UK Budget 2026: 'Hammer blow' for North Sea as Labour under fire over carbon capture funding row
The Acorn carbon capture funding will be repurposed to help pay for defence investment.
Scotland’s flagship carbon capture project has been dealt a “hammer blow” after the UK government threw doubt over public funding being used to finally get the facility up and running.
It comes as Andy Burnham’s government is facing accusations of “betrayal” of Scotland’s oil and gas sector after ignoring repeated demands to bring forward reforms to the energy profits levy.
A failure for Scotland’s carbon capture project to materialise could have drastic consequences on the Scottish government’s strategy to reach net zero by 2050 with a large proportion of emissions reductions put down to the controversial technology.
The Acorn carbon capture and storage project, poised to be constructed at the St Fergus gas terminal near Peterhead, was also key to Scotland’s hydrogen ambitions, plans to revitalise the Grangemouth industrial hub and controversial plans, approved by SNP ministers yesterday, for SSE's new gas-fired power plant.
Last year, then energy secretary Ed Miliband, visited the site of the proposed Acorn project as the Labour UK government pledged £200m for the site after years of failed-promises from successive Westminster governments in the spending review.
Mr Miliband insisted that "ministers were putting their money where their mouth is”, after years of promises.
But the Scotsman reported that the Chancellor was poised to use funding earmarked for carbon capture projects to be repurposed to pay for a huge boost to defence spending - with public funding for the remainder of the project now thrown into doubt.
Instead, the UK government’s Budget document states that Labour ministers are “actively looking at how loan or equity investments can support the continued development of future CCUS and hydrogen projects this Parliament, including for the Acorn cluster”.
Storgerra, the lead developer, is currently seeking another partner to take forward the Acorn project after announcing it intends to sell its share of the scheme. The flagship initiative is also being progressed by Shell, Harbour Energy, and North Sea Midstream Partners.
The move has angered the Aberdeen energy sector, particularly after projects south of the border in Teesside, Merseyside and North Wales have been prioritised, and grant funding for the Viking project protected.
A final investment decision for the Acorn project was due to be made at next year’s UK government spending review. UK Labour ministers have argued they are exploring whether private investment, government loans or equity funding could support its future development.
Kirsty Blackman, the SNP’s economy spokesperson at Westminster, said the UK Labour government has “imposed another betrayal on Scotland's energy - with the decision to scrap Scottish carbon capture funding”.
Russell Borthwick, chief Executive at Aberdeen & Grampian Chamber of Commerce, said: “This is yet another hammer blow for the North-east Scotland economy and comes only a year since Former energy secretary Ed Miliband said the UK government would put ‘its money where its mouth is’ and back the Acorn Project, protecting 15,000 North Sea jobs.
“All talk, no action, like so much of the transition we were promised by this government.
“This is an abject betrayal of that commitment and, yet again, communities across our region, which has powered the UK’s energy and economic security for decades, are left to face the consequences of inaction and indifference from our political class.”
He added: “North East Scotland has an unrivalled pipeline of oil and gas and offshore wind projects on its doorstep and a world-class subsea engineering supply chain that can deliver them to the highest global standard.
“We now call on the UK government to act without delay and approve Rosebank and other oil and gas projects, use the billions of pounds of resulting revenues to turbocharge renewables across this region and deliver the managed and just transition we have repeatedly been promised. Anything less would be unforgiveable.”
Climate campaigners have hit out at the timing of the Scottish government approving the Peterhead gas plant, with planning conditions reliant on the Acorn carbon capture project progressing, to shift the blame onto Westminster.
Friends of the Earth Scotland’s head of campaigns, Caroline Rance, said:“The Scottish government's cynical approval of the Peterhead carbon capture project the day before Acorn’s funding was rightly cut is a transparent attempt to shift blame to Westminster for its own failures.
“Scottish ministers have repeatedly chosen to be over reliant on the pipe dream of unproven carbon capture and now there is a massive hole in their climate plans. Scottish ministers must finally take responsibility for their carbon capture delusion when they should have been prioritising real climate solutions that would improve people’s lives such as home insulation and improving bus services.“
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Mr Healey is also facing criticism after failing to listen to demands from the North Sea oil and gas sector to bring forward reforms to the energy profits levy.
Industry body, Offshore Energies UK (OEUK) has called for the Chancellor to bring forward reforms to the controversial energy profits levy - to become the oil and gas revenue levy (OGRL) from 2030 - in his Budget. But that hope did not materialise.
Scottish Conservative MP for Aberdeen South, Douglas Lumsden, said: “This was Labour’s third Budget in office, but it was far from third time lucky for Aberdeen.
“Labour’s refusal to scrap the energy profits levy marks another dark day for the oil and gas industry at the hands of this shameful government.
“The Chancellor had the perfect chance to right the wrongs of Labour’s reckless decision to hike the EPL to 38 per cent, but he has sold out the industry again by keeping it in place.
“This betrayal could have disastrous consequences on Aberdeen, resulting in oil and gas firms taking their jobs and investment elsewhere.”
A UK government spokesperson said: "We recognise Acorn’s role in supporting good, well-paid jobs and reindustrialisation in Scotland.
"The funding allocated for Acorn remains in place and future support would be provided through financial transactions to deliver greater value for money for taxpayers."
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.”
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