EU to have third attempt at financing CO2 storage

The 'Innovation Fund' will be deployed to give an incentive to companies to develop new energy technologies, which should help the EU reach its long-term climate goals.

It is part of the reform of the emissions trading system (ETS) on which MEPs will vote on Tuesday.

The size of the fund will not be known until after the new ETS period kicks in, in 2021.

The fund will be filled with the revenue of sales of at least 400m ETS credits, which certain companies need to buy to be permitted to pollute.

However, it is impossible to predict the price of these credits beforehand.

The past six months, the price of a tonne of CO2 has increased from around €5 to €9. At current prices, 400m of ETS credits translates into roughly €3.6bn.

It is a successor to a previous fund, called NER300, which has some €436m left over. That money will be transferred to the Innovation Fund.

Several factors, including the financial crisis, made it difficult for NER300 projects to find the required co-financing from other non-EU means.

In particular projects developing the CCS technique, which prevents release into the atmosphere of the climate-changing CO2 gases, proved difficult to finance.

In the end, not a single CCS project was funded through NER300.

"The carbon capture and storage side of it was disappointing," said Jonathan Taylor, vice-president of the European Investment Bank (EIB) in charge of climate action.

The EIB was in charge of assessing whether a proposed project could be funded through NER300, and will be in charge of the Innovation Fund.

"I would hope we can do more with CCS. If you look at the IEA projections, a certain amount of CCS is assumed. So far, it's fallen well short of those expectations," Taylor told EUobserver in an interview recently.

The International Energy Agency (IEA) has said in its forecasts that widespread use of CCS is essential to keep the rise in the world's average temperature at manageable levels.

All projects failed

EU countries have been unable to fulfil their 2007 promise that there should be twelve CCS installations up and running in the EU by 2015. They made €1bn available for a European Energy Programme for Recovery, but in the end all of the proposed CCS projects folded.

The EIB's Taylor said he was optimistic that the new fund would be able to finance more CCS projects, but noted that CCS uptake had been slow all over the world.

"There are probably a lot of reasons behind that, many of which may not have a particular bearing on the availability or otherwise of European money from different funds," he said.

"I wouldn't really want to speculate as to whether or not there would be the same problems, or whether those problems will have been overcome, because they seem to be largely problems which are external to the existence of funds."

John Scowcroft, Europe adviser at the Global CCS Institute, said there had been positive changes in the design of the follow-up fund and that it will push for more commercial roll-out of CCS projects.

"The proposed Innovation Fund shows policy-makers have learnt from the inadequacies and rigidity of the NER300," he said in an emailed statement.

"It's great to see that the Innovation Fund has broadened its scope to include low-carbon innovation technologies for industrial production sectors. The financing modes seem to be more flexible this time around," said Scowcroft.

Another lobby group supporting CCS, Bellona, also said the new fund was an improvement.

However, its director Jonas Helseth noted that the actual criteria are not yet known.

The directive on which MEPs will vote on Tuesday, which reforms the EU's emissions trading system (ETS), only includes general provisions about the Innovation Fund.

Negotiators for the parliament, commission, and member states agreed that the details will be decided later, in a so-called delegated act.

"It was the previous NER300 implementing decision that created many of the barriers for CCS projects and without substantial improvements here the bankability of innovation funding and prospects for CCS projects may be unlikely to change," said Helseth.

One change compared to NER300 is that also carbon capture and use (CCU) projects are eligible. CCU treats CO2 as a resource, but there are doubts about how climate-friendly it can be.

Adoption of the delegated act is planned for the first three months of 2018, but could still be delayed.