Enhancing Carbon Capture and Storage Deployment in the EU: A Sectoral Analysis of a Ton-Based Incentive Strategy

Abstract

The EU considers carbon capture and storage (CCS) technology as an option for achieving climate goals, but its cost remains appreciable. Therefore, the purpose of this research was to investigate the implementation of a ton-based incentive system for CCS in the EU using Croatia as an example based on an analysis of the existing legislative framework in the EU and relevant tax credit provisions in the USA. A novel methodology for the design of the incentive system is presented in the form of partial allocation of the state’s auction revenues from the EU emissions trading system (ETS) into the CCS fund for five years. The CCS fund assets then incentivize the capture site for 10 years. The incentives are determined for each emitter in cement, electricity, paper and pulp, glass, oil refining, and petrochemical sectors based on varying European Union allowance (EUA) prices, CCS fund sizes, and CO2 emission scenarios. In addition to designing the methodology, a novel method for forecasting CO2 emissions is applied using geometric Brownian motion. The calculated incentives are categorized as underperforming, optimal, or overperforming, with upper and lower limits set to 80 and 10 EUR/t. The results are optimistic, since all sectors can be efficiently incentivized within the defined boundaries, meaning that the incentive system can be applied to all member states. The contracting of the incentives is proposed through carbon contracts for difference to avoid irregularities. Also, regulatory amendments are proposed so that emitters with emissions higher than 100 kt would have to consider CCS. Finally, the contributions are presented by proving the feasibility of the incentive system together with demonstrating its applicability to all member states.