UK Government Proposes Levy to Support Low-Carbon Hydrogen Production
Key Ideas
  • The UK government is introducing the Gas Shipper Obligation (GSO) levy to financially support the Hydrogen Production Business Model (HPBM) and promote investment in low-carbon hydrogen production.
  • The GSO will be funded by gas shippers to bridge the cost gap between low-carbon hydrogen and traditional fuels, with the aim of encouraging the transition to cleaner energy sources.
  • The government is seeking input on the scope, impact, and administration of the GSO, including mechanisms for determining gas quantities, aligning obligation and collection periods, and managing under/over collection risks.
  • Exemptions for non-domestic users, credit support requirements, and potential future expansion of the levy to Northern Ireland are key considerations in the consultation process.
The UK government is taking significant steps towards a low-carbon economy by proposing the Gas Shipper Obligation (GSO) levy to support the Hydrogen Production Business Model (HPBM). This funding mechanism is designed to close the cost gap between low-carbon hydrogen and traditional fossil fuels, ultimately encouraging investments in the production and utilization of hydrogen. The GSO will require gas shippers to contribute funds towards supporting hydrogen producers under Low Carbon Hydrogen Agreements (LCHAs), aiming to drive the adoption of cleaner energy sources. The government is conducting consultations to gather feedback on various aspects of the GSO, including its scope, impact, operation, and administration. The HPBM funding is allocated through Hydrogen Allocation Rounds (HARs), with the government planning to finance this model until 2027, after which the GSO will take over. The levy, initially applying to entities in Great Britain with potential expansion to Northern Ireland, will be administered by the Low Carbon Contracts Company (LCCC). The government is considering two primary approaches for the levy - a Per Meter Point Charge and a Volumetric Charge, with a preference for the latter due to its alignment with actual gas consumption. Moreover, discussions include collection amounts, payment frequency, risk management in case of default by shippers, and potential exemptions for non-domestic users. The consultation seeks input on mechanisms for determining gas quantities, aligning obligation and collection periods, and addressing under/over collection risks. The proposal indicates that while domestic gas users will not be exempt from the levy, views are welcomed on possible exemptions for non-domestic users, such as those in Carbon Capture, Utilization, and Storage (CCUS)-enabled hydrogen production. The government's proactive stance on promoting low-carbon hydrogen production through the GSO reflects a positive outlook on transitioning towards cleaner energy sources.
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