A

s the dust settles from the recent EU elections, Brussels is gearing up for another five-year legislative cycle. At the core of the debate over Europe’s strategic direction are the seemingly competing interests of enabling the decarbonization of European industries while preventing deindustrialization. The next phase of the European Green Deal, which focuses on cost-effective climate solutions, includes a key component: industrial carbon management.

 

Technologies like carbon capture and storage (CCS) and carbon capture and utilization (CCU) have the potential to significantly reduce emissions and remove carbon dioxide (CDR). These are essential tools for decarbonizing high-emitting industries such as cement and waste-to-energy, and they remain key options for sectors like hydrogen, chemicals, and steel production.

 

Building CO2 infrastructure is crucial for advancing industrial carbon management in Europe. This includes constructing pipelines, ships, capture facilities, and storage sites. Europe’s CO2 network is starting to take shape, with several large-scale projects reaching final investment decisions in the past year. Notably, in October 2023, the Porthos project in the Netherlands reached a final investment decision and will become the EU’s first CO2 storage project once it becomes operational in 2026.

 

A European Vision

 

In response to the need for action on industrial carbon management at the EU level, 2024 has seen significant developments in policy and legislation.

 

In February, the European Commission released its “Industrial Carbon Management Strategy” (ICMS), providing the first vision for a policy framework to deploy CCS and CCU technologies in the EU. The strategy emphasizes the urgent need to accelerate the deployment of CCS and CCU projects to meet the EU’s 2040 and 2050 climate targets. Key objectives include scaling up CO2 injection capacity to at least 250 million tons per year in the EEA by 2040, increasing from 50 million tons in the EU by 2030 (figure 1).

 

Additionally, the Net Zero Industry Act (NZIA) sets a legally binding target of 50 million tons of CO2 storage capacity in the EU by 2030, along with other crucial legislative measures.

 

 

 

 

Here are the three key ways the EU is addressing the development of industrial carbon management and the steps needed to ensure these targets are met.

 

1) Advance CO2 Storage Infrastructure

 

Meeting the CO2 storage capacity targets will require substantial efforts to evaluate and develop Europe’s extensive storage potential. A 2023 report from the Clean Air Task Force (CATF) found that nearly all European nations have suitable geology for establishing domestic CO2 storage sites. However, tapping into this potential and developing commercial storage sites will demand significant time, effort, and resources in the coming years (figure 2).

 

While storage project announcements are on the rise, CATF data shows that activities are predominantly concentrated in the North Sea. This underscores the need to develop storage resources in other regions. CATF’s carbon capture and storage cost tool (shown in Figure 3) highlights that diversifying storage locations is essential for lowering costs and ensuring a fair playing field for decarbonizing industries across the EU. The ICMS aims to address this imbalance by preparing guidelines for storage permitting processes, urging Member States to implement transparent permitting systems by 2025, and supporting ‘net-zero strategic projects’ for carbon capture and storage. Additionally, it plans to create a new investment atlas of potential CO2 storage sites, providing project developers and Member States with clear guidance on meeting their storage needs. Member States are encouraged to contribute geological data to this initiative and gather new data where necessary.

 

Moreover, the NZIA includes an obligation for oil and gas producers in the EU to contribute to the 2030 storage target based on a pro-rata share of their production in the EU in 2020-2030. This novel method aims to accelerate the sector’s efforts to develop sufficient storage in the EU.

However, while action is underway at the EU level to stimulate storage, there is a need for consistent terminology and transparency about the capacity estimates of CO2 storage projects, especially in regions with limited public data. Greater support for geological surveys in EU member states is also needed to identify investable CO2 storage sites in the coming years and decades.

 

 

 

 

 

2) Enabling a European CO2 Transport Network

 

To enable these volumes of CO2 to be stored, a Europe-wide CO2 transport network will need to be built. Evidence from the Commission’s Joint Research Centre indicates that this network, essential for linking CO2 sources with storage sites, is projected to span up to 7,300 km by 2030 and 19,000 km by 2040. While pipelines are considered the most economical long-term option, the strategy also includes short-term alternatives like shipping, rail, and road transport of CO2. Building this infrastructure will require significant investment, estimated at €3 billion for CO2 storage capacity and €12.2 billion to €16 billion for the transport network by 2040. Importantly, as evidence from CATF shows, the JRC study also indicates that “investment costs could be reduced by developing storage capacities in areas where identified capacity is insufficient (e.g., southern and eastern Europe) to avoid transporting captured CO2 over long distances, such as to the North Sea region.”

 

To enable these investments, funding mechanisms like the Important Projects of Common European Interest (IPCEI) could provide significant funding to develop critical cross-border infrastructure. Along with 29 other leading European stakeholders from industry and civil society, the Zero Emissions Platform has called for the next round of the IPCEI to include CO2 infrastructure.

 

Regulatory clarity and certainty are essential to stimulate private investment and enable developers to achieve financed project. The ICMS anticipates the development of a regulatory framework for CO2 transport in the next Commission. Ensuring this framework adequately addresses issues like third-party access, tariffs, and ownership of infrastructure across different parts of the value chain will be critical to secure sufficient investments.

 

 

 

 

3) Enabling policies to make industrial carbon management bankable

 

A clear set of policies and regulations is required to make CCS and CCU investments viable. In the EU, the Emissions Trading System (EU ETS) has long served as the primary economic incentive to make projects bankable Given that CCS and CCU projects are capital intensive , these investments require stable, high carbon prices, which in many cases are higher than the record high levels reached by the ETS (100 EUR/tonne in February 2023) (figure 5).

 

While the EU ETS carbon price is expected to eventually rise enough to drive industrial decarbonization, many governments are implementing policies that create additional incentives to cover the prevailing cost gap with a guaranteed price, helping industries cut emissions sooner. Given the fluctuating carbon price of the EU ETS, as shown in Figure 6, policy certainty and predictability are essential for making projects investable, especially since these investments span well over a decade. Furthermore, the increase in ETS auctioning revenues that would result from the expected higher allowance price and the reduction of free allowances, should contribute to decarbonization of hard to abate emissions, including via CCS.

 

An emerging policy tool for this task is ‘carbon contracts for difference’ (CCfDs), which have been implemented in several EU member states and the UK, including the Netherlands, Denmark, France, and Germany. CCfDs are growing in popularity and may prove crucial in making CO2 infrastructure investments bankable while limiting the burden on taxpayers. However, other policy tools are likely needed as well, particularly to incentivize the uptake of low-emission products and services.

 

As the first wave of industrial CCS and CCU projects in the European Union are due to come online over the coming years, producers are starting to promote their premium, low-carbon products to create demand, such as Heidelberg Materials’ net zero carbon captured cement, evoZero, that will be produced at their Brevik CCS project in Norway starting in early 2025. Some member states, like Germany, have recently attempted to grow ‘green lead markets’ for low-emission industrial products. However, there is a lack of regulatory measures or other policies to establish ‘green lead markets’ at the EU level, necessitating action in the upcoming legislative term

 

 

Next Steps for Industrial Carbon Management in the EU

As policymakers and legislators prepare for the next stages of EU energy, climate, and industrial policy, it is clear that industrial carbon management will be central to the debate in Brussels. With ambitious targets now set, it is up to policymakers to provide the necessary tools to reach them, and for industry to step up and deliver.