS projects are borne by the projects themselves, rather than UK taxpayers.
The Regulation: Key Features of the Model
1. A mandatory, ring-fenced funding structure
Holders of a T&S licence (under section 7 of the Energy Act 2023) are already under an obligation to establish a decommissioning fund to cover the costs associated with decommissioning their CO₂ transport and storage infrastructure. The standard conditions of the T&S licence (see, for example, Northern Endurance Partnership’s licence here) contain an obligation on the licensee to comply with all relevant decommissioning requirements, which includes the Regulations.
The Regulations require that each fund is:
- Legally and operationally independent from the licensee and related parties
- Ring‑fenced from insolvency risk, ensuring funds remain available regardless of corporate distress
- Established and managed in the UK, under UK law and jurisdiction (as opposed to an offshore jurisdiction, which is common for investment funds managed from the UK)
2. Establishing fund size and refreshing cost estimates
Shortly after licence award, operators must submit a Fund Estimate to the Secretary of State, capturing full lifecycle costs, including post-closure monitoring, with infrastructure-specific breakdowns and a contingency sum of no less than 10% of the estimated decommissioning costs, before the contingency sum is applied.
Estimates must be revised at least every five years, and sooner where material changes arise. The materiality test is deliberately cautious. The Secretary of State must treat a change as, or potentially as, material unless satisfied that there is likely to be no increase in the overall estimate, that any increase would not constitute a material deficit, or that the change will be addressed sufficiently soon through an upcoming scheduled review.
3. Funding and investment strategy drives contributions and asset allocation
Licensees must adopt a funding and investment strategy approved by the Secretary of State showing how the fund will grow and be drawn down over time. Funding is delivered in accordance with a “fund accrual profile”, and built up through regular monthly contributions, calculated as one twelfth of the approved annual amount, together with investment returns and other lawful payments.
The timing of the fund accrual profile is not specified in the Regulations, and is likely to be a key point of interest for developers and funders. In the offshore renewables regime, DESNZ expects this to be front-loaded and align with the profile of any relevant subsidy scheme (such as the renewable CfD), however there is no clear read-through from this approach to CCUS T&S given the lack of a long-term subsidised revenue stream. Clarity from DESNZ on their approach to this in approving licensees’ funding and investment strategies may be needed to provide certainty and facilitate accurate project modelling.
The investment framework is deliberately conservative, with assets moving into low-risk investments in the five years before the end of the fund operational period and throughout the post-operations period. These requirements are much more prescriptive than for funds established under the offshore renewables regime, with the Regulations requiring that ESG considerations, diversification, hedging and regulatory compliance are explicitly embedded in the investment strategy for the relevant fund.
4. Tight Governance and Controlled Access
Funds are prohibited from paying dividends, incurring debt outside approved strategies, acting as guarantors or engaging in unrelated transactions. Payments out of the fund require explicit Secretary of State approval, with requests needing to demonstrate a link to approved decommissioning work, value for money and alignment with cost estimates. The Government may also impose safeguard measures, including staged payments, escrow arrangements or direct payments to contractors.
No security can be granted over either the fund or any payments into the fund (in line with Part I of Standard Condition D2 of the T&S licence), ring-fencing the fund for the purposes of any debt or equity financing.
5. Monitoring and Deficit Response
Each fund is benchmarked against fund sufficiency targets. Where a shortfall emerges, the Secretary of State can require immediate top-up payments, mandate increased contributions or force revisions to the investment strategy. This reflects the T&S licence obligation (at Part H of Standard Condition D2) that requires licensees to monitor the position of the fund against the required levels, and report to Ofgem on any “material” deficit.
While allowing intervention well before a funding gap becomes critical has clear benefits for the taxpayers, it may be challenging for licensees to anticipate these obligations, and even more challenging for their funders to incorporate them into debt arrangements.
Implications for Developers and Investors
The publication of the Regulations ties up one of the final remaining loose ends for the Track-1 projects, and confirms the breadth of the rights held by DESNZ and Ofgem in relation to CCUS T&S decommissioning. Between the Regulations and the T&S licence, the obligations on T&S licensees go further than any comparable regime (as described further below), and licensees will need to develop strategies relating to cost estimates, identifying fund holders and administrators, and developing a Funding and Investment Strategy demonstrating sufficiency, liquidity, diversification and ESG due diligence.
Additionally, the regime should also be viewed as part of the evolving regulatory architecture as they may need updating to align with forthcoming rules on the repurposing of oil and gas assets for CCUS, including amounts payable to qualify for change of use relief.
Comparison to other decommissioning regimes
Taken together, the T&S licence and the Regulations confirm a departure from the oil and gas approach to decommissioning, where decommissioning security is typically introduced progressively and often in response to late-life risk through parent company guarantees, letters of credit and decommissioning security agreements. These mechanisms provide backstop protection but are generally contingent and flexible. Instead, DESNZ and Ofgem (as the economic regulator under the licence) are enabled to take a much more proactive and anticipatory approach to managing decommissioning, that in the absence of clear guidance on how these powers will be exercised risks uncertainty for developers.
Understandably, given the similarity between the assets in question and the international obligations that apply, the decommissioning fund model is the approach taken for offshore renewables decommissioning, which was established in the Energy Act 2008. The 2008 Act requires This is more prescriptive than the approach for offshore renewables, which allows a variety of measures (upfront cash provision, cash reserves, LCs and other bank guarantees) to secure a project’s decommissioning liabilities. Notably, much of the substantive detail that contributes to how offshore renewables projects plan and fund their decommissioning is set out in guidance – which varies between Scotland (issued by the Scottish Ministers through their Marine Directorate) and England and Wales (issued by DESNZ). Similar guidance is envisaged by the Regulations, but no date or delivery plan for its publication has been made public.
It differs, however, from that the model applying to other, onshore, RAB regimes, such as gas and electricity transmission and water. These are more complex networks with a large number of users (compared to the CCUS T&S networks which, as currently envisaged, will have a single store and a handful of users each), which need to be enduring to ensure the constant provision of electricity and water. Decommissioning them, therefore, is a piecemeal exercise, rather than the wholesale end-of-life work envisaged for the CCUS T&S networks.
In the RIIO framework that applies to onshore electricity transmission, for example, the cost of decommissioning assets is built into the price control mechanism (on an ex-ante basis), and therefore incorporated into the charges that transmission owners can charge network users. Any additional decommissioning costs not foreseen are either captured by way of a re-opener, or pushed onto a licensee’s shareholders by way of penalties.
Next steps
Following the passing of the Regulations, the immediate focus for Track-1 stakeholders will be ensuring practical readiness. Developers will need to test their cost assumptions, governance arrangements and funding profiles against the level of prescription now required, and investors and funders will need to understand how the ring-fenced fund interacts with project economics and financing structures.
As noted above, much of the detail of how projects navigate their obligations in terms of offshore renewables decommissioning is contained in Government guidance. This guidance is envisaged by the T&S licence and the Regulations, and we expect that stakeholders will be keenly awaiting its future publication to fill in any blanks that remain.
