The Teesside X-Ray

The collapse of BP’s H2Teesside project gives us an uncomfortably clear X-ray of how Britain allocates its
industrial capital – and what happens when governments confuse “supporting the energy transition” with
“insuring the balance sheets of companies who can already afford it.”

For years, H2Teesside sat at the centre of the UK’s blue hydrogen ambitions. But when the project’s economics
deteriorated and the state didn’t write a sufficiently large guarantee, BP walked. The public explanation –
a land-use dispute with a data-centre developer – masks the real issue: the numbers never stacked up unless
the UK taxpayer absorbed the risk.

This isn’t a one-off misfire. It’s a pattern. The UK continues to subsidise legacy energy in the hope of
preserving the industrial landscape of the 1990s. Meanwhile, the companies actually building the technologies
that could define the 2030s are left fighting for growth capital or exiting abroad. The lesson from Teesside
isn’t about hydrogen. It’s about misallocated ambition.

For a concise project timeline, the BBC provides an overview of the

BP Teesside hydrogen withdrawal
.

The collapse of BP Teesside reinforces a broader truth: blue hydrogen becomes viable in the UK
only when industrial strategy carries the risk that private capital refuses to.

The Blue Hydrogen Subsidy Paradox

BP’s 2025 financials make the picture even clearer. In Q3 2025 the company reported underlying profits of
more than US$2 billion, with operating cash flow comfortably higher still. A company generating that kind
of cash does not need public assistance to test a commercially viable energy technology. If BP genuinely
believed blue hydrogen was a scalable, competitive solution, it would have funded it from its own balance sheet.

Instead, the company pursued a government-backed Contract for Difference – a guaranteed price for hydrogen
because the market didn’t want to buy it. That tells you everything about blue hydrogen: transitional,
fossil-linked, carbon-capture dependent, and fundamentally uncompetitive without subsidy.

Subsidising this is not “backing the transition.” It is cushioning the decline of an incumbent business model.

Why Politicians Prefer Incumbents

The logic is political, not economic. Working with BP feels safe. The brand is familiar. The project comes
with headline-ready job numbers. If it fails, officials can blame global markets rather than their own judgement.

By contrast, backing a deep-tech scale-up feels risky. If a £50 million green-electrolyser startup fails,
the minister is held accountable. If a £2 billion blue-hydrogen project with BP fails, it becomes an
understandable “market correction.”

This is how political incentives distort industrial strategy: concentrated benefits for large firms
(jobs, headlines, big numbers) and diffuse costs for everyone else (taxpayers, lost innovation, delayed
transition). The result is incumbency protection masquerading as decarbonisation.

The Scale-Up Gap: Where the Future Is Lost

Meanwhile, the companies that might actually deliver a competitive hydrogen economy are starved of capital.
The UK’s well-documented scale-up gap – tens of billions a year in under-funded growth-stage companies –
remains the single largest drag on national innovation.

Look at electrolyser developers, storage specialists, materials innovators and the wider ecosystem building
the hardware and software of a genuinely clean energy system. These firms operate at the coalface of innovation,
but routinely find themselves under-capitalised. When they go looking for growth funding, the gravitational
pull of the US and East Asia often wins.

Headquarters drift. Intellectual property moves. Tax revenues follow it out the door. The UK becomes a
world-class incubator and a world-class exporter of future value. This isn’t creative destruction.
It’s creative displacement.

Creative Destruction Is Not Optional

Schumpeter’s insight remains brutally relevant: incumbents do not invent the future; they optimise the present.
The technologies that reshape economies come from new entrants, not from giants whose business models depend
on defending historical advantage.

By subsidising BP to build blue hydrogen, the UK wasn’t investing in innovation. It was buying the illusion of
progress while delaying the necessary disruption. Industrial strategy built around incumbents is not strategy.
It is managed decline.

What a Real Industrial Strategy Would Look Like

A modern industrial policy should be unapologetically focused on future value creation. That means:

• Closing the scale-up gap. Mobilising domestic pension capital and British Business Bank
  instruments to give high-growth deep-tech companies the growth capital they need to stay headquartered
  in the UK.
• Using procurement strategically. Government acting as the first customer – not the insurer
  of last resort. Instead of subsidising producers directly, create guaranteed off-take for green steel,
  green hydrogen and other clean industrial inputs.
• Backing entry over incumbency. Designing subsidies to lower barriers for challengers,
  increase competition and force innovation, rather than extending the lifespan of legacy models.
• Accepting that some legacy sectors will shrink. Not every industry survives the transition,
  and that is a feature of capitalism, not a bug.

BP’s exit from Teesside is not a loss. It is a signal that we must stop underwriting the past and start
financing the future.