In a Nutshell
The National Energy and Climate Plans (NECPs) outline the EU member states’ 2021-2030 strategy to meet the 2030 energy and climate targets. The Regulation on the governance of the energy union and climate action (EU) 2018/1999, adopted in 2018, requires member states to regularly submit NECPs and update them. It also sets the EU Commission review process of the plans.
Member states outline how they will address energy efficiency, renewables, greenhouse gas emissions reductions, interconnections, and research and innovation in their NECP. A common template is used to facilitate transborder collaboration and efficiency gains.
So far, the 2030 climate and energy targets aim for at least 55% of greenhouse gas emissions reductions, 32% of renewable energy within the total energy production mix and 32.5% improvement in energy efficiency. The Fit-for-55 package called for more ambitious targets, some of which are still under review, including a 42.5% share of renewable energy within the Renewable Energy Directive.
The current versions of the NECPs, submitted at the end of 2019, massively overlook the role of carbon dioxide removal (CDR) in their ability to achieve their targets. None of the 27 plans include targets for CDR, nor do they take into consideration novel carbon removal methods. Even conventional CDR methods such as afforestation or soil carbon sequestration are not properly addressed in the majority of NECPs.
This is concerning. To reach the scale of removals needed to reach net zero emissions by 2050, CDR capacities must be scaled up now. Member states should seize the opportunity to include CDR in their NECPs. In parallel, the inclusion of CDR in the 2040 targets would set the course until 2050.
What's on the Horizon?
- As set by the Regulation on the Governance of the Energy Union and Climate Action, member states must have submitted an updated draft of their NECPs by 30 June 2023, and the final version by 30 June 2024 unless they can justify that the current plan remains valid.
- On 1 January 2029 and every ten years thereafter, member states will need to submit a new final NECP covering each ten-year period, and a draft one year prior.
- On 3 July, only eight countries submitted their draft updated NECPs: Spain, Croatia, Slovenia, Finland, Denmark, Italy, Portugal and the Netherlands. We will keep monitoring this space as member states submit their NECPs and a more detailed analysis will follow accordingly.
Timeline
The Regulation on the Governance of the Energy Union and Climate Action entered into force
Deadline for member states to submit their draft NECPs for the period 2021-2030
EU Commission communicated an overall assessment and country-specific recommendations
Deadline for member states to submit their final NECPs
EU Commission published a detailed EU-wide assessment of the final NECPs. Later on, it also published individual assessments.
Deadline for member states to submit draft updated versions of their NECPs
Deadline for member states to submit final updated versions of the NECPs
Deadline for member states to submit draft NECPs covering the period 2031-2040
Deadline for member states to submit final NECPs covering the period 2031-2040
Status
Policy Type
Year
Legal Name
National Energy and Climate Plans
Unofficial Title
NECPs
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In a Nutshell
The Innovation Fund (IF) is one of the world’s largest funding programmes for the commercial demonstration of innovative low-carbon technologies. It is also the EU’s key funding instrument for financing the green transition and promoting European industrial leadership in clean technologies.
The Fund’s goal is to create financial incentives for investment in first-of-a-kind clean technologies by sharing the risk with project promoters. This should help attract additional public and private resources.
The revenues for the IF are raised via the EU ETS and the auctioning of its 450 million allowances. As such, it depends on the carbon price – at EUR 75 /tCO2, it is set to provide around EUR 38 billion from 2020 to 2030. As part of the latest revision of the ETS, the free allowances which were allocated to certain energy-intensive sectors to avoid carbon leakage will be phased out due to the introduction of the Carbon Border Adjustment Mechanism. These allowances will instead be added to the IF, increasing the financial support available.
The IF uses a competitive selection process to choose the best projects to invest in. There are regular calls for proposals targeting four areas:
- innovative low-carbon technologies and processes in energy-intensive industries
- carbon capture and storage (CCS)
- innovative renewable energy generation
- energy storage technologies
While carbon dioxide removal (CDR) is not explicitly listed as a targeted area, the Fund does finance certain carbon removal projects. However, these projects are evaluated in the CCS category and based on methodologies developed for those technologies because there is no separate CDR category. This severely limits the type of CDR methods that can apply for IF funding and increases the complexity of their application processes.
The IF aims to finance varied projects across all Member States, Norway and Iceland. There are no Technology Readiness Level (TRL) requirements for applications, but projects need to be sufficiently mature for first commercial examples and large-scale demonstrations. Projects are selected based on criteria specified in calls for proposals, covering degree of innovation, effectiveness of greenhouse gas emissions avoidance, maturity, scalability, and cost efficiency.
What's on the Horizon?
In December 2022, a political agreement was reached on the revision of the EU ETS Directive, which established the Innovation Fund, introducing two key changes to the Fund:
- increase in the budget by bringing additional sectors (maritime, aviation, buildings and road transport) in the scope of the Fund;
- new financing mechanisms whereby projects are selected based on an auction and are supported through fixed premium contracts, contracts for difference or carbon contracts for difference (CCfDs).
This will allow the IF to take the form of a production subsidy to cover 100% of the funding gap for scaling up clean tech. The Commission is now in the process of implementing these changes by revising its Delegated Regulation, which sets out the rules on the operation of the Fund.
First auctions are expected in autumn 2023 and will be on green hydrogen production. Winners will receive a fixed premium for each kg of renewable hydrogen produced over a period of 10 years. CCfDs, which could deliver a direct deployment incentive to different types of carbon management projects, including CDR, should follow shortly thereafter.
Deep Dive
While the Innovation Fund has benefitted CCS and Carbon Capture and Use (CCU), it has failed to recognise the specificities of CDR and the fact that it is, alongside emission reductions, a vital tool for reaching Europe’s climate goals.
Certain carbon removal projects can benefit from IF funding but CDR is not explicitly listed as a targeted area. This omission severely limits the type of CDR methods that can apply for funding, primarily to projects such as direct air capture and storage (DACCS) and bioenergy with carbon capture and storage (BECCS). These projects are also evaluated in the CCS category, obliging them to adapt to CCS methodologies and increasing their administrative burdens.
Consequently, support for projects related to carbon removal within the IF has been significantly lower than for CCU and CCS. When CDR projects receive IF grants, they are labelled as CCS, making it difficult to keep track of CDR funding. Out of 37 projects in 2021, seven were categorised as CCUS, while within these, only two related to CDR, accounting for around 6% of IF’s total grants. Stockholm Exergi’s BECCS Stockholm project was awarded an IF grant of EUR 180 million and Carbfix’s Silverstone project was awarded EUR 3.8 million. In 2022, out of 16 projects, nine were CCUS-related and only one related to CDR (Coda Terminal by Carbfix was awarded a EUR 115 million grant, or 3.79% of IF’s grants).
Ringfencing CDR support
As with any nascent technology with elevated investment costs, CDR needs innovation funding and support for commercial deployment. To remedy the current funding gap, there needs to be increased internal understanding of the differences between CCS and CDR within the Innovation Fund as well as internal tracking of support for these different technologies.
The upcoming Delegated Act in which the Commission revisits the operation of the Fund provides an opportunity for the Fund to explicitly feature carbon removal as a key enabler of net zero and provide the corresponding targeted support. As a second necessary step, the Fund should also consider the specifics of CDR in future calls for proposals and associated methodologies. This would lead to dedicated higher and direct funding to carbon removal projects and contribute to strengthening the CDR ecosystem in Europe.
Beyond BECCS and DACCS
Due to the current structure of the Fund, most of the CDR projects funded so far have been related to DACCS and BECCS. Explicitly featuring carbon removal in the scope of the IF would also open a door to supporting a wider range of carbon removal solutions, beyond DACCS and BECCS, to include, e.g., various carbon farming and ocean-based approaches, enhanced weathering, or mineralisation.
Timeline
Commission Delegated Regulation 2019/856 providing the overall framework for the Fund’s operation
First call for large-scale projects
Second call for large-scale projects
Third call for large-scale projects was launched.
Deadline to submit feedback to the draft terms and conditions for the pilot auction – a new tool for funding innovative low-carbon technologies under the Innovation Fund
The results of the third call for large-scale projects were published.
Draft Commission Delegated Regulation implementing the changes to the Innovation Fund agreed in the ETS revision, notably the use of competitive bidding, is open for feedback until 7 August 2023.
Publication by the European Commissions of the Terms and Conditions of its first auction dedicated to the production of renewable hydrogen production in Europe
Deadline to submit projects to the third call for small-scale projects
Second Innovation Fund progress report expected
Status
Policy Type
Year
Legal Name
Commission Delegated Regulation (EU) 2019/856 of 26 February 2019 supplementing Directive 2003/87/EC of the European Parliament and of the Council with regard to the operation of the Innovation Fund (Text with EEA relevance.)
Official Document
Key Institutional Stakeholders
European Commission
DG Climate Action (CLIMA) has overall responsibility for the Fund, including the volume and policy priorities of calls for proposals and adopting the award decisions.
European Climate, Infrastructure and Environment Executive Agency (CINEA) runs the calls for proposals, evaluations, grant preparation and signatures and daily follow up of projects.
Additional Stakeholders
European Investment Bank (EIB) provides project development assistance. Innovation Fund Expert Group supports the preparation of the calls for proposals.Links to other relevant policies
- EU ETS: The money raised via the ETS is reinvested into the Innovation Fund and the total value of the Fund depends on the price of ETS allowances.
- RePowerEU aims to accelerate the deployment of renewable energy and develop innovative low-carbon technologies. The IF is one of the funding instruments of RepowerEU.
- Net Zero Industry Act (NZIA) proposal aims to scale up manufacturing of clean technologies in the EU. The IF will be one of the main funding instruments of the NZIA.
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In a Nutshell
The Directive on the geological storage of CO2 (CCS Directive) establishes a regulatory framework for the safe and responsible development and operation of geological carbon dioxide (CO2) storage in the EU. It applies to commercial scale facilities with a capacity of 100 kilotonnes per year (ktCO2/yr) or more.
One of the key elements of the Directive is a permit regime for CO2 storage. The rules set out minimum requirements for selecting CO2 storage sites to ensure there is no significant risk of reversal or damage to health or the environment. Operators are required to demonstrate financial security prior to injecting CO2 to cover potential liabilities and must closely monitor the sites during the operational phase to ensure long-term integrity and containment of stored CO2.
The Directive also introduces a liability mechanism in case of a reversal of CO2 out of storage, where the operator must take corrective measures. It also integrates CO2 storage into existing EU legislation. Environmental Liability Directive provides liability rules for environmental damage; and operators are included in the Emission Trading Scheme (ETS). If emissions are captured, transported, and stored in compliance with the CCS Directive, they are considered as not emitted under the ETS. In the case of reversal, ETS allowances must be surrendered. Liability for damage to health and property is left for regulation at Member State level.
The entire lifetime of storage sites is another key element. The Directive prescribes the decommissioning requirements for sites at and after closure and provides for the transfer of liabilities from the storage operator to the Member State 20 years after closure of sites.
While the CCS Directive was introduced to provide an enabling framework for carbon capture and storage (CCS), it governs any instance of geological storage of CO2. This includes the storage portion of any carbon dioxide removal (CDR) activities which store pure gaseous/supercritical CO2, e.g., bioenergy with carbon capture and storage (BECCS) and direct air capture with carbon storage (DACCS).
What's on the Horizon?
2023: The Commission is reviewing the CCS Directive’s implementation guidance documents to address the latest technical and market developments and remove the ambiguities identified during the implementation of the first CCS deployments.
2023: The Commission is expected to share the results of two studies on CO2 infrastructure, one analysing an outline of the CO2 transport and storage infrastructure in 2030 and 2040, and the other analysing the regulatory environment, which will inform the upcoming Communication on industrial carbon management.
June 2023: National Energy and Climate Plans (NECP) expected. The Commission has requested that Member States include a dedicated chapter on geological storage of CO2, addressing the need for CO2 capture in hard-to-abate industrial sectors, but also considering ongoing or planned biogenic carbon and direct air capture projects.
Q3-Q4 2023: Member States need to report to the European Commission on the implementation of the Directive by April 2023, which will be followed by the Commission’s fourth Implementation Report.
Q4 2023: A Communication on industrial carbon management is expected from the Commission in Q4, preceded by a public consultation (timing tbd). The strategy will address the prevailing lack of CO2 infrastructure development in Europe, and as such may intersect with the CCS Directive.
Deep Dive
The CCS Directive was originally designed to assist the EU in meeting its CO2 reduction obligations through capture and geological storage of CO2. It is an essential tool to enable the activities for CO2 management and, as such, an important tool in the CDR regulatory toolkit.
The CCS Directive governs the geological formations in which carbon can be stored. Member States are required to cooperate with the Commission to establish maps of existing, potential, and closed geological storage sites. The Directive also requires operators and competent authorities to establish 3D dynamic models of storage complexes, including protected natural areas. These data offer a critical resource for developing Europe’s carbon management plans, including CDR.
Transborder CO2 movement
The Directive also includes provisions for the transport of CO2 across borders and for storage reservoirs which span multiple countries. This is an important base on which to develop a modular CDR ecosystem where facilities employing CO2 capture and storage sites might be located across Europe with CO2 transported across national borders.
The recent revision (2022) of the Trans-European Networks for Energy (TEN-E) Regulation, which identifies priority corridors and priority thematic areas to develop and interconnect, updated the infrastructure categories eligible for support allowing CO2 transport infrastructure to qualify as a Project of Common Interest (PCI). 14 such projects have already been submitted to the PCI selection.
Implementation
The implementation of the Directive varies across Europe. In addition to the restrictions allowing CO2 storage only in geological formations which are permanently unsuitable for other purposes (see the EU’s Water Policy), Member States retain the right to not allow geological storage in parts or all of their territory (for example, Germany currently limits the amount of CO2 that can be geologically stored annually to 4 million tonnes and does not allow new demonstration projects to be approved, meaning there is no underground geological storage of CO2 taking place). CDR operators dependent on geological storage will have to navigate this fragmented regulatory landscape.
The information on the practical application of the Directive is limited, despite it being in force for more than 10 years. The uptake of CCS in Europe has been slower than predicted and the rules have not had the chance to demonstrate their effectiveness. The lack of CCS projects has largely been due to the low carbon price and absence of policy support measures to enable the deployment of CCS. Still, the Directive requires a rigorous reviewing process prior to permitting, which makes for intensive work on both storage applicants’ and the national authorities’ side. In any event, the European Commission’s upcoming strategic vision for CCS and CCU might yet provide the necessary fuel to jumpstart the industry and stress test the CCS Directive.
Timeline
CCS Directive signed into law
Directive 2009/29/EC amends the EU ETS to include carbon capture and storage, linking ETS with the CCS Directive
Decision 2018/853 empowers the Commission to amend the Annexes of the CCS Directive via delegated acts to adapt to technical and scientific progress
Revision of the CCS Directive implementation guidance documents
Results expected from two studies on the CO2 transport and storage infrastructure and the regulatory environment, to inform the upcoming Communication on CCS and CCU
Member States will report to the Commission on the implementation of the CCS Directive
Member States will update National Energy and Climate Plans (NECP), with a dedicated chapter on geological storage of CO2
Fourth CCS Directive Implementation Report from the Commission
Expected publication of the Communication on CCS and CCU
Further reading
- Carbon Capture and Storage, European Commission
- Implementation report of the CCS Directive, European Commission, 2019
- Identification and analysis of promising carbon capture and utilisation technologies, including their regulatory aspects, study for the European Commission, 2019
Status
Policy Type
Year
Legal Name
Directive 2009/31/EC of the European Parliament and of the Council of 23 April 2009 on the geological storage of carbon dioxide and amending Council Directive 85/337/EEC, European Parliament and Council Directives 2000/60/EC, 2001/80/EC, 2004/35/EC, 2006/12/EC, 2008/1/EC and Regulation (EC) No 1013/2006 (Text with EEA relevance)
Official Document
Key Institutional Stakeholders
European Commission
DG Climate Action (CLIMA), Unit C.2: Low Carbon Solutions (II): Research & Low Carbon Technology Deployment
DG Energy (ENER), Unit C.2: Decarbonisation and Sustainability of Energy Sources
Information Exchange Group: brings together the competent authorities from Member States and the Commission to exchange information on developments in the sector covered by the Directive
Links to other relevant policies
- Carbon Removal Certification Framework (CRCF) proposes EU rules on certifying carbon removals and assigns the CCS Directive as providing the liability rules for geological storage of CO2 for “permanent carbon removals” certified under the CRCF.
- EU Emission Trading Scheme (ETS) is the world’s first major compliance carbon market. CCS is one method to reduce emissions under the ETS. CO2 that is captured, transported and stored according to the CCS Directive is considered as not emitted under the ETS. In case of leakage, ETS allowances must be surrendered.
- Net Zero Industry Act (NZIA), which aims to scale up manufacturing of clean technologies in the EU, proposes an EU annual injection capacity target of 50Mt of CO2 by 2030, with contributions from oil and gas producers.
- London Protocol is an international agreement that promotes the prevention of marine pollution, particularly dumping and incineration, and regulates movement of CO2 across borders. It has been revised to allow and regulate the storage of CO2 streams in geological formations under the seabed, but with limited ratification.
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