In a Nutshell

The European Commission’s strategy on Industrial Carbon Management (ICMS) lays out what role industrial carbon management technologies, including certain carbon dioxide removal methods referred to as ‘industrial carbon removal’ (BECCS, DACCS and biogenic carbon), can play in decarbonising the EU’s economy. It also introduces measures needed to develop and scale up these technologies. As a Commission communication, the content of the ICMS is not legally binding but introduces an outline and a guide for future EU policy initiatives.

Given the current lack of a comprehensive policy framework around industrial carbon management, the ICMS is a crucial first step in creating the right conditions for the development and deployment of industrial CDR and CCS technologies. The ICMS is closely linked with the European Commission’s 2040 climate target communication, which sets out a 90% net greenhouse gas (GHG) emission reduction target by 2040, as well as twin targets for emission reductions and carbon removal.

The ICMS contains separate sections covering which measures are needed to scale CCS, CCU, industrial CDR, and CO2 transport and storage infrastructure. The measures relevant to CDR include considerations on developing a separate carbon removal trading scheme, introducing Important Projects of Common European Interest (ICPEIs) for CO2 transport and storage infrastructure, and boosting research, innovation and early-of-a-kind demonstration for novel industrial technologies for carbon removal.

The strategy also provides a dedicated section on public awareness, which appears to signal that the Commission recognises the importance of involving and engaging stakeholders and the public in the scale-up of industrial carbon management technologies.

However, the strategy does not clearly distinguish between CDR, CCS, and CCU, and fails to set dedicated targets for each of these. It narrowly focuses on types of CDR considered ‘industrial CDR’, namely direct air carbon capture and storage (DACCS), bioenergy with carbon capture and storage (BECCS) and biogenic carbon.

What's on the Horizon?

In the ICMS, the Commission foresees several actions, laid out over an indicative timeline.

While no clear timeline is provided for industrial CDR (iCDR), the Commission needs to assess by 2026 if and how CDR could be accounted for in the EU Emission Trading System (ETS), or a potential removal trading system. In parallel, it also raises the need to boost dedicated funding under the EU RD&I under Horizon Europe and the Innovation Fund.

For CO2 transport and storage infrastructure, the strategy mentions that, as of 2024, the Commission:

  • should initiate preparatory work in view of a proposal for a possible future CO2 transport regulatory package, as well as working towards proposing an EU-wide CO2 transport infrastructure planning mechanism;
  • will work with member states on exploring a possible Important Project of Common European Interest (IPCEI) for CO2 transport and storage infrastructure.

Carbon Gap will unveil its CDR Strategy for Europe in March 2024, and present key recommendations that are intended to complement the actions foreseen in the ICM strategy to scale CDR.

Deep Dive

The origins of the ICM strategy

The EU Green Deal and the latest version of the EU Climate Law, in which the ambition of the Union’s climate targets for 2030 has been raised, both stress the importance of carbon dioxide removal and carbon capture and storage technologies in EU climate action. The Commission’s communication on Sustainable Carbon Cycles published in 2021 further underscored the importance of industrial carbon management. The communication included an aspirational target of 5MtCO2 of industrial carbon removal per year by 2030. To deliver on this target, it set out key actions to support industrial carbon management and CDR more broadly, foreseeing the need for a certification framework for carbon removal, and calling for the creation of an annually recurring CCUS Forum. Since its establishment in 2021, the CCUS Forum has informed the work on the ICMS, including through several reports from working groups focusing on CO2 infrastructure and standards, industrial partnership for CCUS, and public perception.

 

Scaling up industrial CDR

The ICM strategy acknowledges the key role CDR will play in reaching climate neutrality by indicating that it will be needed to compensate for approximately 400MtCO2e of residual emissions by 2050. This figure comprises both land-based and industrial CDR (iCDR). The ICM also states that around 280MtCO2 and 450MtCO2 would need to be captured by 2040 and 2050, respectively, without clearly specifying which share would be stored and used, and which share would be CDR.

The strategy identifies key policy gaps holding back the scaling up of iCDR, including a lack of incentives, the lack of recognition of iCDR in the current EU legislative framework and the high costs associated with various iCDR methods. The Commission presents three main actions to address these gaps:

  • Assess overall objectives for CDR in line with the 2040 targets and the goal of climate neutrality by 2050, and negative emissions thereafter.
  • Develop policy options and support mechanisms for industrial carbon removals, including if and how to account for them in the EU ETS.
  • In parallel, boost EU RD&I and early-of-a-kind demonstration for novel iCDR under Horizon Europe and the Innovation Fund.

 

Role of CCS and CCU

The ICMS lacks concrete targets for CCS and CCU beyond the 50MtCO2 yearly injection capacity target by 2030 set in the Net-Zero Industry Act (NZIA). Some projections are included, but these do not clearly show how much CO2 would be used for storage, and how much would come from CCS as distinct from CDR. Furthermore, these projections are not presented as actual targets for CO2 storage.

Regarding CCS, the ICM strategy presents an extensive package of policy actions it plans to undertake, including the development of a platform for demand assessment and aggregation for CO2 transport and storage services. The strategy also calls on member states to take several measures, such as the inclusion in their national energy and climate plans (NECPs) of an assessment of their CCS needs and identified actions to support the deployment of a CCS value chain.

Regarding CCU, the ICM mentions that over time, biogenic and atmospheric CO2 will be increasingly used for CCU. It also lays out broad policy actions, such as the creation of a knowledge-sharing platform for industrial CCUS projects.

 

CO2 infrastructure as a key enabler

The Commission highlights the need to develop non-discriminatory, open-access, cross-border CO2 transport and storage infrastructure. The strategy proposes a comprehensive plan, with the ambition to develop a single market for CO2 in Europe.

From 2024, the Commission will initiate preparatory work in view of a proposal for a possible future CO2 transport regulatory package. It will also work towards proposing an EU-wide CO2 transport infrastructure planning mechanism.

Finally, the possibility of creating an Important Project of Common European Interest around CO2 transport and storage infrastructure will be explored with member states throughout 2024.

 

Room for improvement of the Industrial Carbon Management strategy

The definition of industrial CDR should be open to all safe and effective high-durability CDR methods. Currently, the ICMS unnecessarily restricts iCDR to solely DACCS, BECCS and biogenic carbon, failing to consider other promising methods, such as enhanced rock weathering.

Clear and quantifiable targets for the role industrial carbon removal should play to reach the EU 2040 target are necessary for at least two reasons. Firstly, to ensure the EU reaches durable net zero by 2050, namely a state where the remaining hard-to-abate fossil emissions are only compensated by high-durability carbon dioxide removal (CDR). Secondly, to provide visibility and predictability to the industry, considering that CDR must be scaled considerably across Europe. Furthermore, the fluidity and ambiguity between CCS, CCU and CDR should be addressed across the board and in future policy texts, clearly distinguishing each different role and climate benefits.

Clear and targeted support measures for scaling up CDR should be introduced. The current measures outlined for iCDR are a good first step, but they are not enough. Deployment incentives are essential in the scaling up of iCDR, bridging the gap between R&D funding and a potential integration into EU compliance markets.

 

To address these points, the European Commission should produce a strategy solely dedicated to CDR.

Timeline

11 Oct 2021
15 December 2021
27-28 October 2022
30 November 2022
16 March 2023
27-28 November 2023
6 February 2024
11 Oct 2021

First CCUS Forum in Brussels

15 December 2021
27-28 October 2022
30 November 2022

Commission adoption of the CRCF proposal

16 March 2023

Commission adoption of the NZIA proposal

27-28 November 2023

Third CCUS Forum in Aalborg

6 February 2024

Commission adoption of the ICMS and 2040 climate target communications

Further reading

Carbon Gap’s comments on the ICMS public consultation

Carbon Gap’s response to the 2040 target and ICM communications

Official Document

Year

2024

Unofficial Title

ICMS

In a Nutshell

The Just Transition Mechanism is the European Union’s main tool to ensure that the transition to a climate-neutral economy happens in a fair and just way. Through its three pillars, it aims to mobilise an estimated EUR 55 billion over 2021-2027 to support the European regions, sectors and workers most affected by the transition.

The EU regions identified as most at risk or overburdened by the transition, and thus most in need of justice-oriented policies, are those whose economies rely heavily on fossil fuel extraction and production, particularly coal. Poland, Germany, Romania, Bulgaria, the Czech Republic and Spain face the greatest potential job losses in this sector.

The policy establishes three financial mechanisms to work towards a Europe-wide just transition: the Just Transition Fund (JTF), a dedicated transition scheme under InvestEU, and a loan facility provided by the European Investment Bank. Respectively, they offer grants, mobilise private investments and leverage public finance. Whereas the eligibility criteria for the JTF promote the diversification and modernisation of economies and the reskilling of workers, the other mechanisms are broader in scope and include a wide range of sectors.

As a nascent sector set to grow in scale and importance in the coming decades, carbon dioxide removal falls under the scope of the Just Transition Mechanism. To function, the EU CDR industry will need a large workforce, making it a natural candidate for reskilling programmes across multiple sectors, including academic research, engineering and technical jobs.

What's on the Horizon?

The eighth edition of the Just Transition Platform Conference will take place between 23 and 25 October in Brussels.

By June 2025, the Commission will need to review the implementation of the Joint Transition Fund.

Each member state has a national share reserved under the Public Sector Loan Facility until 31 December 2025. There are regular deadlines to apply for grants under the facility, with the next one on 17 January 2024.

The territorial Just Transition plans cover the period up to 2030.

Deep Dive

The Just Transition Fund

The JTF is the first pillar of the Just Transition Mechanism. The fund primarily supports the economic diversification and reconversion of the most affected regions through grants. EUR 17.5 billion was attributed to the fund through a regulation, with EUR 7.5 billion coming from the Multiannual Financial Framework for the period 2021-2027 (MFF) and EUR 10 billion from the NextGenerationEU for the period 2021-2023.

To access allocated funds, member states must prepare territorial just transition plans covering territories “most negatively affected based on the economic and social impacts resulting from the transition”. Special consideration should be given to islands and outermost regions.

The InvestEU “Just Transition” scheme

The second pillar of the JTM provides budgetary guarantees to ‘implementing partners’ that the EU Commission will provide direct or indirect financing. It can support investments detailed in national territorial just transition plans spanning a wide range of projects, including energy and transport infrastructure decarbonisation, economic diversification and social infrastructure. This scheme is expected to mobilise EUR 10-15 billion, coming mostly from the private sector, with some support from InvestEU implementing partners such as the European Investment Bank.

The public sector loan facility with the European Investment Bank

The third pillar of the JTM and its accompanying regulation provides a mix of EUR 1.5 billion in grants from the EU budget and approximately EUR 10 billion of loans from the European Investment Bank. A further EUR 18-25 billion of public investments is expected to be mobilised. The loan facility mainly targets energy and transport infrastructure, district heating networks, energy efficiency measures and social infrastructure. Applications must be linked to the relevant territorial just transition plan to demonstrate how the project supports specific national ‘green transitions’. Each member state is reserved a part of the budget under the facility until 2025, after which any unused amount will be made available to projects across the entire EU.

While the two other pillars of the JTM provide rather broad requirements, the Just Transition Fund outlines a specific list of actions and sectors that can be supported. CDR in its broadest sense could directly or indirectly fall under multiple categories. For example, it could help funnel productive investments in SMEs and investments in the creation of new firms. On the research side, CDR can be a destination for investments in research and innovation activities. On the social side, it could accompany the upskilling and reskilling of workers and job seekers. Finally, on the infrastructure side, it could be applied to upgrade district heating networks, especially combined heat and power plants, to unlock investments in the deployment of climate technology and systems, and for investments in renewable energy.

Evaluating the Just Transition Mechanism

Being the EU’s flagship mechanism to ensure no one is left behind in the green transition, the JTM’s main lever consists of requiring the development of territorial just transition plans. These are intended to ensure a high level of ambition whilst allowing civil society and the affected publics to have visibility over the just transition plan. There is also a certain degree of technical assistance provided for local public authorities, mostly through the Just Transition Platform, a one-stop shop platform providing information on all aspects of the JTM.

However, the JTM has several potential drawbacks. Firstly, the JTM might inadvertently reward countries that have delayed climate action by providing funds to member states with carbon-intensive industries that would not have decarbonisation plans otherwise. Secondly, the initial budget of the JTF was set at about EUR 44 billion, whereas it has now been downsized to EUR 17.5 billion, which will inevitably mean that fewer projects will be supported. Thirdly, the vision of fairness set out in the JTM and the European Green Deal in general has been criticised as a short-term, dirigiste solution to systemic challenges. Only specific sectors and regions are included, whereas other meaningful activities involving other types of actors and regions are left out of the JTM. Finally, the JTM’s operationalisation of climate justice is focused on those who are adversely affected by the transition, rather than on those who are adversely affected by climate change at large.

Timeline

11 December 2019
14 January 2020
28 May 2020
29 June - 3 July 2020
9 March 2021
July 2021
August 2021
11 December 2019

European Green Deal communication and announcement of the Just Transition Mechanism

14 January 2020

Commission adopts the Just Transition Fund Proposal

28 May 2020

Commission adopts the Public Sector Loan Facility Proposal

29 June - 3 July 2020

Launch of the Just Transition Platform

9 March 2021

Adoption of the InvestEU Guidelines, including guidelines for the Just Transition Special Scheme

July 2021

Entry into force of the Just Transition Fund Regulation

August 2021

Entry into force of the Public Sector Loan Facility Regulation

Unofficial Title

Just Transition Mechanism

Year

2021

In a Nutshell

The Renewable Energy Directive (RED) aims to increase the share of renewable energy sources (RES) within the European Union’s final energy consumption. It establishes a common framework for the development of renewable energy capacity in the European Union and sets a binding target for the share that renewable energy represents within the EU’s final energy consumption.

In its 2021 revision, the Commission proposed increasing the target minimum share of RES in the EU’s final energy consumption to 40% in 2030 (RED III), an increase of 8 percentage points compared to its 2018 recast (RED II), which had established a minimum RES share of 32% of final energy consumption in 2030. Since the 2021 proposal, the binding renewable target has been raised to a 42.5% RES share in 2030 as part of the RePower EU Package (RED IV). RePower EU follows the Russian invasion of Ukraine and an increasing need to reduce dependency on Russian gas.

The Directive is particularly relevant for bioenergy with carbon capture and storage (BECCS), as it regulates the use of biomass and biofuels for energy generation, affecting the feasibility of introducing BECCS in the EU, and its potential scale. RED is also highly relevant to carbon dioxide removal (CDR) methods that rely on a stable supply of renewable and lowemissions energy, such as direct air carbon capture and storage (DACCS).

The RED also impacts biomass-based CDR methods beyond BECCS. Due to the high expected demand and relatively limited supply of eligible types of biomass, competition may arise between actors proposing different potential uses for biomass. Biomass use also affects carbon storage in biogenic carbon sinks. For example, forests can be a biogenic carbon sink, provide timber, and provide residual harvest biomass for bioenergy production.

What's on the Horizon?

  • A tentative political agreement on RED III was reached between the EU Parliament and the EU Council on 30 March 2023. This agreement was due to be formally approved on 17 May, but a last-minute disagreement over the role of low-carbon hydrogen produced using nuclear energy in the EU’s decarbonisation targets led to the process being postponed.
  • On 19 June, the EU Council reached an agreement on RED III. The European Parliament Committee responsible for the file approved the text on 28 June. A plenary vote in the European Parliament took place on 12 September, during which the EP voted in favour of the revision. The Council adopted the final text on 9 October 2023. The text was published in the Official Journal of the EU on 31 October 2023 and entered into force on 20 November 2023.
  • The energy policy framework for the post-2030 period is under discussion.

Deep Dive

Making sense of the Renewable Energy Directive

To help deliver on the EU’s increasing climate ambitions, including the EU-wide 55% emissions reduction target by 2030 and the target to achieve net neutrality by 2050, the targets set by the RED have been repeatedly increased. As a result, the RED has evolved from RED I to its latest version, RED IV. Starting from a target of 20% RES as a share of total final energy consumption by 2020 set in 2009, RED I was revised as part of the “Clean energy for all Europeans” package in 2018 to include a target of a 32% RES share by 2030, thereby becoming RED II.

In July 2021, as part of the “Fit-for-55” package, RED III was proposed and the target was raised to 40% by 2030. Following the Russian aggression against Ukraine, the Commission proposed a first amendment (RED IV) with a target of 45% as part of its “REPowerEU” plan. In November 2022, the Commission proposed a second amendment for a Council regulation to accelerate RES deployment.

In March 2023, the EU Parliament and the Council reached a tentative agreement to raise the target to a 42.5% RES share by 2030. Member states will need to increase their national contributions in their integrated National Energy and Climate Plans (NECP), which are due to be updated in 2023 and 2024, to collectively achieve the target. Achieving the target would bring EU member states’ total renewable energy generation capacity to 1236 GW by 2030.

RES considered within the RED’s scope include wind, solar, hydro, tidal, geothermal, and biomass. The binding target is supported by differentiated targets for a variety of sectors, such as heating and cooling, industry, and transport. The provisional agreement under RePowerEU also aims to remove barriers to the scale-up of renewable energy generation by making permitting processes for renewable energy installations quicker and easier. To this end, member states will define regions (so-called ‘go-to areas’) with limited environmental risks and high renewable energy generation capability, in which the permitting procedure shall be simplified. 

The RED and its impacts on biomass use

Biomass is considered a RES within the provisional agreement, provided that its use meets several sustainability criteria. These include requirements that woody biomass used in energy generation follows the cascading principle – ensuring that biomass of higher quality should serve purposes demanding higher-quality biomass first – and that forest biomass may not be harvested from areas with particular significance with regard to carbon stocks or biodiversity. Furthermore, no financial support shall be granted when energy facilities use stumps and roots for energy generation (as they are considered important, for example, to protect soil carbon stocks) or when they use high-quality biomass that should be reserved for other use cases under the cascading principle, such as industrial-grade roundwood, veneer logs, and saw logs.

The provisional agreement sets out a new binding combined target of 5.5% for advanced biofuels, generally derived from non-food-based feedstocks, and renewable fuels of non-biological origin, mostly renewable hydrogen and hydrogen-based synthetic fuels, in the share of renewable energy supplied to the transport sector. The increasing need for advanced biofuels that use biomass as a feedstock may conflict with the demand for the lower-quality biomass upon which several CDR methods rely, such as BECCS and biochar.

Where does BECCS fit in?

The recognition of biomass as a renewable energy source affects the feasibility and potential scale of BECCS. BECCS can both provide renewable energy and remove carbon dioxide from the atmosphere. The 2021 proposal states that member states should not support electricity production from installations producing only electricity, as opposed to, for example, installations producing both heat and power), unless these installations are located in regions included in the Just Transition Plan, or if the installations used CCS technologies to capture and store the associated (biogenic) CO2 emissions.

Currently, negative emissions stemming from BECCS cannot contribute towards targets set under any of the three main legislative pillars of EU climate action, namely the EU Emissions Trading System (EU ETS), the Effort Sharing Regulation (ESR), and the LULUCF Regulation.

The RED: Are sustainability criteria enough to ensure the sustainable use of biomass?

The role of biomass within the RED is important. While sustainability criteria exist to prevent the misuse of biomass for energy generation, the demand for biomass may increasingly exceed supply. Some communities might be adversely impacted, especially in terms of resource use and food security. It is therefore critical that future revisions of the RED take these concerns into consideration.

Timeline

1997
2001
2003
2009
2018
2021
2022
30 March 2023
17 May 2023
19 June 2023
12 September 2023
9 October 2023
31 October 2023
20 November 2023
1997

Energy for the future: renewable sources of energy, indicative EU target of 12% renewables by 2010.

2001
2003
2009

RED I: EU target of 20% renewables by 2020 and national binding targets

2018

RED II: 32% renewables target for 2030 – This is the piece of legislation that is currently in force

2021

RED III: EU Green Deal: EC proposal to raise target for 2030 to 40%

2022

RED IV: REPowerEU Plan: EC proposal to raise target for 2030 to 45% (voted as part of RED III)

  • Parliamentary position agreed & endorsed 14/09/2022 
  • Council general approach agreed on 29/06/2022. 
30 March 2023

Council and Parliament reach provisional agreement on the revision

17 May 2023

A last-minute objection postponed the adoption of the revision of the Directive

19 June 2023

The Council reached an agreement on its position

12 September 2023

The EU Parliament voted in favour of the revision

9 October 2023

The Council adopted the final text

31 October 2023

The Directive was published in the Official Journal of the EU

20 November 2023

Entry into force of RED III

Status

Year

1997

Unofficial Title

RED

Official Document

Last Updated

19/06/2023

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,
  • Battery/storage,
  • 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) voted its opinion on the file in September, followed by the Industry Committee’s (ITRE) deliberation on its position on 25 October. The Parliament adopted its position on 21 November 2023. The Council adopted its general approach on 7 December 2023. After three trilogue meetings, the co-legislators reached a provisional agreement on 6 February. Over the next weeks, the agreed text will be voted on first by the European Parliament Industry Committee, then by the whole Parliament and by EU Ministers to formally adopt it. It will then become EU law once it is published in the Official Journal of the EU.  

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. A provisional agreement on the STEP was reached on 7 February.

Deep Dive

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.

Timeline

1 February 2023
16 March 2023
26 May 2023
13 June 2023
19 June 2023
27 June 2023
20 September 2023
25 October 2023
21 November 2023
7 December 2023
13 December 2023
22 January 2024
6 February 2024
22 February 2024
22 April 2024 (TBC)
1 February 2023

The Green Deal Industrial Plan Communication

16 March 2023
26 May 2023

Publication of Draft Report by MEP Christian Ehler

13 June 2023

Deadline for submission of amendments – ENVI Committee

19 June 2023

Deadline for submission of amendments – ITRE Committee

27 June 2023

Deadline to provide feedback to the Commission on the NZIA proposal

20 September 2023

ENVI Committee adopts draft opinion

25 October 2023

ITRE Committee vote

21 November 2023

EU Parliament plenary adopted the parliament’s report

7 December 2023

The Council adopted its general approach

13 December 2023

First trilogue on the file

22 January 2024

Second trilogue on the file

6 February 2024

Third trilogue on the file. The EU Parliament and the Council reached a provisional agreement.

22 February 2024

ITRE Committee adopted the provisional agreement

22 April 2024 (TBC)

Indicative plenary vote on the provisional agreement

Status

Unofficial Title

NZIA

Year

2023

Official Document

Last Updated

24/04/2023

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:

  1. innovative low-carbon technologies and processes in energy-intensive industries
  2. carbon capture and storage (CCS)
  3. innovative renewable energy generation
  4. 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.

The first auctions opened on 23 November 2023 and are 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.

The Innovation Fund Call for 2023 opened on 23 November 2023 with a total budget of EUR 4 billion. It has five different sub-calls, namely for large, medium, and small-scale projects, cleantech manufacturing and pilot projects.

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 emissions 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 step 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 various carbon farming and ocean-based approaches, enhanced weathering, or mineralisation, for example.

Timeline

26 February 2019
3 July 2020
26 October 2021
29 August 2022
03 November 2022
11 May 2023
13 July 2023
7 August 2023
30 August 2023
19 September 2023
Q3 2023
23 November 2023
8 February 2024
9 April 2024
26 February 2019

Commission Delegated Regulation 2019/856 providing the overall framework for the Fund’s operation

3 July 2020

First call for large-scale projects

26 October 2021

Second call for large-scale projects

29 August 2022
03 November 2022

Third call for large-scale projects was launched.

11 May 2023

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

13 July 2023

The results of the third call for large-scale projects were published.

7 August 2023

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.

30 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

19 September 2023

Deadline to submit projects to the third call for small-scale projects

Q3 2023

Second Innovation Fund progress report expected

23 November 2023

Opening of the first Innovation Fund auctions dedicated to renewable hydrogen, as well as a new call for projects

8 February 2024

Tentative closure of the first round of auctions for renewable hydrogen

9 April 2024

Tentative closure of the call for projects. Successful applicants will be notified in the fourth quarter of 2024

Status

Policy Type

Year

2019

Last Updated

24/04/2023