CCS Europe discusses the impact of the end of ETS free allowances and the role of CCS
On 24 September, CCS Europe held a webinar panel discussion on the end of free allowances under the EU's Emission Trading System (ETS), and the role of CCS in this evolving landscape.
According to the revision of the EU's ETS, the end of free emission allowances is planned for 2034. What this ultimately means is that, due to the increasing scarcity of free allowances, the price of carbon is bound to progressively increase. In principle, this would mean that investing in CCS technologies might prove to be more financially sound than trading allowances under the ETS.
Bringing together policymakers, industry and NGOs, this is precisely what our panel discussion aimed to illuminate.
Heiko Kunst, Head of Unit at the European Commission responsible for the implementation of the ETS, stressed that certain key hard-to-abate sectors (namely steel, hydrogen and cement) still receive a significant number of free allowances. However, a key obstacle is that currently the price of carbon is too low to be an incentive for major investments in CCS technologies. However, this will likely (and hopefully) change as the increasing scarcity of free allocations inflate the price of carbon.
This view was re-iterated by Peter Vis, Senior Advisor at Rud Pedersen Public Affairs and architect of the EU ETS, who underlined that while scarcity of allowances will push industries to plan ahead, initial funding is needed to kick-start investment. Similarly, Toby Lockwood from Clean Air Task Force stressed that in the current context there is no solid business case for investment into CCS without intervention by the European Commission.
Bringing in the view of industry, Liv Rathe (Director at Europe's largest aluminium producer, Norsk Hydro) was cautiously optimistic. While hopeful that the EU's CBAM will have its intended effect (i.e. preventing carbon leakage and insulating European industry from imports that face lower carbon costs), if free allowances are removed as planned, European industry will be facing an uphill battle.
Overall, financial support and investment in CCS are essential for achieving long-term climate neutrality. While the "green premium" is positive, Europe needs to invest in infrastructure and funding to support new technologies. More ambitious technology rollouts and centralised use of revenues from the ETS could enhance these efforts. Finally, CCS should be promoted as a key decarbonisation tool to maintain industrial competitiveness, with greater engagement between the Commission and Member States.
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