A chicken-and-egg situation over financial backing impedes CCS improvements
INFRASTRUCTURE CHOICES
As part of the bloc’s Green Deal and ongoing efforts to decarbonise the economy, deciding what energy infrastructure to fund is up for debate
HARD-TO-ABATE
Some industries cannot see another way to decarbonise other than trapping their carbon emissions
KEY QUOTE
The key priority of the TEN-E regulation should be to build out and reinforce Europe’s electricity infrastructure Lawmakers in the European Union and national governments all have different ideas about the energy infrastructure of the future complicating an upcoming review of the Trans-European Networks for Energy (TEN-E) regulation, which dictates what can and what cannot have access to EU funding. In early May 2021, 11 countries—including Belgium, Denmark, Spain and Sweden—insisted that fossil fuels must be ditched from the new legislation, while others like Poland are keen to use natural gas in particular as a bridge fuel. Despite the pressing climate emergency, the debate about the merits of gas will continue as the details of the EU’s taxonomy—a list of rules for sustainable investments—are finalised this year and industries adapt to the European Investment Bank’s (EIB) new fossil-free guidelines for energy loans. TEN-E regulates a lot more than gas. Its scope includes electricity networks, smart grids and alternative fuels like hydrogen. As the energy transition gathers pace, the rules are set to be future-proofed in line with the EU’s new green policies.
BEYOND GAS
Another genre of pipeline politics is also at play in Brussels over the future of CCS. The current TEN-E regulation does not include CCS on its list of priority projects—the so-called projects of common interest (PCI) list—but does allow funding of cross-border CO2 pipelines, which can be used to transport captured emissions from industrial sites to storage facilities. A public consultation on which CO2 transport projects to add to the upcoming PCI list is ongoing. The previous edition of the list funded five projects, including the Northern Lights scheme in Norway. But given that CCS itself is ineligible and that it is the most expensive part of the value chain, the process of scaling it up looks to be an uphill battle. The logic is rather simple: carbon capture technology traps a majority of the carbon dioxide emitted by, for example, factories and those emissions are then stored underground or recycled into transport fuels. But mature CCS projects are thin on the ground and past attempts by the EU to boost the technology’s rollout have fallen flat. Steep costs and troubles linked to de-risking the projects have stunted efforts to scale up. An in-depth report by the EU’s Court of Auditors in 2018 found that CCS schemes launched between 2008 and 2017 were largely ineffective, due to lack of coordination and long-term planning that scared away investors. Abatement costs are still well in excess of €100 per tonne of CO2 and are even greater for technologies like direct air capture, which literally sucks carbon dioxide out of the air. Pollution permits under the EU’s carbon market may have reached record highs of around €50—making decarbonisation schemes more attractive—but the price gap is still too vast for most investors to make the CCS bet. The question filling the hallways of Brussels now is whether to maintain the TEN-E regulation’s status quo, increase its scope to back CCS or give up on the technology completely in order to focus on other decarbonisation options.
UNDER REVIEW
According to the European Commission’s initial plan—which must be scrutinised and secure the approval of both the European Council and the European Parliament—CO2 pipes should remain eligible for funding as “there was limited evidence to remove CO2 networks” from contention. But public consultations concluded that there was “rather low support” for including actual capture and storage facilities within the scope of the law. Members of the European Parliament are now divided over what to do next. The energy committee will vote before the summer on its negotiating position, before a full sitting of MEPs get their chance to weigh in. The Greens are in favour of stripping CCS from the legislation completely, as they consider it a “false solution”, which will hoover up financing from other technologies such as renewable hydrogen and allow energy majors to continue extracting fossil fuels. French lawmaker Marie Toussaint says “investing in CCS today avoids real solutions, namely reducing emissions at their source and developing energy efficiency”, adding that pipelines should not qualify either because CO2 is neither an energy source nor an energy carrier. Claudia Gamon, a liberal MEP, also strikes a cautious tone when it comes to carbon capture. If countries “decide to introduce CO2 pipeline infrastructure, there should be sensible regulation surrounding it. Limiting this to industry would be one of the possibilities but we’re just at the start of this debate,” she says.
INTENSIVE INDUSTRIES
For cleaning up emitting industries like the cement and chemical sectors, both of which involve processes that are difficult or even impossible to electrify fully, CCS is seen as a potential option. But regulators and politicians are keen not to give the energy sector a blank cheque to keep using fossil fuels or carbon-emitting processes by strapping carbon-capture to gas or coal power plants. Much of the European Parliament and Council infighting will therefore centre on how to define CCS usage. Kristian Ruby, of electricity industry association Eurelectric, is clear that funding should be ring-fenced for electrification. “The key priority of the TEN-E regulation should be to build out and reinforce Europe’s electricity infrastructure,” he says. CCS has its champions though, notably in the European Peoples’ Party, the largest group in the Parliament. Tom Berendsen, a Dutch centre-right MEP, says that without the technology, “it will become very difficult to meet the goals of the Paris Agreement”. Berendsen insists that “recognising the whole value chain in TEN-E would foster the deployment of CCS at a larger scale, which we need to realise our 2030 and 2050 goals.” His proposed law amendments not only push for geological storage to be funded but also transport methods such as ships, trucks and trains, which could be used to move captured CO2 to storage sites, without the need to build or convert pipelines. Currently, plans for large-scale carbon-capture facilities—such as at the Port of Rotterdam and at a cement plant in Norway—are focussed on Europe’s coastline, as this provides easier access to depleted gas shelves offshore, where CO2 can theoretically be injected and stored. But large parts of Europe’s industry is located inland, so CCS planning will have to take into account storage or processing options. That is where pipelines and other forms of transport come in. Bellona Europe, a climate group, is also in favour of EU support for CCS. Jonas Helseth, from the NGO, insists that “more flexible modes of transport are needed to enable small and medium size emitters to start investing and scaling up capture.” “For many smaller industrial sites, ship or even train transport of CO2 may be a far more cost-efficient option” than pipelines, which will be better suited to industrial cluster sites like the Port of Rotterdam, says Helseth.
TECHNICAL QUESTIONS
Clearly, CCS is a divisive topic across member states. Austria and France still ban the practice, which will affect negotiations within the European Council. France in particular would rather see public money spent on producing hydrogen. Fundamentally, however, there is still no general acceptance about the technology’s effectiveness, with ongoing concerns about leaks at the capture site, during transportation and from the storage site. Silvia Pastorelli, from Greenpeace Europe, an environmental organisation, says that “CCS is basically still unproven on a large scale and has failed to deliver for decades despite the very substantial funding poured into it.” Bellona’s Helseth, meanwhile, acknowledges that “no geologist will ever say there’s a zero chance of leaks” but adds that “the risks are extremely minor in a well-planned project. Oil and gas reservoirs have kept fossil fuels locked up for millions of years.” He also makes the point that “the way things are currently going, we have 100% leakage of CO2, as we are dumping it all in our atmosphere.” According to Carsten Riisberg Lund, a top executive at FLSmidth, a Danish multinational active in the mining and cement industries, CCS will have to be developed this decade in order for climate goals to be met. “The major challenge is not a technical challenge. The technology has been around for years and years. The main challenge is financial de-risking and securing government support, which is crucial,” Lund says.
CHICKEN AND EGG
For some industry players, there is a degree of a chicken-and-egg situation with CCS. Investments are difficult to justify because there is no cost-effective way to transport or use the captured CO2 and vice-versa. Lund points out that some of “the quickest wins will be if we have a sort of symbiosis between, for example, a cement plant and a user, like a Power-to-X provider. Circular economy in this case is very important.” The chicken-and-egg dynamic has also plagued the rollout of electric vehicles, which need adequate charging network coverage to convince motorists to ditch combustion engines for batteries. EU targets and funding have helped slowly convince carmaker giants like Volkswagen that betting big on electric is the way forward. TEN-E’s review might even accelerate transport’s shift towards electrification. Pascal Canfin, MEP and the head of the Parliament’s influential environment committee, says work is underway to open up even more funding avenues for charging networks by tweaking the law. “You can easily argue, and this is a growing position in the Parliament, that chargers are both mobility and energy infrastructure. We will very likely have a majority to incorporate the financing of them into TEN-E, in order to have access to other funds,” says Canfin. The move could indirectly open the door for CCS, as sources within the centre-right political group suggest that a tit-for-tat trade-off could happen during the Parliament’s in-house negotiations.
MONEY MATTERS
The TEN-E regulation draws financial firepower from various sources, including the EU’s overall budget and the EIB. Caps on financing mean that projects need additional money to be completed but the regulation still serves a crucial purpose. According to Bellona’s Helseth, the inclusion of CCS helps to add a “cross-border aspect to industrial decarbonisation and provide EU ownership to it”. “At the end of the day, if the EU does not provide industry across Europe with fair access to CO2 storage, climate ambition risks undermining the working of the single market,” he adds. The EIB includes CCS under its updated lending policy but financing has so far been largely limited to impact assessments and small scale demonstrators but the bank is open to upping its involvement. Andrew McDowell, the former head of energy policy at EIB, said during his mandate that “CCS is going to be a big part of our business”. However, the lender is still wrangling with issues like liability insurance for issues like leaks, which the EIB has no practical experience in managing.
NATIONAL PROGRESS
Governments are pressing ahead with investments into CCS despite the EU and its institutions’ limited progress in bringing it into the energy transition fold. The Netherlands and Norway are among the most enthusiastic supporters to date. Earlier in May, the Dutch government reportedly approved €2 billion in subsidies for carbon capture at the Port of Rotterdam, which will compensate the companies involved for the extra associated costs. It will likely provide a litmus test for the EU’s climate policies, as large-scale subsidies need to be given the great light by the bloc’s competition regulator. Last year, Norway shelled out more than €2 billion to scale up CCS at a cement plant and a waste-to-energy facility, in what is the biggest tranche of state aid ever approved by the European Free Trade Association. The financing covers 80% of the project and partnerships have started to be signed, meaning that final commissioning should take place at the beginning of 2024 on the cement plant. Europe is far from alone in mulling the CCS question. US President Joe Biden included a tailor-made tax credit in his American Jobs Plan initiative, which would reward carbon capture pioneers. The perks will not be enough to completely eliminate the costs linked to scaling the technology up but will have a substantial impact on debt repayments and de-risking project investments, if it is retained in the final agreement. It is expected to garner bipartisan support. A final factor in CCS’s favour is that the EU is targeting negative emissions after its net-zero target is met by 2050. Unless forests and peatlands undergo a substantial renaissance by then, carbon-capture will likely be the only way to achieve that. Planning for that eventuality will have to happen now if Europe is to succeed and attract the huge investments that are needed and make CCS a viable decarbonising tool.
TEXT Sam Morgan