Carbon capture technologies are indispensable for the EU to reach net-zero by 2050. For some industries – especially those with process emissions, carbon capture and storage technologies are the only solution to decarbonise. The European Commission estimates that by 2040 around 280 million tonnes of Carbon Dioxide (CO2) will need to be captured and stored to reach a Greenhouse Gas emission reduction target of 90%. Mario Draghi stated in his competitiveness report that the decarbonisation pathway of EU energy-intensive industries should include CCS – as it provides Europe with the possibility to decarbonise and become more energy secure.
So far, the deployment of CCS technology in Europe has been slow – and no commercial scale industrial carbon management projects are currently in operation. The fundamental reason is the absence of incentives or regulations that reward or mandate the capture and storage of CO2, meaning that there is a distinct lack of a business case, at this stage. If regulation and financial supports are in place, the conditions for viable decarbonisation projects will improve. However, given that achieving 100% emissions reduction remains technically and economically challenging, the ETS needs to be pragmatic, and take into consideration the negligible emissions that might remain after decarbonisation technologies are deployed.
Integrating CCS-based removals, Bio-CCS and direct air capture and storage (DACCS) could potentially lead to an increased demand for these industrial permanent removals, depending on the prevailing allowance price. To provide this pragmatic approach, we therefore support the incentivisation of carbon removals through its interaction with the EU ETS, without undermining necessary emission reductions.
CCS Europe therefore supports the following:
- Definition of residual emissions: Industries with process emissions are facing particular challenges and these challenges should be recognised.
- Interaction of negative emissions: We recommend a careful interaction of permanent negative emissions in the ETS, in a way that does not compromise the integrity of the ETS.
- Safeguarding the ETS: The Commission needs to safeguard the integrity of the EU’s carbon market and take a very careful approach in linking other carbon markets and should not include international carbon credits within the ETS.
- Earmark ETS revenues: The revenue of the ETS should be used to support the decarbonisation of the relevant industries. Given the needs for massive scale-up of CCS, we call on the Commission to ring-fence funding for the technology.
The revision and future alignment of the ETS with the EU 2040 climate target proposal will provide an opportunity to kickstart the development of a robust carbon market for storing captured industrial emissions. This revision must create the right conditions for the continued deployment of industrial carbon management technologies to decarbonise and strengthen the competitiveness of Europe’s energy-intensive and hard-to-abate industries.
Provide clarity on residual emissions
Today, the ETS only distinguishes between two types of emissions: fossil emissions and sustainably sourced biogenic emissions. The latter of which are zero-rated in alignment with the sustainability criteria from the Renewable Energy Directive. However, as we move towards climate neutrality, we urge the Commission to consider the formal introduction and recognition of a new category of emissions: residual emissions. Today, such emissions are treated as equal to emissions which can otherwise be abated. However, some residual emissions, such as some process emissions, arise from the chemical reaction in a specific industrial production process rather than the combustion of a fuel – and are thus often an unavoidable part of the process. For example, the calcination of limestone releases CO2 during the production of cement and lime-based materials. Similarly, the refining of metal ores, including aluminium processing, releases CO2 during the process.
For these installations, residual emissions continue to be released, even after all electrification and sustainable energy inputs have been assessed and implemented. A substitution of the process altogether or the application of carbon capture technologies are often the only option remaining for such installation to fully decarbonise.
The revision of the ETS must take these particular circumstances into account – and formally recognise them by introducing a third distinct category of emissions within the EU ETS.
Incentivising negative emissions
We welcome the consideration to explore how permanent negative emissions can interact with the ETS. This interaction could create additional investment incentive for companies in carbon removals and facilitate the highly needed scale up of the different technologies. However, we must avoid that negative emissions impact the price of ETS allowances and undermine the purpose of the ETS. Therefore, CCS Europe urges the Commission to explore how negative emissions can maintain the cap, thereby avoiding increasing the total amount of ETS allowances and avoiding diluting the price of allowances. This approach allows carbon removal projects to be rewarded for their negative emissions while ensuring that emission reduction is always the first option,. This interaction would play a key role in creating predictability for emitters of residual emissions, and their operating space in the EU towards climate neutrality. It will, however, be key that the type, quality and use of negative emissions is defined through a detailed set of rules and safeguards to ensure a real effect on decarbonisation, and avoid having a negative impact on biodiversity, as specified in the Carbon Removal and Carbon Farming framework.
Safeguarding a well-functioning European ETS
CCS Europe recommends against the inclusion of international credits within the EU ETS. Such an inclusion could risk further weakening the price signal of the ETS and move auction revenues away from decarbonisation efforts in Europe, towards countries where less stringent requirements are in place. While international credits can offer flexibility for European industries, they should not undermine the European GHG operating cost and the European efforts to reduce emissions. This must remain central to any future ETS legislation changes and linkages to third-countries carbon markets.
Such measures would undermine market credibility and offer limited benefit for Europe’s decarbonisation of industries. Over the past 20 years, the EU ETS has established itself as a well-functioning market mechanism to decarbonise European industries. We recognise that European industries currently suffer both from high energy prices and increasing GHG operating costs. However, we urge the Commission to ensure the integrity of the system in assessing the next phase of the ETS and take into consideration the potential long-term impact of any such inclusion. Therefore, the Commission must carefully consider the long-term impact of international credits on the industries’ decarbonisation plans and pathways.
Further, we recommend carefully considering the linking of the ETS with other carbon markets, in particular the UK. Currently, CO2 capture in the EU and stored outside the EEA is not considered to be stored and therefore must be associated with the surrendering of allowances. In order to help EU industries access the storage sites in countries like the UK as the EU is ramping up its own storage capacity, CCS Europe calls on the Commission to ensure the mutual recognition of the EU and UK storage of emissions for their mutual carbon trading system.
As Mario Draghi pointed out in his competitiveness report: Europe must double-down on decarbonisation to lower energy costs and remain competitive. We encourage the Commission to follow his recommendation. However, as pointed at by Draghi in the same report: competitiveness and decarbonisation needs to go hand-in-hand in EU to achieve its objectives in both areas.
Earmark ETS revenues for Decarbonisation of Energy-Intensive Industries
The decarbonisation of Europe’s energy-intensive industries requires massive investments both in terms of capital as well as operational expenditure. Mario Draghi identified that from 2021 to 2023, the production of energy-intensive industries sank by 12% more than other manufacturing sectors in the EU. Keeping these industries in Europe is very much needed in order to fulfil the Clean Industrial Deal and improve our self-sufficiency. These industries have a considerably lower carbon footprint than their international competitors.
Due to high energy costs and increasing GHG operating costs, the next ETS revision must specifically earmark revenues for the decarbonisation of these industries – and incentivise Member States to do the same. This should take the form of ring-fenced funding under the upcoming Industrial Decarbonisation Bank, dedicated to CCS projects to address process emissions in EU industry. The support covered must include innovation and research to ensure CCS technologies are capable of handling all different CO2 concentrations, and to progressively continue reducing residual emissions from carbon capture facilities. Additionally, CCS Europe urges Member States to reevaluate the way their ETS revenues are allocated to ensure they are optimally used to support essential technologies such as CCS in all of its applications with a clear climate benefit, including in some limited use in power generation to balance the electricity grid.
The ETS revenues should not just be used for grants and contracts-for-differences for innovative projects but should also introduce the possibility to fund investment de-risking mechanisms to encourage industries to take the next step. The development of a first-loss guarantee programme, funded by ETS revenues, for the CCS value chain, would allow projects to attract more private investment by decreasing the risk that every single investor faces in these projects. By covering a significant share of the risk, the Commission will be able to make the investments in first movers more attractive. For this, the Commission should base itself on the success of the InvestEU programme in attracting investments in decarbonisation projects. Alternatively, a mechanism of carbon quotas/tax exemptions or an insurance system at the EU or Member State level could be put in place. In the long term, this can act as a critical accelerator for the deployment of early CO2 transport infrastructure projects, leading to further market growth and maturity.
We urge the Commission to coordinate with national authorities and publish the ETS revenue use in a centralised database for accountability. This will provide clarity to potential investors and help cross-border projects coordinate funding approaches. This revenue should include a focus on research and innovation, particularly when it comes to the development of CCS technologies.