EU
EU policies on industrial decarbonisation
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Net zero target
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Further information: European Climate Law; 2030 Climate Target Plan; European Green Deal
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Key climate policies
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European Green Deal
The European Green Deal sets out ways to make Europe the first climate-neutral continent by 2050.
The European Green Deal:
- Provides a roadmap with actions to boost the efficient use of resources by moving to a clean, circular economy, revert biodiversity loss, cutting pollution and stopping climate change.
- Outlines the investments that are needed, financing tools which are available and explains ways to ensure a just and inclusive transition.
- Covers all sectors of the economy, notably transport, energy, agriculture, buildings, and industries such as steel, cement, ICT, textiles and chemicals.
At least 25% of the EU's long-term budget should be dedicated to climate action, and one of the world's main financiers of climate action, the European Investment Bank, will provide further support.
Further information: European Green Deal 2019
Net Zero Industry Act (proposed)
The Net-Zero Industry Act will create a simpler and more predictable legal framework for net-zero industries in the EU, as part of Europe’s Green Deal Industrial Plan. It will support the EU’s climate-neutrality commitment and the clean energy transition, strengthen the resilience of the EU’s energy system, and contribute to establishing a secure supply of clean energy in line with REPowerEU.
This legislation will help scale up net-zero technology manufacturing in the EU to provide at least 40% of the EU’s annual deployment needs for strategic net-zero technologies by 2030. CCS one of the 8 strategic net-zero technologies supported by this Act.
Further information: Net Zero Industry Act (proposed)
Green Deal Industrial Plan
In February 2023, the outline of the Green Deal Industrial Plan, the EU's plan to remain at the forefront of green technology, was published.
- A commitment to a new Net Zero Industry Act, which will set targets for industrial capacity in key low carbon sectors, reduce some permitting barriers to deployment of net zero industry and to set new standards to promote faster roll-out of low carbon technology.
- Increased flexibility on State Aid rules to allow Member States to eliminate the need for open tenders for less mature technologies, to allow aid to hydrogen, energy efficiency and electrification projects based on a percentage of investment costs, and to allow some low carbon projects to receive more support comparable with those available to similar projects in other markets, such as the US Member states may also be allowed to support new investments in net zero production facilities through tax credits and the overall threshold for State Aid approvals will be raised for hydrogen and CCS projects.
- Increased direct funding, including an additional EUR 20 billion for Member State to promote industrial decarbonisation. Member states will also be encouraged to use ETS revenue for hydrogen and CCS projects.
- Launching an auction for supporting the production of renewable hydrogen, with winners receiving a fixed premium for each kg of renewable hydrogen produced over the next 10 years.
Further information: The Green Deal Industrial Plan
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Carbon pricing
The EU Emissions Trading System (ETS)
The EU Emissions Trading System:
- Set up in 2005, is the world's first international emissions trading system.
- Operates in all EU countries plus Iceland, Liechtenstein and Norway.
- Limits emissions from around 10,000 installations in the power sector and manufacturing industry, as well as airlines operating between these countries.
- Covers around 40% of the EU's greenhouse gas emissions.
The EU ETS works on the 'cap and trade' principle. A cap is set on the total amount of certain greenhouse gases that can be emitted through the installations covered by the system. The cap is reduced over time so that total emissions fall. Within the cap, installations buy or receive emissions allowances, which they can trade with one another as needed.
After each year, an installation must surrender enough allowances to cover its emissions fully, otherwise, heavy fines are imposed. If an installation reduces its emissions, it can keep the spare allowances to cover its future needs or sell them to another installation that is short of allowances.
Trading brings flexibility which ensures emissions are cut where it is cheapest to do so. A robust carbon price also promotes investment in innovative, low-carbon technologies.
The EU ETS covers the following sectors and gases:
- Carbon dioxide (CO2) from
- electricity and heat generation,
- energy-intensive industry sectors including oil refineries, steel works, and production of iron, aluminium, metals, cement, lime, glass, ceramics, pulp, paper, cardboard, acids and bulk organic chemicals,
- commercial aviation within the European Economic Area.
- Nitrous oxide (N2O) from the production of nitric, adipic and glyoxylic acids and glyoxal;
- Perfluorocarbons (PFCs) from the production of aluminium.
The recent updates to the ETS agreed upon at the end of 2022 include:
- The agreement will reduce emissions from the EU ETS sectors by 62% by 2030 compared to 2005 – a substantial increase from the 43% targeted reduction under previous EU legislation
- In meeting that target, the speed of annual emissions reductions will also increase, from requiring 2.2% per year reductions under old legislation to 4.3% reductions per year from 2024 to 2027, and 4.4% annual reductions thereafter
- The Market Stability Reserve, which stabilises the carbon market by removing surplus allowances, will be strengthened by prolonging beyond 2023 the increased annual intake rate of allowances (24%) and setting a threshold of 400 million allowances.
- Free emission allowances will be phased out in certain sectors between 2026 and 2034, with the CBAM brought in instead to protect those sectors from carbon leakage (cement, aluminium, fertilisers, electric energy production, hydrogen, iron and steel, as well as some precursors and a limited number of downstream products). The free allowances will be phased-out at a slower rate at the beginning and an accelerated rate at the end of this period.
- For the first time, shipping emissions will be covered by the ETS. There will be a gradual introduction of obligations for shipping companies to surrender allowances: 40% for verified emissions from 2024, 70% for 2025 and 100% for 2026. The regulation will apply to most large vessels (over 5000 gross tonnages) from the start and will be phased in for smaller vessels.
- A new separate ETS will commence operation in 2027 to cover fuels used in road transport and heating buildings. The new system will apply to distributors that supply fuels to buildings, road transport and certain other sectors. Emissions will be expected to fall by 5.10% annually on introduction in 2024, and by 5.38% annually from 2028.
Further information: EU ETS, Fit for 55: reform of the EU emissions trading system
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Hydrogen strategy
Infrastructure for carbon capture and use of CO2 will be required to facilitate certain forms of low-carbon hydrogen such as fossil fuel-based hydrogen production with CCUS.
In view of the increased 2030 climate ambition, retrofitting of existing fossil-based hydrogen production with CCUS will continue to increase to reduce greenhouse gas emissions. Investments in retrofitting half of the existing plants with carbon capture and storage are estimated at around €11 billion.
Further information: EU Hydrogen Strategy
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Other policies
EU Strategy for Energy System Integration
The EU Strategy for Energy System Integration provides a framework for the green energy transition.
The current model of energy consumption in transport, industry, gas and buildings is happening in ‘silos’. Each with separate value chains, rules, infrastructure, planning and operations. This model cannot deliver climate neutrality by 2050 in a cost-efficient way. The changing costs of innovative solutions must be integrated into the way we operate our energy system. New links between sectors must be created and technological progress exploited.
The policies related to the CCUS industry are:
- CCS is likely to play a role in a climate neutral energy system. Carbon capture services can address hard-to-abate emissions in certain industrial processes. This will enable these industries to have a place in a climate neutral economy and maintain industrial jobs in Europe.
- If the stored CO2 is captured from biogenic sources or directly from the atmosphere, CCS could even compensate for residual emissions in other sectors.
- Demonstrate and scale up the capture of carbon for its use in the production of synthetic fuels through the Innovation Fund
Further information: EU Strategy for Energy System Integration
European Industrial Strategy
The new Industrial Strategy helps deliver on three key priorities:
- Maintain the European industry's global competitiveness and level playing field, at home and globally.
- Make Europe climate-neutral by 2050.
- Shape Europe's digital future.
The policies related to the CCUS industry are:
- Comprehensive measures to modernise and decarbonise energy-intensive industries.
- Clean Hydrogen Alliance to accelerate the decarbonisation of the industry.
- Renewed focus on innovation, investment and skills.
Further information: European Industrial Strategy
Funding
Funding opportunities
Innovation fund
- EUR 10 billion for low-carbon technologies
- The first call for large-scale projects had a budget of EUR 1 billion and the second call EUR 1.5 billion. The third call, launched in November 2022, will fund EUR 3 billion.
- The first call for small-scale projects had a budget of EUR 100 million and the second call for small-scale projects has a budget of EUR 100 million.
Further information: Innovation Fund; European Green Deal Investment Plan
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