Why Europe needs a climate-forward innovation policy
This article was originally published by New Europe and is co-authored by Eve Tamme,
Managing Director, Climate Principles.
Orca, the largest direct air capture and storage facility to date, recently commenced operations in Iceland and is expected to suck some 4000 tons of carbon dioxide (CO2) out of the atmosphere annually. With increasing climate ambition and the new climate neutrality target, the role of technological carbon removal is emerging as one of the critical points of debate in the European Union. On the one hand, it is evident from mid-century net-zero pathways that steep and transformational emission reductions must be prioritised over carbon removals. On the other hand, it is also becoming clear that carbon removal technologies will likely be needed to balance out residual emissions and reduce the stock of CO2 already in the atmosphere. This begs the question – how can we get this technology to Gigaton scale, so it is available as a decarbonisation option? History has taught us that scaling technologies takes decades – time we do not have as the clock is ticking while the climate crisis rages. We need to get the policy framework right today, and there are two significant gaps to fill: commercialization and accounting.
The EU is already a climate leader and policy pioneer. However, the current EU sectoral policies will likely drive investment in advanced decarbonization tech only once technology-specific innovation policy has commercialized them. Considering that it has taken on average more than 20 years for technologies to reach crucial inflection points in deployment, we do not have time to test current, widely adopted decarbonisation technologies as the main mitigation strategies before deploying technologies that are not commercially available.
With increasing climate ambition and our emissions reduction timelines shortened, carbon removal technologies will also need to be available sooner. Having multiple available technology options also increases our chances for success and provides countries and regions with the opportunity to design decarbonization technology portfolios tailored to their social, economic and resource circumstances. Hence, it’s time for Europe to embrace an innovation-forward approach to climate.
Regarding carbon removal, addressing the accounting gap is critical to demonstrate that actual CO2 is removed from the atmosphere. It is also crucial to include carbon removal in the accounting frameworks tracking the climate targets. Incentive mechanisms can only be designed for quantifiable carbon removal approaches. This goes for carbon removal in general and, more specifically, in the context of technological carbon removal approaches like direct air capture and storage, which the current sectoral climate policies in the EU do not cover.
The commercialization gap is the gap between a few demonstration projects and at-scale deployment with technologies able to be deployed by climate policy, such as the EU Emissions Trading System (ETS) alone. Currently, EU policy only aims to enable a few demonstration projects and is not fit to commercialise carbon removal technologies.
How can we fill these gaps?
The European Commission will propose a regulatory framework for carbon removal certification next year. This initiative will likely help to address the current accounting cap. The European Commission communication on restoring sustainable carbon cycles, expected in a few months, will “identify key elements to build a robust and credible framework allowing for authentic, transparent and verifiable carbon removals to be certified”. Preparation of carbon removal certification faces a two-fold challenge: On the one hand, the certification framework should meaningfully incentivise the deployment of carbon removal approaches, while on the other, also support the notion of prioritising emission reductions over removals, especially in the decades leading up to climate neutrality. Developing robust accounting rules to design such policies for incentivising carbon removal will facilitate commercialising carbon removal technologies.
A policy that can fill the commercialisation gap must enable key success factors such as cost reductions, access to affordable financing, the build-out of CO2 transport and storage infrastructure, and shorter deployment timelines. Cost reductions are necessary to enable more effective deployment at a lower price.
Eventually, this would allow comprehensive climate policy such as carbon pricing to be the sole driver of technology deployment. Lower cost through deployment and learning-by-doing would also de-risk the technologies and attract more investors, enabling more affordable capital to flow into carbon removal. Access to existing infrastructure such as CO2 transport and storage would make building additional carbon removal facilities much easier. Luckily, policymakers are already working towards including CO2 storage and transport modalities in the TEN-E regulation. While additional investments in CO2 infrastructure will be needed, tools like carbon contracts for difference as deployment mechanisms, and capital investment support, such as the EU Innovation Fund, can help fill the commercialization gap.
While policymakers flesh out how to fill the commercialization gap, other mechanisms – including California’s Low Carbon Fuel Standard CCS Protocol could help with project economics to accelerate the deployment of carbon removal technologies in Europe.
Climate policy must be designed with the goalposts in mind. Drawing up innovation policy today would bolster the EU’s position as a climate leader; by enabling early investment in climate tech and thereby progressing commercialisation and lowering the cost of these technologies, EU policy can support global access to carbon removal technologies in the long term.
