EU REPORT: SET ASIDE 600M CO2 CREDITS, CREATE CERTIFICATE SYSTEM FOR CCS

Tamar Hallerman
GHG Monitor
9/13/13

Carbon capture and storage’s most vocal supporter in the European Parliament is calling on the European Union to create a technology-specific certificate system and set aside an additional 600 million allowances on its Emissions Trading System (ETS) for CCS and other ‘innovative’ clean energy projects, extending the duration of a program that has proven to be a disappointment to date for CCS advocates. A draft report on CCS’ development in the EU, released late last week by the EU Parliament’s Committee on the Environment, Public Health and Food Safety, underscores that the continent “is losing its technological lead in CCS” and has “no effective policy to promote the development of CCS flagship projects.” Head author Chris Davies, a British Liberal Democrat, instead calls on the European Commission (EC) to create an ‘EU Industrial Innovation Fund’ from the sale of 600 million carbon allowances on the ETS to support the development of flagship CCS projects or other low-carbon energy programs.

The Fund would essentially extend the EC’s New Entrants Reserve program (NER 300), which has yet to fund a single CCS project. The European Parliament had hoped to spur up to12 large-scale CCS projects with upwards of €6 billion ($8 billion) in funding when the program was initially established in 2008. However, initial estimates for the scheme—which were made before the recession—were based on the assumption that carbon prices would remain high at around €25 to €30 per ton. The economic downturn, though, hit Europe’s ETS hard. NER 300’s first round, which sold off 200 million of those allowances, only netted about €1.5 billion, a small fraction of the money it initially had planned to earn for clean energy projects. That money, following a due diligence phase, was awarded late last year to 23 renewables projects. The EC had said at the time that member states did not provide the level of financial backing the EC wanted to move forward with any of the 11 CCS projects proposed. Only one CCS project was submitted as a candidate for second round NER funding earlier this summer, further disappointing CCS advocates.

CCS Certificate Scheme

To counter past disappointments, Davies’ assessment also proposes that the EC set a 2020 target for CCS deployment in the coal, gas and industrial sectors, with projects cumulatively capturing and storing 10 million tonnes of CO2 annually by the end of the decade. It also suggests that the EU create a CCS certificate scheme that would require upstream CO2 emitters to obtain credits either earned from emissions reductions made or purchased via a tradable market. Davies said a regulatory approach for mandating CCS, while not ideal, could also be possible. “[I] prefer to avoid introduction of strict emission performance standards, but … they may come to have a part to play,” he wrote.

Davies’ report suggested other ways the EU and its 28 member states could create a business case to incentivize CCS by:

• providing a revenue stream like feed-in tariffs to support the construction of projects,
• introducing regulatory requirements to also incentivize development;
• promoting CO2 transport and storage clusters, especially in the North Sea;
• financing the production of a European atlas of CO2 storage sites; and
• incentivizing CO2 utilization, especially enhanced oil and gas recovery.

Davies said the provisions could help save a fledging CCS industry that has stagnated in Europe in recent years. “Not everything can be left to the private sector,” Davies wrote in the report. “No doubt a carbon price of €60-70 per tonne would greatly reduce the need for renewable subsidies and stimulate CCS investment but it is unlikely to be realized for many years to come. An alternative approach is needed,” he added, underscoring the importance of CCS to Europe’s economic future.

EU Decisionmakers Reevaluate CCS Incentives

Davies’ report must still go through the Environment Committee and the full EU Parliament later this year and is more of an agenda-setting measure than anything else, sources said. It comes, though, at a time when EU policymakers continue to reevaluate the continent’s currently existing CCS incentive policies. An EC white paper released in March acknowledged that the EU’s previous CCS strategy has not been enough to incentivize RD&D and that reform is overdue. The paper pitched the idea of a CCS certificate system, as well as a continent-wide greenhouse gas emissions performance standard for coal plants as possible steps forward, and also asked stakeholders for policy recommendations. “CCS is now at a crossroads,” the document stated.