In a Nutshell
Horizon Europe is the European Union’s key funding programme for research and innovation. It follows and builds upon Horizon 2020. Totalling a budget of €95.5 billion for the period spanning from 2021 to 2027, it is a key instrument in tackling climate change, helping achieve the UN Sustainable Development Goals and incentivising the competitiveness and growth of the EU.
Beyond EU members, the programme is a strong strategic tool for international cooperation in research and innovation. It opens the window for researchers across the world to team up with the EU through different forms of cooperation, including the association of three non-EU countries. 18 countries have association agreements, including New Zealand and the UK as the newest addition with reached political agreements (still pending formal adoption).
Substantive and well–targeted research and innovation support is key to fostering the maturation of nascent removal methods and to underpinning the progression towards the scale-up needed to reach climate neutrality goals in the EU. Carbon removal projects have received funding from Horizon Europe, especially within Pillar II (see Deep Dive section below). The support has been predominantly indirect and provided through calls with potential spillovers into removals, with a lower share of funding support for CDR directly. Broadening the understanding of removal methods and providing more targeted and sufficient support that strengthens the diverse family of removal methods will form a crucial part of Horizon’s approach to CDR in forthcoming work programmes.
What's on the Horizon?
- More countries are likely to finalise association agreements with Horizon Europe in the future. Negotiations with Morocco, Canada, the Republic of Korea, and Japan are at various stages of advancement. The UK and the EU have reached a political agreement on the UK’s association to the programme starting 1 January 2024. However, it is still pending for Council approval before it is formally adopted by the EU-UK Specialised Committee on Participation in Union Programmes. The same is true for New Zealand which is still pending Parliamentary consent.
- Building on the public consultation launched back in November 2022, the Commission will publish the Horizon Europe interim evaluation and consultation to inform the Horizon Europe Strategic Plan 2025-2027.
- In parallel, the expert group formed by the Commission’s latest call in May 2023 will meet between Q4 2023 – Q4 2024 and is expected to provide input on the programme’s evaluation. They will subsequently publish a report on how to amplify the impact of EU research and innovation programs and build on the conclusions of Horizon 2020.
- Further details on calls that are still open or yet-to-be-opened within the work programme 2023-2024 should be expected, as well as information on specific projects taken forward under each call. The work programmes for the following period should also be forthcoming.
A look at the various funding programmes of Horizon Europe
The program consists of four main pillars, each having dedicated funding and established working programmes that guide priorities for research and funding support:
Adapted from Horizon Europe: Investing to shape our future (2021)
- Pillar I – Excellent Science: aimed at strengthening the excellence and competitiveness of the EU’s scientific base. Three initiatives take the work forward:
- European Research Council: provides funding to researchers and their teams working on frontier science topics, with an emphasis on early-stage researchers.
- Marie Skłodowska-Curie Actions: focuses on enhancing the knowledge and skills of researchers through mobility and training.
- Research infrastructures: ensures world-class research infrastructure in Europe that is integrated, interconnected, and available to the top researchers in Europe and across the world.
- Pilar II – Global Challenges and European Industrial Competitiveness: centred around 6 clusters that tackle key global challenges underpinning EU policies and the Sustainable Development Goals, with a total of €53.5 billion. The launch of “Missions”- specified in the main work programme – is also part of the strategic planning process. Each cluster publishes a number of projects and calls within the main work programme for the relevant year, following priorities in R&I for the EU. Horizon Europe sets out its own Technology Readiness Level (TRL) scale, and projects are set to support the path towards different stages of maturity through a diverse range of actions including Research & Innovation Actions (RIA), Innovation Actions (IA) and Coordination and Support Actions (CSA).
- Pilar III – Innovative Europe:
- European Innovation Council (EIC): promotes breakthroughs, deep tech and disruptive innovation with scale-up potential at the global level through all stages of innovation. It has two operating modes, an “Open” fund, holding no thematic preferences, and a “Challenge” fund, with specific thematic areas. Different technology readiness levels (TRL) are covered throughout its programmes:
- European Innovation Ecosystems (EIE): supports the creation of better-connected innovation ecosystems across Europe, at both national and regional levels.
- European Institute of Innovation & Technology (EIT): brings together business, education and research organisations.
- Widening Participation & Strengthening the European Research Area (ERA): composed of two initiatives:
- Widening participation and spreading excellence: aims to enhance research and innovation capabilities in countries that are currently falling behind according to the European Research Area policy goals.
- Reforming and enhancing the European R&I system: focuses on training researchers for successful R&I participation while prioritising networking, gender equality, ethics and integrity.
A look at carbon removal in Horizon Europe
Horizon Europe’s work programmes benefit a wide range of topics and technologies, especially in the six clusters of Pillar II. A close look at these programmes shows Horizon Europe has committed funding to CDR–related topics (directly and indirectly, including calls with a high potential for spillovers), with the majority being clustered in three areas ( 8 – Climate, Energy and Mobility; 9 – Food, Bioeconomy, Natural Resources, Agriculture and Environment; and 12 – Missions) in both the 2021-2022 and 2023-2024 work programmes.
The number of calls indirectly related to carbon removals found in both periods, – ranging from CCS and CO2 infrastructure projects to digital solutions and Monitoring, Reporting and Verification (MRV) – is higher than those with a direct link to CDR, such as blue carbon, carbon sequestration and BECCS projects. For context, the funding allocated directly to CDR projects amounted to about 1.1% of the total budget for 2021-2022 and 0.9% of the 2023-2024 total budget. Direct and indirect funding for CDR reached 2.6% of the total 2023-2024 budget, instead of the 1.78% for 2021-2022.
Research & Innovation actions (RIA) are dominant for the first period, while both RIA and Innovation Actions (IA) lead within the latest work programme, although RIA are slightly more present (65.73% of all projects) in direct CDR funding. RIA projects have 100% of costs covered by the EU and are directed to new knowledge and exploration of technologies. IA projects are covered until 70% of costs and focus more on prototyping, testing, piloting, and large-scale product validation, and marker replication.
Knowledge and targeted funding
A number of projects in Horizon Europe can provide simultaneous benefits to Carbon Capture and Storage (CCS), Carbon Capture and Utilisation (CCU), and Carbon Removal (CDR). While there are sometimes overlaps between these families of methods – for example, shared CO2 transport and storage infrastructure – CDR is a much broader field and a set of methods on its own. The main work programme for 2023-2024, especially in Cluster 6, features more explicit mentions of carbon removals in the expected outcomes or scopes of the topics. However, the calls do not solely focus on CDR in most cases and are more likely to produce spillover effects that benefit CDR, such as providing CO2 transport infrastructure.
It is a positive step that the Commission has progressively included mentions of CDR within Horizon’s work programmes. To ensure that Horizon Europe delivers the appropriate support for CDR solutions going forward, a more sophisticated approach must be introduced that differentiates between CCUS and CDR methods, providing dedicated funding for different types of CDR as part of a portfolio approach.
Means in line with targets
There is substantial support for different types of removals given CDR’s status as a nascent field. Despite this support, the amount currently allocated to research into carbon removals is not nearly enough to meet the needs for accelerated development and deployment of CDR in light of the EU climate goals and the ambition for the EU to take the lead in this space globally. To deliver on these goals, the EU must commit to a significantly expanded budget for carbon removal, in line with the goals set out for the Green Deal, such as 310 MtCO2e of removals from the LULUCF sector, 55% emissions reductions by 2030, and climate neutrality by 2050.
Diverse and precise support
Horizon Europe strategic plans guide the direction of the investments in research and innovation. Ahead of the next iteration, the Strategic Plan 2025-2027 analysis looks at changes in EU policy and how the global context has changed since the first Plan (2021-2024), to determine if adjustments in terms of priority, directions and actions need to be made for this period. The analysis states that significant research is needed to bring down the cost of nature-based and industrial removals, and further identifies areas where the current efforts need to be reinforced, for example:
- Sustainable economic models that incorporate ways to measure and incentivise the co-benefits of carbon removal;
- Addressing challenges in soil, water, nutrient and biodiversity through e.g, carbon removal;
- The removal potential of bio-based economies and bio-based value chains;
Beyond these suggestions, directing calls for projects based on a diverse portfolio of CDR methods will be necessary to help the industry bridge the research and innovation gap and ensure the maturity of all removal technologies. This approach requires that Horizon Europe ensure there are sufficient calls for all levels of maturity (TRL levels) and types of actions (Research & Innovation, Innovation and Coordination & Support Actions), since carbon removal requires both early-stage research capacity and support for deployment.
Regulation (EU) 2021/695 of the European Parliament and of the Council establishing Horizon Europe
Deadline for the Feedback Period – Horizon Europe – Interim Evaluation
Deadline for the Public Consultation period
Publication of factual summary reports from the public consultation
Horizon 2020 ex-post evaluation report (staff working document)
High Level Expert Group work
High Level Expert Group Report publication
A new horizon for Europe – Impact Assessment for Horizon Europe 2021-2027
Horizon Europe budget breakdown
Evidence Framework on monitoring and evaluation of Horizon Europe – focusing on the measurement of impact for Horizon, including the introduction of Key Impact Pathways.
Regulation (Eu) 2021/695 of the European Parliament and of the Council of 28 April 2021 establishing Horizon Europe – the Framework Programme for Research and Innovation, laying down its rules for participation and dissemination, and repealing Regulations (EU) No 1290/2013 and (EU) No 1291/2013
Key Institutional Stakeholders
European CommissionDG – Research and Innovation, Commissioner Carlos Moedas
European ParliamentCommittee on Industry, Research and Energy Rapporteur: Dan Nica - S&D, RO Shadow Rapporteur: Christian Ehler - EPP CD, DE Shadow Rapporteur: Martina Dlabajová - Renew, CZ Shadow Rapporteur: Ville Niinistö - Greens/EFA, FI Shadow Rapporteur: Elena Lizzi - ID, IT Shadow Rapporteur: Evžen Tošenovský - ECR, CZ Shadow Rapporteur: Giorgos Georgiou - GUE/NGL, CY
Council of the European UnionCOMPET
In a Nutshell
The Common Agricultural Policy (CAP) aims to support farmers and ensure Europe’s food security. It sets out the EU legal framework and funds the support member states can provide to agriculture, forestry, and rural development. It has a double objective of ensuring Europe’s food security and incentivising environmentally friendly agriculture.
The CAP has greatly evolved since its creation in 1962. In its latest iteration, the CAP 2023-2027 pursues 10 overreaching objectives aimed at ensuring agricultural productivity and farmers’ income while encouraging environmentally friendly practices.
The total budget of the CAP 2023-2027 amounts to EUR 386.6 billion. The budget is divided into two funds, which are often referred to as the two pillars of the CAP:
- The European Agricultural Guarantee Fund, which totals EUR 291.1 billion, provides direct support to farmers and funds market measures.
- The European Agricultural Fund for Rural Development, with a total allocation of EUR 95.5 billion dedicated to rural development.
Each country implements the CAP 2023-2027 at their national level through a CAP Strategic Plan. These plans operationalise the numerous targeted interventions each country undertakes while contributing to the ambitions set by the European Green Deal.
Direct payments to support farmers are granted on the condition that they implement “good agricultural and environmental conditions” (GAEC). Around 90% of the total European utilised agricultural area (UAA) is covered by this conditionality. Furthermore, 25% of direct payments are optional and require farmers to implement eco-schemes (specific to each country) rewarding environmentally friendly farming.
Carbon dioxide removal (CDR) and the CAP interact closely in several important ways. Practices that improve carbon sequestration in soils and ecosystems have many overlaps with soil health and agriculture and thus the CAP. The CAP provides an array of measures aiming to incentivise agroforestry practices, as well as the maintenance and restoration of land ecosystems. Finally, enhanced weathering and biochar are two novel CDR methods that also intersect with farming and may thus interact with the CAP in the future.
There is, however, a dual dynamic within the CAP. On the one hand, some measures within the CAP still indirectly promote intensive farming practices depleting soil carbon stocks. On the other hand, more and more measures are targeted towards improving soil carbon stocks. The significant leeway provided to member states in their implementation of national measures means that the contribution of CAP to carbon removals varies across the EU.
What's on the Horizon?
The CAP 2023-2027 and the national CAP Strategic Plans entered into force on 1 January 2023. In 2024, countries will have to report to the EU Commission on their performances. In 2025, the national CAP Strategic Plans will be reviewed by the EU Commission.
A new obligation to protect wetlands and peatlands will be included in the CAP by 2025 at the latest; wetlands and peatlands are part of the conventional CDR methods.
The Commission will propose an improved methodology to ensure that the contribution of the CAP to climate action is correctly measured and accounted for by 2026 at the latest.
National Strategic Plans and support mechanisms
Within the CAP 2023-2027, CAP National strategic plans operationalise the CAP’s policy objectives at the national level.
The CAP amounts to 20% of the total EU budget and plays an enormous role in the EU’s intervention in the land sector. It provides different support mechanisms:
- income support through direct payments, among others, to incentivise environmentally friendly practices;
- market measures to deal with difficult market situations;
- rural development measures (national and regional programmes to address specific needs and challenges).
Each member state has relative freedom to distribute funding across these three types of support mechanisms and can freely allocate up to 25% of its budget between income support and rural development. The CAP Strategic Plans outline this allocation and describe which measures will be supported within each member state. The CAP 2023-2027 puts higher emphasis on tracking outcomes by setting an annual performance report and a biannual review process for national plans, assessing progress towards their goals and the 10 CAP overarching objectives.
Direct payments use the biggest share of the CAP funding and are conditional to Good Agricultural and Environmental Practices (GAEC), which include measures on maintaining a minimum soil cover, limiting erosion and maintaining soil organic matter, and requiring farmers to save at least 3% of their arable farmland for non-productive areas/features with the possibility to get support to extend it to 7% of the arable land. The new CAP introduces a requirement prohibiting drainage, burning or extraction of peat from peatlands. This prohibition could have a favourable impact on peatlands, allowing them to serve as carbon sinks rather than as sources of carbon emissions.
While a large share of utilised agricultural area (UAA) is set to be farmed under GAECs, only a limited share is set to be under commitments to reduce emissions or to maintain or enhance carbon storage, which includes permanent grassland, permanent crops with a permanent green cover, agricultural land in wetland and peatland. Moreover, this share varies dramatically between countries, from 0% to 85%. The metrics used in the strategic plans are also not the same; some mention the peak coverage year (note: peak year also varies between countries) while others use the average over the 2023-2027 period. It is quite concerning to see that several states currently have no measures to increase soil carbon storage. Experts have also raised the question of whether the measures proposed are enough to reach the objectives set in the strategic plans.
Additional subsidies in the form of eco-schemes can be made available to states as a reward for more environmentally friendly practices. Eco-schemes support various types of voluntary actions that go beyond the CAP’s obligation of conditionality. These include practices related to agro-forestry and carbon farming among others. The Commission has published an extensive list of examples. However, it includes only a handful of practices linked to CDR. Member states are not exploiting this opportunity to the fullest, as only a minority of them plan to use eco-schemes in relation to CDR. Some environmental NGOs raised concerns questioning the eco-schemes’ true environmental benefits.
Carbon farming and related debates
The recent communication by the EU Commission on “Sustainable Carbon Cycles” has highlighted that the CAP should be one of the primary mechanisms to promote carbon farming at the European level, together with LIFE and Horizon Europe’s “Soil Deal for Europe”. The Commission encouraged states to include measures to incentivise carbon farming in their strategic plans. The current efforts on the Carbon Removal Certification Framework (CRC-F), among others, aim to clarify what good carbon farming practices mean.
There are, however, several issues related to carbon farming that need to be discussed and tackled with high priority.
Firstly, carbon farming is a very loaded term. The EU defines it vaguely as “a green business model to reward farmers for adopting practices leading to carbon sequestration”. Therefore, carbon farming as an economic concept and the underlying practices it encompasses should be separated in order to differentiate the business model from the underlying practices.
Secondly, there is a strong opportunity in the CRCF to make clear that the durability of carbon sequestration in soil is lower than for other CDR methods. Any market-facing claims need to be strictly regulated to ensure that fossil emissions are not compensated for through such practices.
Thirdly, soil carbon sequestration comes along with many co-benefits besides carbon removal. These include improved soil quality, positive biodiversity impacts and better water retention. These practices should thus be incentivised. However, key questions remain, such as who should pay, and be paid, to implement these practices and what the basis for payment should be.
Finally, the measuring, reporting and verification (MRV) of soil carbon fluxes is still very much a work in progress. There is currently a trade-off between the accuracy of results and the costs/scalability of methodologies. The EU has yet to determine how best to deploy MRV and at which geographical scale and granularity. The purpose of MRV deployment should be better defined. Furthermore, the commodification of sequestered soil carbon requires more strenuous MRV.
Launched in 1962.
First big reform of the CAP to bring production closer to what the market needs.
Shift from market support to producer support through direct payments to farmers. Farmers are incentivised to endorse more environmentally friendly practices.
The CAP introduces income support tied to environmental, food safety and animal health and welfare requirements
The CAP is once again reformed to increase the competitiveness of the sector, promote sustainable farming and support rural areas.
The EU Parliament, the Council and the Commission agree on the need to reform the CAP again and shift implementation responsibilities.
A transitional agreement is put in place while the reform is negotiated.
Adoption of the CAP 2023-2027.
The CAP 2023-2027 and the CAP strategic plans enter into force.
The EU Commission will submit a report to assess the joint CAP strategic plans in reaching Green Deal targets.
Each country will present an annual performance report.
The Commission will conduct its first performance review of the CAP strategic plans.
The Commission will conduct an interim evaluation of the CAP 2023-2027.
The Commission will conduct a second performance review of the CAP strategic plans.
- Regulation (EU) 2021/2116 of the European Parliament and of the Council of 2 December 2021 on the financing, management and monitoring of the common agricultural policy and repealing Regulation (EU) No 1306/2013
- Regulation (EU) 2021/2115 of the European Parliament and of the Council of 2 December 2021 establishing rules on support for strategic plans to be drawn up by member states under the common agricultural policy (CAP Strategic Plans) and financed by the European Agricultural Guarantee Fund (EAGF) and by the European Agricultural Fund for Rural Development (EAFRD) and repealing Regulations (EU) No 1305/2013 and (EU) No 1307/2013
- Regulation (EU) 2021/2117 of the European Parliament and of the Council of 2 December 2021 amending Regulations (EU) No 1308/2013 establishing a common organisation of the markets in agricultural products, (EU) No 1151/2012 on quality schemes for agricultural products and foodstuffs, (EU) No 251/2014 on the definition, description, presentation, labelling and the protection of geographical indications of aromatised wine products and (EU) No 228/2013 laying down specific measures for agriculture in the outermost regions of the Union
In a Nutshell
Article 6.4 of the Paris Agreement establishes the Article 6.4 mechanism, a market-based instrument that countries can voluntarily use to trade credits from emission reduction and removal projects. Under the mechanism, reducing emission levels in one country can be used by another country to fulfil its climate target, Nationally Determined Contribution (NDC).
Often seen as a tool to help countries achieve their climate targets cost-effectively, its real goal is to bring about higher ambition – enabling countries to do more than they could without using it. It’s built to incentivise and facilitate the participation of authorised public and private entities by crediting their emission reduction and removal activities. The projects need to deliver an overall mitigation in global emissions.
It’s a centralised UN crediting mechanism governed by Article 6.4 Supervisory Body. Being a successor of the Clean Development Mechanism (CDM) under the Kyoto Protocol, it will operate under the Paris Agreement, where all countries have climate targets. This means that the host countries need to know that they can still meet their climate targets when selling credits via the Article 6.4 mechanism, and double counting of the same emission reductions or removals must be avoided through the double-entry bookkeeping for emissions accounting (“corresponding adjustments”).
Among its other work in setting up the instrument, the Supervisory Body is preparing the foundation for how the Article 6.4 mechanism will apply to removals. There is a growing ecosystem of novel removal methods, and many of these are poised to be used by countries in their climate targets. Given the lack of broadly accepted international accounting rules for a range of removal methods, the decisions taken under Article 6.4, and the methodologies approved under it, are bound to have an outsized impact on carbon markets globally.
What's on the Horizon?
- The Article 6.4 Supervisory Body is preparing recommendations on methodologies and removals, the rules for transitioning the Clean Development Mechanism into the Article 6.4 mechanism, the accreditation standard, and the project activity cycle for adoption by CMA5 (during COP28).
- SBSTA is preparing recommendations on including emission avoidance and conservation enhancement activities in the scope of Article 6.4 mechanism, authorisation of credits, and connection between registries for adoption at CMA5 (during COP28).
Getting the Article 6.4 mechanism up and running will take a few years.
How will it work?
The Article 6.4 Supervisory Body is responsible for establishing guidance and procedures, approving methodologies, registering projects, issuing credits, and more.
Methodologies may be developed by project participants, host countries, stakeholders, or the Supervisory Body.
The credits are called the Article 6.4 Emission Reductions (A6.4ERs). These are used for both emission reductions and carbon removal. The host country will have to authorise A6.4ERs and account for these by applying corresponding adjustments unless the A6.4 ERs contribute to the national target in the host country (mitigation contribution A6.4ERs).
Removal activities get a maximum of 15-year crediting periods, renewable twice. The mechanism credits emission reductions and removals by public and private sector actors.
2% of Article 6.4 credits are subject to cancellation (“Overall Mitigation in Global Emissions” clause), 5% of credits are dedicated to the Adaptation Fund (“Share of Proceeds for Adaptation”) and other fees for registration, inclusion, issuance, renewal, and post-registration apply as well (“Share of Proceeds for Administrative Expenses”).
Many other details are yet to be ironed out, listed in the “Open elements” section below.
How will removals be covered?
Whilst the mechanism covers emission reductions and removals, it will likely focus on emission reductions in the coming decade, with interest in removals growing as climate targets get closer to net zero and beyond.
The Supervisory Body has been tasked with preparing a general framework for including the full spectrum of carbon removal methods under Article 6.4, called “recommendations”, to be approved at CMA5 during COP28.
For the first time, novel carbon removal methods will be tackled under the Paris Agreement, and the recommendations will set a precedent by establishing broad removals-specific rules under the UN crediting mechanism.
Two separate ongoing work streams are ironing out the details of the mechanism – (1) the Supervisory Body and (2) the Subsidiary Body for Scientific and Technological Advice (SBSTA) where international climate negotiations under the Paris Agreement are ongoing on the technical elements.
The Supervisory body has a busy work program for 2023 and has been tasked to prepare several deliverables for adoption for CMA5 (during COP28). This includes recommendations on methodologies (baseline, monitoring methodologies, methodology development process, review), recommendations on activities involving removals (monitoring, reporting, accounting for removals and crediting periods, addressing reversals, avoidance of leakage), transitioning the Clean Development Mechanism into the Article 6.4 mechanism, developing accreditation standard, and designing project activity cycle.
SBSTA is negotiating recommendations on including emission avoidance1 and conservation enhancement activities in the scope of Article 6.4 mechanism, authorisation of credits by host countries, and work on the registry. These discussions are very technical, have continued throughout the Bonn Climate Conference in June 2023, and will be submitted for adoption at CMA5 during COP28.
1 Emission avoidance in this context mainly refers narrowly to reducing emissions from deforestation and forest degradation (REDD+ projects), not to be confused with how the term “emission avoidance” is used in the voluntary carbon markets where some stakeholders use it as a blanket term for emission reductions and avoidance.
How can stakeholders engage with the Article 6.4 process?
Documents for stakeholder input will be published at least a week before each Supervisory Body meeting. Any organisation can provide written input before meetings, but only UNFCCC-accredited observer organisations can attend the Supervisory Body meetings. Everyone can follow the live stream and watch recordings of past sessions.
|Meeting number||Meeting dates||Deadline for registering as an observer||Deadline for submitting public comments on the meeting agenda|
|SB 006||10-13 July 2023||19 June||3 July|
|SB 007||11-14 September 2023||21 August||4 September|
|SB 008||10 October to 2 November 2023||9 October||23 October|
In June 2023, the UNFCCC launched a dedicated Article 6.4 newsletter covering the latest news, calls for inputs and other announcements from the Supervisory Body.
The negotiations under SBSTA take place in 2-week sessions twice a year during the Bonn Climate Conference and COP.
The Paris Agreement is adopted
The Paris Agreement enters into force
CMA3/COP26 Glasgow – Adoption of the rules, modalities and procedures for Article 6.4 mechanism
Adoption of guidance on Article 6.4, elaborating on key processes and principles, providing SBSTA to work on remaining elements, and mandating the Supervisory Body to operationalise the mechanism
Request for submissions by Parties and admitted observer organisations to submit their views on activities involving removals via the submission portal
Article 6.4 Supervisory Body stakeholder webinar
Public consultation on the three SBSTA working areas on Article 6.4 (inclusion of emission avoidance and conservation enhancement, registries, authorisation of credits)
Technical expert dialogue on the three SBSTA working areas on Article 6.4 (inclusion of emission avoidance and conservation enhancement, registries, authorisation of credits)
CMA5/COP28 in Dubai. The Article 6.4 Supervisory Body will prepare recommendations on removals and methodologies for approval to CMA5.
Article 6.4 Mechanism
- Achieving Overall Mitigation of Global Emissions under the Paris Article 6.4 Mechanism (2019), by Wuppertal Institute
- Designing the Article 6.4 mechanism: assessing selected baseline approaches and their implications (2019), by OECD and IEA
- Best available technology and benchmark baseline setting under the Article 6.4 mechanism (2021), by Perspective Climate Group
- Private sector engagement in Article 6- A post-COP27 analysis (December 2022) by Philip Lee LLP
- Cooperative approaches or Article 6.4 mechanism: which of the Article 6 market mechanism will win the race to engage the private sector? (February 2023) by Holman Fenwick Willan LLP
- UN standard-setters turn their attention to carbon removal (Oct 2022), by Eve Tamme and Paul Zakkour
- COP27: Paving the way for the “removals COP” (Nov 2022), by Eve Tamme and Paul Zakkour
- EU and UN Kickstart Their Work on Carbon Removal for 2023 (March 2023), by Eve Tamme
- Challenges for Carbon Removal under the UN Standard (May 2023), by Eve Tamme
Mechanism established by Article 6, paragraph 4, of the Paris Agreement
Key Institutional Stakeholders
Additional StakeholdersThe Article 6.4 Supervisory Body Parties to the Paris Agreement The UNFCCC Secretariat, Mitigation Division Observer organisations in the UNFCCC
In a Nutshell
The Net Zero Industry Act (NZIA) is a legislative proposal from the European Commission from March 2023 that aims to provide a stable and simplified regulatory environment to support the scale-up of net zero technologies. The NZIA aims to reach a goal of at least 40% manufacturing capacity of strategic net zero technologies in the EU according to annual deployment needs.
The Act sets out enabling conditions, streamlined permitting processes, and one-stop shops for net zero technology manufacturing projects. It differentiates between ‘net zero technologies’ (at least TRL 8) and ‘innovative net zero technologies’ (lower TRL, and can benefit from regulatory sandboxes to foster innovation). It proposes a list of eight strategic net zero technologies that would benefit from even faster permitting process within what are defined as “net zero strategic projects”:
- Solar photovoltaic and solar thermal technologies,
- Onshore wind and offshore renewables,
- Heat pumps and geothermal energy,
- Electrolysers and fuel cells,
- Sustainable biogas/biomethane technologies,
- Carbon capture and storage (CCS),
- Grid technologies.
The Act establishes an annual EU CO2 injection capacity goal of 50 million tonnes. This goal will be adjusted when the regulation is incorporated into the EEA Agreement to account for additional capacity in Norway and Iceland and is expected to grow post-2030; according to the Commission’s estimates, the EU could need to capture up to 550 million tonnes of CO2 annually by 2050 to meet the net zero objective, including for carbon removals.
In one of the world’s firsts, oil and gas producers are subject to an individual contribution to this target, making them directly responsible for building and operating the newly mandated CO2 injection capacity. The contributions will be calculated based on a “pro-rata” basis, accounting for their share of oil and gas production within the EU during 2020-2023.
The Act also aims to facilitate access to markets through public procurement, auctions, and support for private demand. It focuses on ensuring the availability of skilled workforce and foresees net zero industrial partnerships with third countries.
What's on the Horizon?
The NZIA proposal by the European Commission has entered ordinary legislative procedure to reach a formal adoption by the European Parliament and the Council. The European Parliament Environment Committee (ENVI) will vote its opinion on the file in September, followed by the Industry Committee’s (ITRE) deliberation on its position in October. The Council is due to agree on its negotiating position (general approach) by early December. Soon after, trialogues negotiations between the EU co-legislators are expected to kick off.
To provide dedicated funding support to scale up clean technologies, the Commission was set to propose a European Sovereignty Fund by Summer 2023 within the context of the multi-annual financial framework (MFF). On 20 June, the Commission proposed, instead, to establish a ‘Strategic Technologies for Europe Platform’ (STEP), to provide an immediately available tool to member states. The STEP proposal will need to be approved by the European Parliament and Council.
As one pillar of a larger Green Deal Industrial Plan, the NZIA is meant to strengthen and support the EU’s capacity to reach its climate goals. It ensures Europe seizes the potential to be a world leader in the global net zero industry in the context of strong support for net zero technologies coming from different parts of the world, such as the United States’ IRA.
(Strategic) net zero technologies
The NZIA proposes key developments for net zero technologies. Two main aspects of the definition are particularly relevant: (1) the definition is not technology-neutral, it identifies key areas to be addressed, and further lists a family of eight strategic net-zero technologies, which benefit from even faster permitting, priority status, and in some circumstance of overriding public interest, and (2) net zero technologies must be at least Technology Readiness Level (TRL) 8. CDR is not explicitly listed as a strategic net zero technology, and the TRL 8 requirement would exclude most CDR methods. However, if based on TRL only, some could fall under the definition of ‘innovative net zero technologies’, e.g., some forms of direct air capture are considered TRL 7. This flaw of the proposal could be addressed by co-legislators by adding carbon removal in the definition of net zero technologies and in the related annex.
CO2 injection capacity target to incentivise CO2 storage infrastructure
The NZIA proposes a 50 million tonnes per year of CO2 injection capacity in the EU by 2030. The act rightly identifies the lack of storage capacity as one of the largest bottlenecks for CO2 capture investments. One of the key aspects of the act is the transparency of CO2 storage capacity, including the obligation for member states to make publicly available data on sites that can be permitted on their territory, as well as reporting on CO2 capture projects in progress, and their needs for injection and storage capacity. The NZIA clarifies that CO2 injection capacity will also be available to accommodate CDR, but provisions are not proposed to ensure the shared CO2 infrastructure can efficiently be used to accommodate both CCS and CDR methods. A comprehensive and coordinated approach to carbon management that considers both CCS and CDR is needed to ensure that limited CO2 storage capacity is used effectively to reach the EU’s climate neutrality targets. The target will need to be continuously reassessed to meet the storage needs in the EU, especially beyond 2030. Furthermore, separate provisions to ensure adequate transport infrastructure should be foreseen. The European Commission estimates that about 550 million tonnes of CO2 may need to be captured annually by 2050 to meet the net zero objective.
Oil and gas producers’ responsibility to develop the EU CO2 injection capacity has the potential to be a world-leading initiative
The NZIA Article 18 introduces an innovative obligation on oil and gas producers to take responsibility for building EU CO2 storage infrastructure subject to the EU’s injection capacity target. This obligation could introduce an element of producer responsibility for fossil fuel producers in a similar way as producers of packaging, car tires, and other products are required by law to take responsibility for the environmental footprint of end-of-life disposal. If confirmed, this provision would also allow the development of open carbon storage sources by mapping and hosting transparent, open data on carbon storage resources, much of which is held today by private companies. Critical details of this obligation, such as how different sources of CO2 for storage are prioritised or barred, which entities, beyond oil and gas producers, are required to build the CO2 infrastructure, and the procedures to determine their location remain open and need further attention.
Fresh funding is needed
The proposal establishes new initiatives, such as the “Net Zero Europe Platform”, that will discuss the financial needs of the net zero strategic projects and could be key in advising how the financing of these projects can be achieved. Beyond this, the NZIA is anchored in already existing funding mechanisms such as Innovation Fund, InvestEU, Horizon Europe, Important Projects of Common European Interest (IPCEI), the Recovery and Resilience Facility, and Cohesion Policy programmes. Clarity on new and additional funding will be key, as bigger goals will require bigger means that can support the variety of CDR methods at different TRL stages.
The Green Deal Industrial Plan Communication
European Commission legislative proposal on the Net Zero Industry Act (NZIA)
Publication of Draft Report by MEP Christian Ehler
Deadline for submission of amendments – ENVI Committee
Deadline for submission of amendments – ITRE Committee
Deadline to provide feedback to the Commission on the NZIA proposal
ENVI vote on Committee’s Opinion
ITRE Committee vote
Council to adopt its general approach
- The Green Deal Industrial Plan, European Commission
- Investment needs assessment and funding availabilities to strengthen EU’s net zero technology manufacturing capacity, Commission Staff Document
- Making good on the “net” in net zero: Carbon Gap reaction to the Net-Zero Industry Act, 2023
- European Commission Staff Working Document on the Net-Zero Industry Act
- Carbon Gap’s feedback to NZIA Consultation
Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on establishing a framework of measures for strengthening Europe’s net-zero technology products manufacturing ecosystem (Net Zero Industry Act)
Key Institutional Stakeholders
European CommissionDG Internal Market, Industry, Entrepreneurship and SMEs (GROW)
European ParliamentCommittee responsible: ITRE Rapporteur: Christian Ehler (EPP, DE) Shadow rapporteur: Tsvetelina Penkova (S&D, BG) Shadow rapporteur: Christophe Grudler (Renew, FR) Shadow rapporteur: Damien Carême (Greens/EFA, FR) Shadow rapporteur: Marc Botenga (GUE/NGL, BE) Shadow rapporteur: Paolo Borchia (Identity& Democracy Group, IT) Shadow rapporteur: Evžen Tošenovský (European Conservatives and Reformists Group, CZ)
Council of the European UnionCouncil configuration: COMPET
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.
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.
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
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.)