The climate change and renewable energy package includes a directive which provides a framework for carbon capture and storage in the EU (the CCS Directive) supporting CCS as an emissions reduction option.

The key provisions of the CCS Directive are:

  • the creation of a permit based CCS storage regime to be administered by Member States and the amendment of existing EU legislation which prohibits or inhibits CCS;
  • the establishment of a regime for operators holding permits to pass long-term liability for leakage from storage sites to the licensing Member State, provided certain hand-over criteria are met; and  
  • requirements for all new combustion plants in the EU built without CCS to have space for CCS equipment and to have carried out studies into the availability of storage sites and the feasibility of "retro-fitting" capture equipment.  

The package also provides for additional funding for CCS through its inclusion in the EU ETS and allocation of up to 300 million EU ETS allowances from the new entrant reserve to fund up to 12 CCS demonstration projects. Additional EU funding for demonstration projects was also announced earlier this year.

The new permit regime

The CCS Directive envisages two types of permit. The first is an exploration permit to allow the specified exploration works to be carried out and entitling the permit holder to explore the area covered by the permit for suitable geological formations on an exclusive basis. The second is a storage permit for the development and utilisation of geological formations within the permit area as storage sites for carbon dioxide, and allows the injection of carbon dioxide.

Rigorous criteria apply to storage permits

The criteria for the grant of a storage permit are rigorous and involve substantial site characterisation in order to assess its suitability for permanent storage. Applicants must also satisfy technical and financial requirements. As well as delineating the storage complex, storage permits will contain a number of important provisions including the requirements for operating the storage facility, the total quantity of carbon dioxide to be stored, the requirements with regard to the composition of the carbon dioxide stream and an approved monitoring plan.

Member States to issue permits with Commission oversight

Permits will be issued by the competent authority in each Member State. However, the Commission proposes to review and comment on each individual storage permit application before it is awarded and Member States will be obliged to take the Commission's comments into consideration.

Existing legal barriers are removed

The CCS Directive does much to remove the current prohibitions on CCS which exist under EU legislation. In particular, directives relating to the waste and ground water are amended to permit the injection of carbon dioxide into storage sites.

Operator's liability

EU ETS allowances must be surrendered for leakage

The CCS Directive includes provisions relating to liability for damage resulting from the leakage of carbon dioxide from a storage site, both in terms of damage to the local environment and the climate. With regard to the local environment, the CCS Directive applies the Environmental Liability Directive (2004/35/EC) to the storage of carbon dioxide to ensure the prevention and remedy of any damage by an operator of a storage facility. Liability for climate damage resulting from leakage will be covered by the inclusion of CCS in the revised EU ETS Directive so that EU ETS allowances will need to be surrendered for leaked emissions.

The CCS Directive requires the storage operator to take corrective measures to remedy any leakage, and the storage operator remains responsible for the storage site for as long as it represents a risk (even after closure), until the site is handed over to the competent authority of the relevant Member State.

Operator may be liable for costs post-handover

The relevant Member State is required to assume responsibility for storage sites in its territory from the point of handover. Once a handover has occurred, subject to an important caveat, there should be no further liability for the operator. Handover can only occur once:

  • all available evidence indicates that the carbon dioxide will be completely contained indefinitely;
  • a minimum post-closure period of 20 years has elapsed, unless the Member State is convinced that the carbon dioxide will be completely contained for the indefinite future; and  
  • the site has been sealed and the operator has made a financial contribution to the Member State for future liabilities (see below).  

The CCS Directive contains a provision stating that where there is fault on the part of the operator, including deficiencies in data, concealment of relevant information, negligence, wilful deceit or a failure to exercise due diligence, the competent authority may recover the costs incurred from the operator, even after the transfer of responsibility has taken place. This is a broad derogation from the principle of liability handover. How this is translated into national legislation will be of great interest to operators of storage facilities.

The form of financial security is a matter for each Member State

As part of the permitting regime, Member States may require operators to lodge financial security for their prospective liabilities before the injection of carbon dioxide into a storage facility commences. The scope of these liabilities and the form that the security will take is a matter for individual Member States to decide and will no doubt come under scrutiny when the CCS Directive is implemented at national level. In addition, Member States will be entitled to require a contribution from the operator to cover future liabilities as a condition of the handover of responsibility. Member States are permitted to set the level of this contribution subject to a minimum of not less than the cost of monitoring the site for 30 years post-closure.

CCS funding

Importantly to the development of CCS, the climate change and renewable energy package provides a legislative basis for funding CCS through the EU ETS. A number of additional funding initiatives have been recently announced.

CCS will be financially incentivised in the EU ETS

The EU ETS Directive provides that CCS will be financially incentivised through the EU ETS from Phase III (2013 – 2020) and Member States can opt-in for the inclusion of CCS in Phase II (2008 – 2012). As a result of the CCS Directive, carbon dioxide stored in geological formations will not be classed as 'emitted' for the purposes of the EU ETS so that credit is given to power stations with CCS technology which will not be required to surrender allowances for carbon dioxide which is stored.

Additional funding of CCS demonstration projects

Under the EU ETS Directive, 5% of the Community-wide quantity of Phase III allowances will be set aside for new entrants. Up to 300 million allowances of this new entrants reserve will be available, until 31 December 2015, to help stimulate the construction and operation of up to 12 commercial demonstration CCS projects as well as demonstration projects for innovative renewable energy technologies, dependent upon the verified avoidance of CO2 emissions.

Support for such projects will be provided via Member States and the mechanics of how and when such support will be made available are currently unclear. The EU has stated that projects should be selected on the basis of objective and transparent criteria, including a commitment to knowledge-sharing.

Additional funding for CCS projects in the EU Recovery Plan

On 20 March 2009, EU leaders agreed proposals for €5 billion of investment in energy and broadband infrastructure projects as part of the EU recovery plan. The €5 billion comes entirely from unspent money in the EU budget and a total of €1,050 million has been proposed for investment in five CCS demonstration projects. Under the plan Germany, the UK, Poland, the Netherlands and Spain will all receive €180 million each, Italy will receive €100 million and France will receive €50 million. 13 projects are shortlisted as funding candidates, among them Hatfield, Kingsnorth, Longannet and Tilbury in the UK, Eemshaven and Rotterdam in the Netherlands and Huerth and Jaenschwalde in Germany.

State Aid revised

Environmental State Aid Guidelines have been adopted as it is recognised that, in addition to the incentives from the carbon market, public funding may be required. On 8 April 2009, the European Commission announced that it has decided to approve UK aid for feasibility studies on carbon capture and storage demonstration projects. The Commission has concluded that the aid is proportionate to its objectives and that potential distortions of competition will be minimised by use of a competitive selection procedure.

Further announcements were made on 22 April in the UK's 2009 budget to support up to 4 new CCS demonstration projects – an extension from the original proposals for support for a single project.

Mandatory CCS requirements

Whilst stopping short of compulsory CCS for new power plants, there are requirements on the operators of all new combustion plants in the EU with a capacity in excess of 300MW which are built without CCS capabilities to have assessed whether suitable storage sites are available, whether transport facilities are technically and economically feasible and whether it is technically and economically feasible to retrofit the plant for carbon dioxide capture. The relevant competent authority in the Member State should also ensure that the operator has secured suitable space on the site for the installation of equipment necessary to capture and compress carbon dioxide.