Bellona shares its vision for the design of the Innovation Fund

Publish date: March 17, 2015

On 23 October 2014, the European Council conclusions on the 2030 Climate and Energy Package confirmed EU leaders’ commitment to CO2 Capture and Storage (CCS) with an explicit reference to the technology. What is more, EU Member States have agreed to increase funding dedicated to CCS demonstration projects after 2020 under a new, extended NER300 programme, the so-called innovation fund. Bellona submitted its response to the EC-conducted consultation on the revision of the ETS Directive, with a focus on the modalities governing the envisaged innovation fund.

The IPCC’s 5th Assessment Report (5AR) makes clear the necessity of Carbon Capture and Storage (CCS) and negative emissions, attained via Bio-CCS, in halting global average temperature rise below 2°C. Moreover, the 5AR warns that the exclusion of this technology from the mitigation portfolio would entail abatement costs more than doubling. Bellona, therefore, sees the establishment of an innovation fund (i.e. NER400) available to both the power and industrial sectors as an important step in the right direction.

The fund should be established as early as possible in order to ensure continuity of funding to crucial climate technologies, such as CCS. This is to be achieved either through a prolongation of the current NER300, the possibility of recycling remaining funds for a third call under the current NER300, or through the creation of a ‘bridge fund’ between the two funds.

The NER400 should build on lessons learnt from its predecessor, which has been marked by a distorted awarding process based on inadequate criteria and lack of transparency. Projects in the power sector should be assessed on the basis of generation of clean electricity. In the industry sector, assessment should be based on the production of a “clean” tonne of cement or steel for instance. Moreover, when assessing industrial CCS projects, the efficiency criteria should not only be based on thermal efficiency but also on CO2 reduction efficiency. Other key criteria to CCS projects should include storage and transport infrastructure developed; CCS hubs developed; CO2 emissions reduced; and job retention and creation potential of a given project.

The realisation of any single CCS project in the NER300 competition would have generated more low carbon electricity than all the innovative renewable generation projects awarded funds combined – and with less use of NER300 funds. On a project-by-project basis, CCS projects are also more capital-intensive than RES projects. Bellona therefore calls for at least 50% of the funds to be dedicated to CCS projects in order to ensure the timely deployment of this key climate mitigation technology.

The NER400 should be better protected against EUA price risk. This can be done thought the setting up of a ‘guarantee fund’ in cases where the EUA price falls below a minimum threshold – a determined ‘strike price’. The NER400 should also ensure both capex and opex are covered in order for CCS plants to be dispatched and first movers to be compensated for taking the lead in CCS deployment. Unlike the NER300, which caps EU funding per project to 50% of the eligible cost and limits the maximum funding per project at 15% of the total funding available, the NER400 should not cap maximum funding for CCS projects, or should at least set a higher cap for CCS than for RES projects. The EC should ensure the compatibility, and therefore possibility of accumulating funds from the NER400 and other sources of funding, including the Modernisation Fund.

The ETS Directive currently does not reward activities which go beyond zero and achieve negative emissions, as in the case of Bio-CCS. In the U.S. Bio-CCS is already being deployed at industrial scale. It is vital, however, that stringent biomass sustainability criteria are enforced alongside any reward mechanism for negative emissions so as to avoid increased use of limited biomass resources for power, fuels and other products.

Given the recognition by the 5AR of the IPCC of Bio-CCS as a crucial tool to remove excess CO2 from the atmosphere and reach the 2°C, this calls for a revision of the ETS Directive to ensure the rewarding of negative emissions. If negative emissions were rewarded, the EUA price, once high enough, could make Bio-CCS economically viable. Bellona therefore calls for a comprehensive study to be undertaken to find the most effective way to reward negative emissions (e.g. at production, use and/or storage stage). Moreover, Bellona calls for Bio-CCS projects to be granted priority treatment in the assessment process of innovation and modernisation funds. Finally, sustained efforts must be made to ensure a comprehensive and sustainable EU bioenergy policy is in place.

To read Bellona’s full response see here.


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