Carbon capture, utilisation and storage (CCUS): what is the EU’s plan?

Carbon capture captures the imagination. Industries which may find it hard to decarbonise, even in the long term, have for years held up the technology as a silver bullet to neutralise their emissions, while critics have lambasted it as an attempt to distract attention from other efforts to reduce emissions. The EU is now increasingly turning its attention to carbon capture, utilisation and storage (CCUS) to achieve its climate goals.

On 6 February, the European Commission presented an Industrial Carbon Management Strategy, which outlines upcoming EU actions relating to CC(U)S. A perfect moment to take a look at carbon capture in a European context: what is the current legislative landscape? What is in the new strategy? And what does it mean for businesses? But let’s first take one step back: what is carbon capture, exactly?

What is carbon capture, utilisation and storage (CCUS)?

Carbon capture is a catch-all term for technologies that – simply put – take carbon dioxide out of the atmosphere and store them. The CO₂ can then either be used (carbon capture utilisation, CCU) or stored (carbon capture storage, CCS). The process is most often used at large sources of CO₂ emissions: think of large industrial facilities using fossil fuels or biomass, or power generators.

Carbon capture technologies are especially important for hard-to-abate sectors; industries which face more difficulty in decarbonising but which will also continue to be necessary in the energy transition. Think of cement, steel, or chemicals.

 

Capturing carbon

Currently, most carbon capture projects use a liquid to chemically separate the CO₂ from the other gases before they are released from the smokestacks of a factory, yielding almost pure carbon. The captured CO₂ gas is then pressurised and becomes liquid-like, making it transport-ready. Captured CO₂ is transported most efficiently through a pipeline, but transport can also be done with ships or trucks.

Another, newer, way to capture carbon is through a technology known as Direct Air Capture (DAC). As the name indicates, DAC removes carbon dioxide from the air directly, as opposed to directly from industrial sources. The technology does so through a series of chemical reactions which extract CO₂ from the air while returning the rest to the environment – a similar process to how natural carbon sinks such as trees and plants function. Since DAC does not have to be directly linked to CO₂ emissions from an industrial plant, the technology can remove CO₂ from the atmosphere, generating negative emissions.

Bioenergy with carbon capture and storage (BECCS) is another way to capture (and store – more on that later) carbon. This technology involves capturing and using or storing CO₂ from processes where biomass is used as a fuel to generate energy. Since plants are already natural carbon sinks, BECCS should ensure that the entire process reduces the total amount of CO₂ emissions, again generating negative emissions.

 

Storing carbon

Once the carbon has been captured, it can be either stored (CCS) or used (CCU). Carbon storage already occurs naturally in carbon sinks – think of forests, peatlands or oceans. The CO₂ captured through carbon capture technology is usually injected into geological formations, for example in saline formations, unused natural gas reserves or coal mines. In Europe, the North Sea seabed is a formation well-suited for carbon storage. Once stored, CO₂ should remain there for an extremely long time: it is estimated that, with well-regulated storage, over 98% of injected CO₂ remains under the surface after 10,000 years. Key projects under development in Europe include Porthos off the Dutch shore and Bifrost in the Danish North Sea.

While, geologically, Europe has more than enough storage space, investing in transport and storage resources is capital-intensive. As a result, CCUS projects are now mainly concentrated around the North Sea, which could eventually lead to capacity constraints in Southern and Eastern Europe and to a need for high-volume CO₂ transport infrastructure.

 

Using carbon

CCU has a lot of, well, uses. Some examples:

• As fuels (e-fuels) – CCU fuels can be manufactured by using captured carbon mixed with hydrogen. Since the process uses CO₂ already used but not emitted in manufacturing and then releases around the same amount when the fuel is burned, e-fuels can reduce emissions from (for example) transport.
• In materials, for example by storing captured carbon in bricks or tiles used in construction.
• In chemical products, by using captured carbon in the production process of i.e. plastics or pharmaceuticals.

Carbon capture is not without controversy. Critics argue that carbon capture, utilisation and storage grants industries a licence to continue polluting while claiming to address emissions. There are also significant costs involved in the rollout of CCUS projects – costs which often render other clean energy options (such as wind and solar) more financially attractive. Advocates underline that CCUS is simply necessary to become climate-neutral, as hard-to-abate industries will still be there after 2050. What is clear, meanwhile, is that the EU foresees an important role for CCUS in reducing emissions. Let’s dive into the key policies.

Regulating carbon capture, utilisation and storage (CCUS): the current European context

CCS Directive and EU ETS

Market regulation of CCUS is a recent phenomenon and has so far only been targeted at CCS – but this is changing in view of the EU’s climate objectives. Transport and storage of CO₂ is regulated on an EU level through Directive 2009/31/EC (CCS Directive), which also establishes a permitting regime and defines the relationship between CCS and the EU’s Emissions Trading System (EU ETS) in terms of finance: captured and stored CO₂ is considered ‘not emitted’ and can thus help producers to save money on the EU’s carbon market, potentially (at least partly) offsetting the costs of deploying and developing the technology. Under the Directive, Member States are able to select their own areas where they permit CCS and have the right to fully opt out of allowing it on their territory. An implementation report was published in October 2023.

The 2021 revision of the EU ETS clarifies that CCS and permanently chemically bound CCU are fully exempted from the ETS. The European Commission will still adopt secondary legislation to clarify when CCU is considered to be permanently chemically bound. Negative emissions are currently not remunerated in the form of extra ETS allowances, but the European Commission will have to report by 2026 on how they could be accounted for and covered by emissions trading.

 

Stimulating investments

In late 2022, the European Commission presented a legislative proposal for an EU carbon removals certification framework – a key initiative following up on the Communication on Sustainable Carbon Cycles presented the year before. A political agreement on the text was reached on 20 February, although it still needs to be formally approved before the text can become law. The initiative concerns a voluntary certification framework which should help shore up the investment climate for carbon removal projects by ensuring that claims of carbon being removed from the air are legitimate.

The legislation contains an open definition of what carbon removals are (in line with the definition from the UN Intergovernmental Panel on Climate Change): “technologies, practices, and approaches that remove and durably store carbon dioxide from the atmosphere.” There is no reference to negative emissions, however. As long as CCS and CCU projects are in line with the definition, they can be certified as carbon removals projects, which should make them more attractive to investors. A CCU product needs to store CO₂ for at least 35 years to “durably store” CO₂ from the atmosphere, for example.

Beyond the certification framework, sustainable investment is generally regulated by the EU Taxonomy – the EU’s classification system setting out which projects can be considered sustainable, enabling investment towards those projects. CCS and CO₂ transport by themselves can be considered sustainable investments, as clarified in a delegated act. In addition, CCS can help align other activities with the Taxonomy criteria by reducing their emissions.

 

CCU fuels

The revision of the Renewable Energy Directive (RED III) contains a 5,5% aggregate target for the share of advanced biofuels (including recycled carbon fuels) and renewable fuels of non-biological origin (RFNBOs) to the transport sector by 2030. Further targets for the use of RFNBOs in the transport sector are set in FuelEU Maritime (for shipping) and ReFuelEU Aviation (for aviation). Thus, if CCU fuels fulfil the technical sustainability criteria to be considered an RFNBO or a recycled carbon fuel, they can contribute to these targets; the Fit for 55 targets should help demand for clean CCU fuels.

 

Supporting industry while decarbonising

The Net-Zero Industry Act (NZIA) was proposed by the European Commission in March 2023 and aims to support European green technologies amidst increasing competition from third countries such as the US and China. In the political agreement, reached on 6 February 2024, carbon capture and storage technologies are listed as “net-zero technologies” able to benefit from actions including faster permitting procedures.

In addition, the NZIA identifies the lack of CO₂ storage space as a key bottleneck for the rollout of carbon capture technologies. Therefore, the new law will set a binding target for storage: by 2030, the EU should have the capacity to annually inject 50 million tonnes of CO₂. Oil and gas producers will be required to make contributions to this target by investing in or developing CO₂ storage projects and will be penalised if they fail to do so.

With the European elections coming up, carbon capture, utilisation and storage thus forms part of a wider discussion: how do we keep our (heavy) industry and associated jobs in Europe, while at the same time decarbonising? CCUS sounds like the perfect solution – and the European Commission seems to agree, looking at initiatives such as the NZIA. At the same time, the technology is currently not commercially viable in most places in the EU. That means additional financial support may be needed.

Carbon capture projects can benefit from EU financial aid through the Innovation Fund and the Horizon Europe platform. Additionally, in response to the Russian invasion of Ukraine and the ensuing energy crisis, the EU adopted a Temporary Crisis and Transition Framework and an amendment to the General Block Exemption Regulation to ease and simplify state aid procedures for clean energy projects. Both initiatives make it easier for Member States to financially support CCUS projects.

The initiatives outlined above should demonstrate that the legislative framework for CCUS has been developing under the current Commission. Still, the need to decarbonise rapidly while also supporting industry renders the technology increasingly crucial to fulfilling the EU’s climate ambitions. We can thus expect an even bigger focus on CCUS during the next term of the EU institutions. The Commission took an important first step in February. 

 

A new strategy for carbon capture, utilisation and storage (CCUS)

On 6 February, the European Commission unveiled its Industrial Carbon Management Strategy, a Communication (and thus non-legislative) which sets out a framework with actions to boost CCUS technologies. The strategy was presented together with a roadmap towards a 2040 climate target, which underlines the importance the EU foresees for carbon capture in helping to reach that target (the Commission advocates for a 90% emissions reduction target).

 

Indicative targets

The strategy repeats the NZIA target of 50 million tonnes per year of CO₂ storage capacity in 2030, but also comes with further indicative targets: by 2040, the Commission argues that capturing around 280 million tonnes of CO₂ is necessary to reach a 90% emissions reduction. The strategy notes that by then, most carbon value chains in the EU’s single market should be economically viable. By 2050 – when the EU aims to be carbon-neutral – the EU should be able to store approximately 450 million tonnes of CO₂, capturing the remaining carbon from hard-to-abate industries.

 

What else is in the strategy?

The strategy outlines a framework with actions in four policy areas:

• Deployment of CO₂ transport infrastructure: the Commission intends to prepare a regulatory transport framework with EU-wide CO₂ transport infrastructure planning mechanisms, nominate European coordinators for the early development of infrastructure and establish emission accounting rules under the EU ETS and minimum standards for CO₂
• Carbon capture and storage: the Commission plans to set up guidance for project permitting processes and establish an atlas of potential storage sites. The Commission will also develop an aggregation platform for matching CO₂ suppliers with transport and storage operators and CO₂ off-takers.
• Carbon removals value chains: The Commission will assess how to provide incentives for carbon removals in existing EU legislation, develop support mechanisms for carbon removals and boost research funding on CCUS under Horizon Europe and the Innovation Fund.
• Carbon capture and utilisation: The Commission aims to promote sustainable carbon cycles in the industrial sector, among others through its biotech and biomanufacturing initiative to be presented on 20 March. In addition, the Commission will establish specific CCU roadmaps and establish a framework for tracking industrial carbon management activities.

In addition to the abovementioned policy measures, the Commission intends to create an enabling business environment for the industrial carbon value chain in the EU. Among others, it aims to do so by raising public awareness, investing in the clean transition, and cooperating on an international level.

As a Communication, the strategy will not need approval from the European Parliament and the Member States. It does, however, form an indication of future actions to be taken.

Moreover, for the first time, the Commission gives an indication of the amount of CO₂ that would need to be removed for the EU to reach its climate targets. The 450 million tonnes of CO₂ storage target for 2050 represents a significant step up from the 2030 target in twenty years’ time. This means that serious steps to stimulate CCUS will need to be taken in the coming years.

What does this mean for your business?

What is next, then, for CCUS in the EU? The new EU strategy as well as national developments (Germany unveiled its first carbon capture strategy in February, for example) make it clear that the technology has momentum. Still, the investment climate is not fully there yet. The actions outlined in the Industrial Carbon Management Strategy should help address issues in project rollout, although they are mostly actions the Commission can take unilaterally – further legislative action might still be required in the next term.

At the same time, with competitiveness being a major elections theme (read our elections report or our blog post on the elections for more information) and questions rising over which sectors should contribute to the Green Deal, carbon capture may just be the ideal middle ground to green industry. We can thus expect further legislative action to stimulate uptake if market-based solutions (such as those outlined in the new strategy) do not yield results fast enough.

What could this mean for EU policy regarding CCUS? We could see more targets being set, for example for specific CCU solutions such as in chemicals production or as targets for recycled content in specific products. Existing targets might also be scaled up or added to – for example for e-fuels. We might also see new legislation to further incentivise stakeholders to invest in opening up carbon storage space.

Implementation and review of climate policy will also be important for CCUS – the upcoming Commission will have to clarify whether negative emissions can generate additional EU ETS allowances, for example.

Finally, in the context of supporting industry, there may be a bigger focus on making CCUS technologies cost-effective. An option could be to frontload funding in programmes such as Horizon Europe to stimulate uptake. There should thus be a lot of opportunities for businesses to voice their needs on carbon capture policies in the next few years.

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