New report: Overview of carbon management policy in Europe
Carbon management has seen a revival in Europe in recent years, as it is a key technology for achieving the Paris Agreement targets. In October, the EU Commission held its first ever CCUS Forum, which is positive indication that carbon capture and storage must feature on the climate and industrial policy agenda in Europe. The need to drive the decarbonisation of industrial processes and deploy low carbon fuels means that carbon capture and storage is an essential part of Europe’s climate strategy, to reach climate neutrality by 2050.
A new report from Clean Air Task Force (CATF) has reviewed the current policy and financing landscape in Europe with the aim to give an overview of current incentives and the gaps that need to be addressed. We have seen a number of positive initiatives at both EU level and individual country level in Europe that are helping to kickstart project activity. However, there is a major opportunity to help build carbon management in Europe and policy and financing gaps need to be addressed in order to unlock the potential of the technology and drive wide-scale emissions reductions.
Energy-intensive industries, such as steel, chemicals, and cement production, are responsible for approximately 20% of all greenhouse gas emissions in the EU. According to the European Commission’s own scenarios to achieve climate neutrality by 2050, between 52 to 606 Mt of CO2 will be captured per year in 2050.
Overview of current carbon management policy
The policy mechanisms that exist at the EU level are incentivising the development of carbon capture and storage however, more needs to be done. Below is a brief overview of what is currently in place:
- The Trans-European Energy Networks Regulation (TEN-E) provides a key regulatory framework by which to develop cross-border energy infrastructure networks, including those for CO₂ transport.
- The TEN-E distinguishes priority corridors and thematic areas of trans-European energy infrastructure and provides guidelines for the selection of Projects of Common Interest (PCIs).
- Under the TEN-E, these projects can benefit from financial support from the Connecting Europe Facility (CEF), accelerated permitting, improved regulatory conditions and cost-allocation and increased transparency.
- The EU Emissions Trading System (ETS) also provides policy incentives for carbon capture and storage.
- The ‘cap and trade’ system requires emitters from sectors such as industry, power and aircraft operators to surrender allowances equivalent to one ton of CO2 for greenhouse gas emissions which breach their permitted level each year.
- The ETS also permits installations to offset their allowances which must be surrendered, for CO2 emissions which have been verifiably captured and stored, thereby providing an economic incentive for carbon capture and storage.
- Currently, the price for an ETS allowance stands at over €60, although for the past five years, ETS allowances have traded below €30. This lack of price stability has raised calls for additional policy mechanisms to place a higher price on CO2. Some ideas for ways to tackle this issue:
- This could come in the form of different policy tools, such as the 45Q system employed in the US, which was significantly reformed in 2018 and now provides up to $29/tCO₂ for CO₂ stored through dedicated geological storage, rising linearly to $50/tCO₂ by 2026, and adjusted to inflation thereafter.
- Another option could be to complement the ETS system by employing carbon contracts for difference (CCfDs), which sets a guaranteed carbon price for the Investor of a certain project (e.g., €50/tCO₂). If, at the end of the year, the average annual EU ETS price was €40/tCO, the government would provide to the investor the difference (i.e., +€10/tCO₂) for each tonne of avoided CO₂.
- CCfD’s could incentivise many innovative low-carbon production processes for materials such as steel, cement, which currently cost more than the existing “high carbon” competition, by providing assurances that a fluctuating ETS price would not make carbon capture and storage projects financially unviable.
Review of Current Financing Tools
Carbon capture and storage faces similar barriers to scaling as other low-carbon technologies and stimulus is needed to kickstart investment. Various mechanisms at EU level are assisting with financing carbon capture and storage projects and overcoming the high initial capital investments required to develop the infrastructure. As this report analyses, several European countries have taken steps to support carbon capture and storage by providing funding for flagship projects, while others lag behind. Carbon capture and storage faces similar barriers to scaling as other low-carbon technologies and stimulus is needed to kickstart investment. The EU has created several initiatives to provide assistance, all of which are examined thoroughly in the report:
- The Innovation Fund will provide financial support, in the form of a grant, to projects of various sizes and is expected to play an important role in bringing carbon capture and storage projects to market.
- The Connecting Europe Facility (CEF) also provides an important mechanism to finance new carbon capture and storage projects as part of its aim to develop high performing, sustainable and efficiently connected European networks. The CEF has supported six CO₂ infrastructure projects, most notably the Porthos project, which is seen as continental Europe’s most advanced carbon capture project.
- Horizon Europe, the EU’s key funding programme for research and innovation, will be key to encouraging innovation to develop carbon capture and other climate technologies.
- The EU’s Sustainable Finance Taxonomy and the European Investment Bank’s Energy Lending Policy can provide valuable support to finance carbon capture and storage projects.
For a detailed overview of Europe’s current landscape check out the full report:
In recent years, the case for carbon capture and storage deployment in Europe has been made stronger as Europe seeks to reduce its emissions and reach climate neutrality by 2050. Given the need to rapidly decarbonise Europe’s industry and the difficulties in electrifying these processes, carbon capture and storage will play a crucial role in making Europe’s industrial sector a global leader in providing low-carbon, high-quality products. Although certain mechanisms already exist at the EU-level to incentivise carbon capture and storage it is clear that higher, more stable carbon prices are needed to give investors the assurance needed. Expanding on current momentum with further initiatives to bring carbon capture stakeholders together will be critical to deliver strong, robust carbon capture policy.
While action at the Member State-level is needed to support carbon capture and storage, it is the EU which must now take the lead and produce a clear strategy for carbon management technologies like carbon capture and storage, with clear targets to ensure that carbon management technologies are developed across the Union. Failure to do so will only result in delaying decarbonisation for Europe’s heavy-emitting industries and risk Europe’s status as a climate leader.