Transportation

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 CCS Directive was originally designed to assist the EU in meeting its CO₂ reduction obligations through capture and geological storage of CO₂. It is an essential tool to enable the activities for CO₂ management and, as such, an important tool in the CDR regulatory toolkit.

The CCS Directive governs the geological formations in which carbon can be stored. Member States are required to cooperate with the Commission to establish maps of existing, potential, and closed geological storage sites. The Directive also requires operators and competent authorities to establish 3D dynamic models of storage complexes, including protected natural areas. These data offer a critical resource for developing Europe’s carbon management plans, including CDR.

Transborder CO₂ movement

The Directive also includes provisions for the transport of CO₂ across borders and for storage reservoirs which span multiple countries. This is an important base on which to develop a modular CDR ecosystem where facilities employing CO₂ capture and storage sites might be located across Europe with CO₂ transported across national borders.

The recent revision (2022) of the Trans-European Networks for Energy (TEN-E) Regulation, which identifies priority corridors and priority thematic areas to develop and interconnect, updated the infrastructure categories eligible for support allowing CO₂ transport infrastructure to qualify as a Project of Common Interest (PCI). 14 such projects have already been submitted to the PCI selection.

Implementation

The implementation of the Directive varies across Europe. In addition to the restrictions allowing CO₂ storage only in geological formations which are permanently unsuitable for other purposes (see the EU’s Water Policy), Member States retain the right to not allow geological storage in parts or all of their territory (for example, Germany currently limits the amount of CO₂ that can be geologically stored annually to 4 million tonnes and does not allow new demonstration projects to be approved, meaning there is no underground geological storage of CO₂ taking place). CDR operators dependent on geological storage will have to navigate this fragmented regulatory landscape.

The information on the practical application of the Directive is limited, despite it being in force for more than 10 years. The uptake of CCS in Europe has been slower than predicted and the rules have not had the chance to demonstrate their effectiveness. The lack of CCS projects has largely been due to the low carbon price and absence of policy support measures to enable the deployment of CCS. Still, the Directive requires a rigorous reviewing process prior to permitting, which makes for intensive work on both storage applicants’ and the national authorities’ side. In any event, the European Commission’s upcoming strategic vision for CCS and CCU might yet provide the necessary fuel to jumpstart the industry and stress test the CCS Directive.

Together with the ETS and LULUCF, the ESR is one of the three central pieces of EU climate legislation, which steer efforts to reduce total greenhouse gas emissions by 55% in 2030 below 1990 levels as outlined in the European Climate Law. All three have been revised to increase ambition and ratchet up the 2030 target through the ‘Fit for 55’ package and negative emissions will potentially be able to play a role in each of them.

A key aspect of the ESR is the flexibilities of countries to reach their targets more efficiently. These flexibilities are intended to decrease a country’s burden, and give the ESR some characteristics of a carbon market:

1.Temporal and international flexibilities:

• Banking: If a country’s GHG emissions are lower than its annual allocation under the ESR, it may use part of its surplus in the following years and until 2030;
• Borrowing: If a country’s GHG emissions are higher than its annual allocation under the ESR, it may borrow from the following year’s allocation (up to 7.5% of the annual allocations from 2021 to 2025 and up to 5% from 2026 to 2030);
• Trading: Countries may buy or sell allocations to meet their annual targets (up to 10% of their annual allocations from 2021 to 2025 and 15% from 2026 to 2030).

2. Sectoral flexibilities:

• ETS and ESR: Nine Member States’ allowances (with national reduction targets above the EU average and their cost-efficient reduction potential, and Malta) may make use of a limited percentage of ETS emissions to reach their ESR reduction targets;
• LULUCF and ESR: Countries may use a constrained number of net carbon removals in the LULUCF sector to meet their emission reduction targets under the ETS.

Under the proposed amendment of the ESR, the total net carbon removals, which may be considered for reaching ESR targets, may not exceed 225 Mt CO₂e across all Member States. Previously the maximum was 280 Mt CO₂e. The quantity of net carbon removal was also determined and limited for each Member State individually. To avoid emission reduction deterrence, the new proposal also foresees additionally capping the use of carbon removals under the ESR in two time periods, the maximum allowance equally split between 2021-2025 and 2026-2030.