The German government was required to transpose the EU Carbon Capture and Storage Directive (2009/31/EC) into national law by June 25 2011. However, the fate of the resulting act on carbon capture and storage (CCS) is still uncertain. After intensive discussion, the Federal Council rejected the legislative proposal in September. The legislation was sent to the National Mediation Committee on October 26 for ongoing negotiations. However, despite multiple efforts, the committee has not reached a compromise between the different positions. Nevertheless, the fact that talks are continuing seems to indicate a general willingness for compromise among the parties involved.

The crucial subject of discussion is the so-called 'exit clause', which was included in the draft act at the insistence of the federal states of Niedersachsen and Schleswig-Holstein. In these states, local protests against onshore underground storage of carbon dioxide is especially intense. The exit clause enables individual states to prevent carbon storage in certain areas or even for the whole of their territory. If the federal states of Niedersachsen and Schleswig-Holstein were to make use of this clause, the CCS technology could be implemented only in Brandenburg, as other locations do not have suitable ground conditions for carbon storage. The federal state of Brandenburg has so far been the only site where a CCS plant has been in construction (for demonstration purposes). Brandenburg is generally in favour of the CCS law, which is also supported by the states of Sachsen and Hamburg. However, it rejects the exit clause as it does not want to be the only site in Germany where carbon storage is possible.

The delays in the adoption of the CCS legislation have far-reaching consequences and are placing pressure on the German government to find a solution:

  • Vattenfall, the developer of the proposed CCS demonstration plant, has now cancelled its plans and has entered into negotiations with the European Commission, which is seeking the recovery of European funds that were granted for this purpose.
  • The European Commission has already initiated infringement proceedings against Germany for failure to transpose the directive. If the German federation and the federal states fail to enact appropriate provisions on CCS, Germany could face the imposition of penalty payments in the near future.
  • Finally, the recently published draft of EU guidelines on state aid for the promotion of power plants refers to the readiness for CCS technology as one prerequisite for full funding. This means that until the Carbon Capture and Storage Act is passed, only limited state funding for power plants is likely to be allowed under EU law.

A recent statement by the secretary of state on economic issues suggested that one possible solution to the problem might be a complete prohibition of underground carbon storage in Germany.

The ongoing difficulties in finalising the future regulatory framework for CCS in Germany and the uncertainty this is causing have resulted in problems for operators and investors, which are unable to take forward their plans for CCS plants. This is also problematic for developers of traditional power plants, which have been left unsure of their future obligations in relation to carbon capture.

For further information on this topic please contact Mathias Elspass or Jutta Mues at Clifford Chance LLP by telephone (+49 211 4355 0), fax (+49 211 4355 5600) or email ([email protected] or [email protected]).