Is carbon capture really the answer?

Carbon capture, its use, and secure storage can, in theory, capture more than 90% of carbon dioxide (CO₂) emissions from toxic power plants and heavy industry. But is it really the answer?

Ed Miliband, Secretary of State for Energy, is ‘100% committed’ to the government’s climate goals. At the same time, Chancellor Rachel Reeves is seeking to boost UK economic growth through massive infrastructure projects to create thousands of jobs and attract private investment. One of the resulting flagship policies is Carbon Capture, Utilisation, and Storage (CCUS). This involves preventing carbon dioxide, produced by industry, from being released into the atmosphere by capturing it and storing it underground.

By 2035, the government wants CUSS to prevent the emission of 50 million tonnes of CO₂ – more than 10% of the UK’s current CO₂ emissions. In the October Budget, the government committed £21.7bn to achieving this goal with initial carbon capture projects highlighted in Merseyside and Teesside. It is hoped this will unlock £8bn of private sector investment in CUSS over the next 25 years.

However, the government has been accused by MPs from the Public Accounts Committee of committing billions of pounds to an ‘unproven’ green technology without considering the impact on consumer bills. The committee was also surprised that the government had signed two contracts with CUSS developers last year and not guaranteed that if the projects were successful, taxpayers would receive the benefits, such as lower energy bills. Not surprisingly, the committee recommended that future contracts should include a profit-sharing mechanism.

While there are currently no commercial carbon capture facilities in the UK, there are 45 such sites operating globally, and Norway is one of the few countries to have scaled CUSS facilities. While carbon capture is not an ‘unproven technology,’ there are obviously questions about whether the government’s current funding model is sustainable and to what extent taxpayers would benefit. However, infrastructure funds and pension funds are only likely to invest, given the scale of investment, if they see attractive returns that are underpinned by the government.

Regardless of what the UK does to combat climate change, President Trump’s ‘drill baby, drill’ mantra looks set to undermine global efforts. In a sign of the rapid change in American investment sentiment from renewables to fossil fuels, the world’s largest activist shareholder, US-based Elliott, forced BP to admit that it went ‘too far, too fast’ on low carbon investment. This, in turn, has led BP into a strategic shift, and it will now be ‘Drill BP, drill’ as it focuses on oil and gas!

What have we been watching? 

The US ‘presidency of chaos’ and once-in-a-generation proposed policy regime shift in Germany – the world’s third largest economy, that has stagnated after five years of essentially zero economic growth. However, Germany’s higher government borrowing means higher borrowing costs. European bond yields jumped, and even Japanese bond yields hit a 16-year high!  

Markets reacted negatively to the latest development in the ‘presidency of chaos,’ particularly Trump’s trade and other policy flip-flops! Trump has declined to rule out either a recession or higher inflation while dismissing the concerns of businesses over a lack of clarity on tariffs. This followed the warning from the Atlanta Federal Reserve of the risk of US economic contraction in the first quarter of 2025 and a week of about-turns by Trump on trade.

Many American business leaders and investors believe that under the ‘Art of the Deal,’ Trump would use threats to force other parties to the negotiating table. This is certainly the case with political developments in Ukraine and Gaza. However, from an economic perspective, markets were caught out when Trump went ahead with the imposition of a 25% tariff on Canada and Mexico and a further 10% on China at the start of last week. Trump also promised more tariffs to come on steel and aluminium (12th March) and reciprocals (2nd April). However, at the end of the week, he suspended the tariffs against Canada and Mexico until 2nd April.

Trump’s convention-breaking playbook may have shaken things up, but it is still far from clear if they will deliver the kind of wins that he wants. Trump’s first tariff announcement saw immediate counteractions, with Canada imposing 25% tariffs. China, in turn, announced 15% tariffs on select US goods targeting the US agricultural sector. President Xi Jinping said, ‘If war is what the US wants, be it a tariff war, a trade war, or any other type of war, we’re ready to fight to the end.’ Trump is hopefully still open to negotiation – he has listened to three of America’s largest car makers, Ford, GM and Stellantis, and has delayed the imposition of 25% tariffs on car components from China and Mexico for one month. Canada also has a new PM, former Bank of England governor Mark Carney, who has vowed to win the trade war against the US.

Trump said that he expects a ‘little disturbance’ to the US economy from tariff moves but that it could raise ‘trillions and trillions’ in revenue. So, it would all seem to come down to whether these are just threats to get a favourable result without major tariffs or whether he follows through and risks damaging the US economic miracle. Trump may have also overlooked the US boycott risk. For example, the US maker of Jack Daniel’s whisky has warned that Canadian stores are removing US alcohol from their shelves, which is worse than tariffs because it is taking sales away! Meanwhile, US investors also appear to be worried by US government redundancies arising from Elon Musk’s DOGE program and the possible impact on consumer spending.

One area where Trump’s policies have driven a seismic shift in policy is in Europe. The sudden realisation that Trump might no longer be a reliable backstop of NATO has led the EU to announce plans to massively ramp up its defence capability. President Macron of France has warned that Europe is at a ‘turning point in history’ and is seeking to extend France’s nuclear deterrent to European allies. Some €150bn in loans which could support €650bn of defence spending, have been proposed, while EU members will be allowed to increase national deficit levels to fund higher defence spending. The European Investment Bank will also be allowed to finance defence projects.

European bond markets saw some of the largest moves in yields since the 1990’s as Germany proposed a €500bn (12% of GDP) infrastructure fund to spend over 10 years on housing, transport, and energy grids, in addition to higher defence spending. Defence spending beyond 1% of Germany’s GDP will be exempted from the current deficit limit. Against this background, the European Central Bank (ECB) cut its deposit rate, as had been expected, by 0.25% to 2.5%. However, the ECB cut its 2025 and 2026 economic growth outlook to 0.9% and 1.2% respectively. The ECB has also become more cautious about the scope for further rate cuts, citing tariff risks and the inflationary pressure from higher European defence spending. Germany’s infrastructure stimulus package may also weigh on the ECB’s future policy.

In a sign of the growing ‘bromance’ between Trump and Putin, the US is pausing its offensive cyber operations against Russia. This is no doubt part of Trump’s plan to build trust with Russia over Ukraine peace talks, but nonetheless, it feels naïve. At the same time, Trump had applied pressure on President Zelensky by halting US military aid to Ukraine, including the provision of intelligence-sharing services. Trump said that as a result, Zelensky had agreed to come to the negotiating table and was ready to sign a rare earth mineral deal with the US. Ukrainian and US diplomats are due to hold talks in Saudi Arabia this week. Trump said that there had also been ‘serious discussions’ with Russia and that he ‘had received strong signals that they are ready for peace.’ Russia appears to be playing hardball, not surprisingly given Trump’s actions, and has said that it will not allow any European peacekeeping troops in Ukraine. In the meantime, Russian missile and drone strikes are killing more Ukrainian civilians.

---

 

In the UK, more news is being leaked ahead of the OBR report on 26th March, with Chancellor Rachel Reeves hinting at massive cuts to the welfare bill to ensure she remains within her self-imposed fiscal rules and avoids further major tax hikes. Amongst the global shift in European bond yields and US tariffs, the 10-year Gilt yield was steady around 4.7% but Sterling rallied to over $1.28.

---

 

China reiterated its 5% economic growth target, although given Trump tariffs, markets are assuming that Beijing will have to announce further stimulus measures in order to achieve this goal. Given Chinese inflation dropped below zero for the first time in thirteen months, the economy needs a boost.

---

 

Brent oil dropped to $70 on concerns about a global trade war and news that OPEC+ is to proceed with its planned gradual easing of its earlier production cut from April. With all the economic and political turmoil, at least central bankers may take some comfort from lower energy prices!

---

Finally, one less thing to worry about. They say ‘markets climb a wall of fear,’ and investors certainly have enough to fret about, as you have just read. So, we were pleased to learn that we no longer need to worry about 2024 YR4. This is a large asteroid that grabbed headlines recently when scientists first raised its chances of hitting Earth and then lowered them. The latest risk of a hit is 0.28%, down from 3.1%. So, that means we can refocus on Trump, Putin, and Xi Jinping—all three of whom, like an asteroid, can cause global devastation!

---

Read Last Week’s Alpha Bites – Dragged through the dirt

Further information about Alpha Portfolio Management, our products and services, please visit www.alpha-pm.co.uk or email info@alpha-pm.co.uk. Alternatively, you can call us on 0117 203 3460.

This publication is for informational purposes only and should not be relied upon. The opinions expressed here represent analysis by an Alpha Portfolio Management representative at the time of preparation and should not be interpreted as investment advice.

You should seek professional advice before making any investment decisions. The past is not necessarily a guide to future performance. The value of shares and the income from them can fall as well as rise and investors may get back less than they originally invested. The sender does not accept legal responsibility for any errors or omissions, in the context of this message, which arise as a result of internet transmission or as a result of changes made to this document after it was sent.

Alpha Portfolio Management is a trading name of R C Brown Investment Management PLC which is authorised and regulated by the FCA.
Registered Office: 1 The Square, Temple Quay, Bristol, BS1 6DG. Registered in England No. 2489639
Copyright © 2025 Alpha Portfolio Management, All rights reserved

Trading name text

Alpha Portfolio Management is a trading name of R C Brown Investment Management PLC which is authorised and regulated by the Financial Conduct Authority.