The Acorn Project in Aberdeenshire has been dealt a major blow in the Budget, with the UK Government cutting carbon capture capital grants to help fund increased defence spending.
Scottish Secretary Douglas Alexander said the project at St Fergus, near Peterhead, faces 'significant challenges', despite the UK Government pledging £200million just 14 months ago to support its development.
The funding announcement in June 2025 was accompanied by claims that Acorn could support 15,000 new roles as part of Scotland’s energy transition.
However, Treasury documents published alongside Wednesday's Budget revealed that £200million in carbon capture funding had been reprioritised to support increased defence investment, with the government instead focusing on more advanced projects in Teesside, Merseyside and Wales.
Speaking after the Budget, Mr Alexander said: 'Respectfully, there have been significant challenges in relation to Acorn, both in relation to the market readiness of the technology and in relation to the commercial arrangements around the project.
'We have a responsibility to think carefully about use of public money, at the same time as ensuring we continue to facilitate the transition in the North Sea.'
However, confusion later emerged after Scottish Labour energy ministers Martin McCluskey and Michael Shanks insisted reports of funding cuts were 'wrong'.
Mr McCluskey subsequently suggested that the promised grant investment would instead be 'delivered through financial transactions — loans/equity stakes — to deliver greater value for taxpayers'.
A UK Government spokesman added: '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.'
Acorn itself also insisted the Budget announcement would not affect its current development.
However, the uncertainty has sparked anger across North-east Scotland, particularly given the government's previous commitments to the project.
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.
'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.'
The Scottish Government has also pledged up to £80million towards Acorn, which has faced repeated delays since being overlooked for priority UK Government funding in 2021.
Seamus Logan, MP for Aberdeenshire North & Moray East, described the apparent withdrawal of funding as 'treacherous'.
He said: 'This is the gravest betrayal of Scotland’s energy sector and is an utter disaster for our energy security, our net zero ambitions and for Scottish jobs.'
Prof John Underhill, Director for Energy Transition at the University of Aberdeen, said: 'Changing the financial support mechanism for the Acorn CCS project weakens the case for a new gas-fired power station at Peterhead, the approval for which was only announced by the Scottish Government yesterday.
'Scottish CCS has seemed jinxed from the get-go. This is the third attempt to get a project across the line, since BP first mooted the re-use of the Miller Field and pipeline for this purpose over twenty years ago and subsequent proposal and cancellation of the Goldeneye field by the UK Government a decade ago.
'Having lost the emissions from Grangemouth and Mossmorran, Acorn was already a stressed project with Storegga seeking to sell its stake and was reliant on Peterhead or on imports. Consequently, yesterday’s decision by the Scottish Government potentially offered a life-line in the event that SSE and Equinor took a Final Investment Decision (FID) but 24 hours later, things are up in the air again.
'In an instance, the decision to withdraw the £200 Million commitment and pare back support for the Track 2 CCS project at Acorn by replacing it by with loans or equity - yet continue funding for Northern Endurance, HyNet and Viking CCS - puts the Scottish Government on collision course with the UK Government as it has been considered by many to be an essential technology to decarbonise Scotland, provide supply chain orders and create jobs in the North-east.'
An Acorn spokesperson said: 'The 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.'
Source: Aberdeen & Grampian Chamber of Commerce
