Promoting CCU in Europe: Thinking Beyond ETS

This blog was coauthored by Jeroen de Beer, Tom Berg, and Lucie Pfaltzgraff

The Role for CCUS in the Green Deal

Avoiding climate change is still high on the agendas of governments and corporations worldwide. There are encouraging signs that COVID-19 economic stimulus packages can focus on building back better, using economic recovery toward a more sustainable society. Ursula von der Leyen, president of the European Commission, said that “[the EU recovery plan] turns the immense challenge we face into an opportunity, not only by supporting the recovery but also by investing in our future: the European Green Deal and digitalization.” 

Among other items, the Green Deal aims to achieve net-zero carbon emissions by 2050 and to create a circular economy by reducing and reusing waste.

For both aims, carbon capture, utilization, and storage (CCUS) technologies are likely going to be part of the solution. CCUS consists of technologies that capture carbon from industrial processes or the atmosphere and recycle and reuse or permanently store it. CCU will be critical for achieving a net-zero carbon emissions world, as carbon will remain an important building block for many materials.

Only CCS Is Recognized Under EU ETS Today

EU ETS (Emission Trading System) is an increasingly effective market mechanism to drive industrial decarbonization. Whereas emissions reduced by CCS are recognized under ETS, CCU is not. Most CCU processes do not permanently sequester carbon dioxide but use it to avoid emissions elsewhere. 

If CCU is recognized under ETS, harmonized life cycle assessments (LCAs) combined with appropriate monitoring protocols will be needed. As ETS was designed to reduce point-source emissions, the mechanism is less suited to track emissions over a CCU product life cycle. Including LCAs in monitoring protocols would make the ETS more complex and costly. Without those, only CCU processes that permanently sequester carbon dioxide could be stimulated under the ETS. 

Government Support for CCU

CCU-based products will be more expensive compared to their fossil fuel counterparts in the foreseeable future. CCU will need policy support to fulfill its role. But with CCU technologies being such a heterogenous group, support mechanisms will come in different forms. 

The market introduction of CCU products can be pushed by financial support schemes. The Innovation Fund is used to support the scale-up of technologies with promising markets that support emissions reduction in industry. Contracts for Difference (CfD) compensates the difference between the CCU costs and the market price of an alternative and gives OPEX protection from a volatile market. The Dutch SDE+ is a variation of a CfD scheme. Market players bidding for the lowest subsidy per metric ton of carbon avoided are offered a 15-year guaranteed market price.

The demand for CCU products also can be promoted, for example, by introducing Guarantees of Origin certificates. A certificate proving the origin of carbon in a product creates a green market, similar to green electricity certificates. Another option includes the use of a carbon tax to render fossil fuel-based alternatives more expensive. This measure would disadvantage the use of fossil fuel resources and benefit the use of recycled carbon dioxide.

Given the multitude of CCU technologies and markets, a hybrid of support schemes will be necessary. Challenges must be solved, like the complexity of monitoring emissions over the product’s life cycle.

Corporations Can Prepare for a Role in CCU Markets 

Climate policies will evolve over time and will include CCU. Corporations should start to introduce CCU products to market and determine how their business fits a net-zero emissions scenario. Fossil-intensive products do not fit in a net-zero emissions society, but certain demand for carbon-based products will remain. Companies acting now can seize these new markets, ensuring business and continuing to serve their customers in working toward a net-zero and circular economy by 2050.