Earlier this month, the European Commission published its long awaited 2040 Climate target, including the possibility for flexibility from international carbon credits starting in 2036. The proposal naturally met with public reactions, and a lot of scrutiny from all sides. But as ever in Brussels, our tendency to fixate on the trees inevitably blinds us to the woods.
15 years for the planet’s future
2040 is only 15 years away, and a lot of work will have to be done by the EU, Member States, and industry to reach it. According to the European Commission’s own estimation, CCS will have to play a significant role in these efforts. In its 2040 Communication it outlined the challenge of scaling up its deployment to at least 280 million tons in one, or at best two, investment cycles.
As I write this, the Commission is already working on different legislation aiming to enable the scale-up of industrial carbon removals across its services. We need to make sure all these efforts are coherent and complementary to truly unlock CCS deployment for hard-to-abate industries. EU climate policy is famously woven from many threads, and we are not going to get to net zero by stitching with only one. We need now, more than ever, a comprehensive vision from the Commission for the EU’s carbon economy in 2040.
Listening to the broader ecosystem over the past weeks, and reflecting on where we currently stand as an industry, we need the Commission’s vision for a carbon economy in 2040 to address and align at least the following:
- A clear and predictable price signal from the ETS
- Robust demand-side support under the Industrial Decarbonisation Accelerator Act
- De-risking and funding support under the Industrial Decarbonisation Bank
- A clear and fair regulatory framework for CO2 transport and storage
- A business case for carbon removals
- Coordination at EU level for transport and storage network planning
- A strong knowledge-sharing platform for permitting authorities and project developers alike
"We have to face the reality: whatever the overall target for 2040, our hard-to-abate industries must reach zero emissions by that time. By 2040, the EU Emissions Trading System is expected to reach its endgame - the point where no allowances exist in the system, and relevant sectors won’t be able to emit CO2 anymore." - Bergur Løkke Rasmussen, CCS Europe Director
The challenge
We have to face the reality: whatever the overall target for 2040, our hard-to-abate industries must reach zero emissions by that time. By 2040, the EU Emissions Trading System is expected to reach its endgame - the point where no allowances exist in the system, and relevant sectors won’t be able to emit CO2 anymore. This is an ambitious target for industry, particularly given the significant share of process emissions that most of these industries face. These emissions cannot be abated without being captured – capturing the carbon and storing it permanently is their only solution to eliminate emissions. Meaning, these hard-to-abate industries need to deploy large, costly carbon capture plants in just 15 years to ensure they can continue to produce in Europe beyond 2040. The Commission estimates that 280 million tons of capture capacity will need to be created by then. This challenge should not be underestimated, and if the EU wants to maintain its industrial strength and climate ambition, it will need to intensify its policy and financial support drastically.
It all starts with the first project
We have seen time and again that the industry is willing to invest in CCS technologies and policymakers are keen to encourage it. However, the EU remains roughly in the same place as it was 3 years ago, and the number of projects coming to fruition is anemic at best. This is in large part due to the challenges and uncertainty associated with being the first to develop full-scale projects. In that sense, Europe’s path to 2040 starts with de-risking these first investments and nurturing the beginnings of a CO2 market. That support can take the form of Carbon Contracts for Difference for capture facilities, first-loss guarantees for transport and storage infrastructure, or even tax breaks to foster full value chains.
Building up steam
Once the first projects are operational, and the use of the technology becomes more mainstream, it becomes imperative for Europe’s nascent CCS industry to mature. This requires the development of clear rules and obligations to ensure that the market scales in unison and fairly. For instance, we must have a common approach to network planning and ensures access to the most cost-efficient transport and storage facilities for every emitter in Europe. This will require a degree of central planning and cooperation between Member States, and therefore barriers to these cross-border efforts must be addressed. This is particularly the case for the technical specifications for both CO2 transport and storage, which need to be unified across the EU and therefore allow for the seamless transfer of CO2 from one Member State to another.
Similarly, any emitter that seeks to store CO2 will require access to a storage site that can accommodate its needs. This naturally means that CO2 storage must scale ahead of CO2 capture, in order for the facilities to be ready to receive the CO2 being captured in time. Therefore, the Commission has to ambitious storage targets past 2030, leading up to 2040. Without this, storage availability risks becoming a bottleneck in the development of CCS and could slow down the deployment of this essential decarbonisation technology precisely when it is needed the most.
Supporting the next generation
As we get closer to 2040, attention will have to start shifting towards the scale-up of carbon removal technologies. Not only will they be critical for addressing residual emissions, but they also provide a way to reduce the concentration of CO2 already in the atmosphere and therefore correct a potential overshoot. Given the early state of the permanent carbon removal economy, the Commission should see the coming 15 years as a ramping-up period to further develop the carbon removal economy in the EU. This can take many forms but ultimately should include a business case for carbon removals and clear guidelines to ensure the climate benefit of these removals.
A comprehensive plan
Given the short timeline and the complexity of the actions required to reach the ambitious objective of 250 Mt of CO2 storage annually, it is imperative that the EU follows a well-defined plan that addresses all parts of the value chain and takes into consideration all policy levers to achieve its outcome. The EU Commission must come forward with a comprehensive CO2 market vision for 2040, building on its 2024 Industrial Carbon Management Strategy, that aligns incentives, such as de-risking mechanisms, with regulation, for instance to harmonise transport rules, and compliance obligations to create a valid business case and a vibrant market for CO2 by 2040. The current siloed approach, addressing one piece of legislation at a time and not taking into account the broader picture for a technology that is inherently based on a complex value chain, is not sustainable.
Given the lead times for developing and deploying CCS technology, this mandate offers the last opportunity for the Commission to define a concrete vision for CCS and have an impact by 2040.
We cannot afford to miss it.
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By Bergur Løkke Rasmussen, CCS Europe Director