EU to fund carbon capture with 300m emissions allowances

Brussels, 4 February: EU member states have agreed to distribute 300 million carbon allowances from the bloc’s emissions trading scheme (ETS) to fund renewable energy and carbon capture and storage (CCS) projects from 2013.

This would amount to around €3.9 billion ($5.4 billion) at the current market price of about €13 per tonne of carbon dioxide (CO2), but the sum could increase significantly if the price of carbon rises.

The allowances will be allocated from the ETS’ new entrants’ reserve – a quantity of allowances set aside for newly built installations.

The EU climate change committee agreed funds should be awarded in two stages: the first awarded by the end of December 2011 will offer 200 million allowances to fund eight CCS demonstration projects and one project from each of the 34 renewables sub-categories. Decisions for the second round of 100 million allowances will be made by 31 December 2013.

The committee insisted that the CCS projects in the first call should include at least three with hydrocarbon reservoir storage and at least three with saline aquifer storage. It also noted that more projects may be financed if there are sufficient resources, as long as a balance is maintained between CCS and renewables projects.

The funds should be spread around the EU, with at least one project, but no more than three, per member state, said the committee, adding that the most cost-effective projects should be selected unless “a marginal decrease in cost-effectiveness is offset by a substantial reduction in total cost”.

Financing should be reserved for projects which make use of “innovative technologies” that are “not yet commercially available, but sufficiently mature to be ready for demonstration at pre-commercial scale”, said the draft decision. They should also be advanced enough so that “no significant problems” are faced when projects are scaled up, be easy to replicate and offer “significant prospects for cost-effective CO2 reduction” in the EU and globally.

Since most projects will be co-financed by member states, the committee argued it was only fair for them to decide which projects to submit to the Commission for final selection. Moreover, it agreed that the European Investment Bank, with its “expertise in project selection and financing”, should help Brussels identify projects, performing an assessment of the financial and technical viability of a project.

The draft decision will now go to the European Parliament and the Council of Ministers for scrutiny. If no objections are raised, the Commission should adopt the text in May.