Europe’s Net-Zero Industry Act: What does it mean for carbon capture and storage?
Last week, the European Commission issued a proposal for a Net-Zero Industry Act (NZIA), which provides a promising framework for an options-based strategy to achieve industrial decarbonisation in Europe. As European policymakers on the EU and Member State level begin to digest and deliberate over the proposal, we’ve taken a deep dive into the proposal with a particular focus on what it contains for carbon capture and storage.
Here are four key measures the NZIA provides for carbon capture and storage deployment in Europe:
1. An EU CO2 storage target
Among the three stages of the carbon capture, transport, and storage value chain, storage is the key bottleneck currently impeding the development of carbon capture and storage in Europe. As CATF determined last year, Europe could face up to a 50% shortfall in storage capacity available to capture projects in 2030.
Article 17 of the NZIA sets a target for storage in the EU of 50 million tonnes of CO2 in annual injection capacity by 2030. The announcement of this target is a welcome development and comes on the back of CATF’s calls for clear milestone targets for carbon capture and storage deployment last year, including in the Commission’s CCUS Forum Vision Paper, co-authored by CATF, which called for a total annual storage capacity of 80 Mt of CO2 per year by 2030 in the European Economic Area.
The storage capacity target outlined by the Commission provides an important signal of recognition for carbon capture and storage as a critical tool to decarbonise Europe’s industrial sector. Moreover, the target provides an important North Star for EU carbon capture and storage policy development, including the various measures provided for by the NZIA.
2. European coordination on carbon storage
One of the biggest issues impeding carbon capture and storage in Europe is a coordination failure between member states.
The need for regional cooperation on carbon capture and storage is obvious: Some Member States possess the potential to store CO2, many others do not and will need access. Developing CO2 networks through common, open-access infrastructure is critical to ensure European industries can decarbonise their production processes with low additional cost to consumers. The NZIA proposal therefore recognises that a cross-border, single-market approach is needed to ensure carbon capture and storage can be an effective solution for industries in all Member States.
To meet this challenge, the NZIA pushes Member States to lead in the effort to reach the 2030 storage capacity target. Various action items are put forward for Member States to do this:
- The NZIA proposal requires Member States to publish “areas where CO2 storage sites can be permitted on their territory” (Article 18). This is an important measure, since creating a European CO2 Storage Atlas, mapping all areas with suitable geology to store CO2, will be absolutely crucial to enable the scale up of CO2 storage sites, enabling emitters to decarbonise their industries faster.
- Within 6 months of the NZIA being implemented, Member States will have to provide an update to the Commission on the status of CO2 capture and storage project developments, as well as measures taken to support their development (Article 18).
Improving coordination at the EU level will be essential to accelerating carbon capture and storage in the EU by creating a single market for CO2 storage services in the bloc. The measures in the NZIA proposal are a major step forward and will be bolstered by an EU Strategy later this year.
3. Clear responsibility of the oil and gas sector
Perhaps one of the most important signals from the NZIA proposal is the assignment of responsibility to oil and gas producers in the European Union, which is addressed in two main ways. First, Article 18 calls on Member States to “establish an obligation for licensees of oil and gas production sites located on their territory to make publicly available all geological data relating to production sites that have been decommissioned or whose decommissioning has been notified to the competent authority.”
Second, Article 19 outlines that entities holding an oil or gas production license in the EU will be subject to an individual contribution to the Union-wide CO2 storage target. This is to be allocated on a pro-rata basis of “each entity’s share in the EU crude oil and natural gas production from 1 January 2020 to 31 December 2023.”
The NZIA proposal’s specific focus on the role of the oil and gas sector is a particularly welcome development. The sector has long heralded the potential of carbon capture and storage and it holds the keys to unlocking the much-needed development of CO2 storage sites in Europe. On the back of record profits from 2022, the sector has the expertise, assets, and more than enough resources to provide sufficient CO2 storage capacity in the region. As CATF outlined last year, regulatory requirements for the oil and gas industry to undertake steps towards CO2 storage, including exploration, data acquisition and sharing, and site permitting are a major tool which European policymakers can utilise to overcome barriers to CO2 storage development. It is time that greater pressure is put on the oil and gas sector to step up to the plate and fulfill its role in meeting Europe’s emissions targets.
4. Accelerating CO2 storage site development
In order to meet the 2030 target set under the NZIA proposal, accelerating the development of CO2 storage sites will be needed. Various measures are put forward in the NZIA proposal to unplug the storage bottleneck, none more important than the eligibility of CO2 storage facilities for obtaining Net-Zero Strategic Project (NZSP) status. With this, CO2 storage projects will be able to obtain their storage permit within 18 months of application (Article 13), provided they are located in the EU and aim to be operational by 2030 (Article 10).
The eligibility of CO2 storage projects to benefit from accelerated permitting processes in the EU is a significant positive development, which CATF called for last year. A streamlined permitting procedure for CO2 storage projects in the EU also represents a major benefit to the competitiveness of European industries in comparison to the U.S., where CO2 storage permitting continues to be a significant barrier to carbon capture and storage development, despite a highly supportive policy framework being offered through the 45Q tax incentive.
While the ambition for CO2 storage projects which obtain NZSP status to receive their storage permits within 18 months is welcome, it could present a challenge for those Member States with less experience of carbon capture and storage project development. Although competent authorities in some Member States, like Denmark and the Netherlands, have administrative capacity to regulate CO2 storage and permit projects in accelerated timeframes, many others do not. The NZIA proposal provides for some measures both to support projects through assistance in accessing finance, administrative support, as well as helping with public acceptance (Article 14). Ensuring CO2 storage development can accelerate at the required pace will require an all-hands-on-deck approach to implementation.
While the NZIA proposal is a major step forward for EU carbon capture and storage policy, this is just the beginning of a long legislative process. The success of the regulation will also depend on supporting legislation and how other policies develop in parallel. Although interest in carbon capture from emitters appears easily sufficient to fill 50 Mt of storage, how can we ensure these capture projects also advance on schedule? Confidence in the availability of storage should help drive investment, but they will still need a business case to cover the whole project lifecycle, either from consistently high carbon prices or other policies that can help cover any remaining shortfall. EU instruments such as the Innovation Fund will not deliver the required project deployment alone, so complementary policies at the Member State level will also be needed; however, there are currently major disparities in national funding and regulatory maturity for carbon capture and storage across the Union. Member States that plan to employ carbon capture and storage should strongly consider new, bankable funding mechanisms such as the ‘contract for difference’-based approach adopted in the Netherlands and Denmark.
There also open questions to resolve on the CO2 storage side. Storage site operators currently plan to charge emitters a service fee: will this be forced down as oil and gas producers are obliged to absorb more development costs and risk, or will we see a more regulated approach to tariffs emerge across the EU? It also remains to be seen how producers will be held to their obligation, and how ‘annual injection capacity’ will be consistently and accurately assessed.
Realising the NZIA’s stated goal of a cross-border, single market approach for CO2 storage services will require many more pieces to fall into place, besides the acceleration of storage capacity. A consistent regulatory, permitting and planning regime for CO2 transport networks across the EU will also be necessary if infrastructure can begin to be adequately funded and deployed at scale, as well as a common set of technical standards. Progressing the EU’s Projects of Common Interest for cross-border CO2 transport and storage networks – which received an unprecedented 18 applications in the latest round – will play an important role in developing first-mover projects.
By addressing these challenges, we can unlock the full potential of the NZIA and achieve our goal of industrial decarbonisation in Europe.
Nonetheless, the NZIA’s recognition that carbon capture and storage is essential to decarbonising Europe’s industrial base should bring the EU closer to reaching its 2050 target of climate neutrality.