Financing of CCS Demonstration Projects – State Aid, EEPR and NER Funding – An EU and EEA Perspective

Abstract

The EU’s environmental commitment is firmly stated in Article 191 TFEU (ex Article 174 TEC) Establishing a high level of protection precautionary principle and that the polluter should pay. This was i.a. followed up by recognition by European Council of 8 and 9 March 2007 of vital importance of achieving strategic objective of limiting global average temperature increase to not more than 2 degrees C above pre-industrial levels. It was also made an independent commitment on part of EU to achieve at least a 20% reduction in greenhouse gas emissions by 2020 compared to 1990 The European Council further adopted an Energy policy for Europe (EPE). As part of EPE Member States and European Commission (Commission) were urged to work towards developing necessary technical, economic and regulatory framework to bring environmentally safe capture and sequestration storage (CCS) to deployment with new fossil-fuel power plants, if possible by 2020. In this connection European Council welcomed intention of Commission to establish a mechanism to stimulate construction and operation by 2015 of up to 12 CCS demonstration plants. As from this European Council one may say that CCS became an important element in achieving committed to goal of 20% reduction of greenhouse gas emissions. In Norway, coalition government and most of opposition parties entered into a Climate agreement on 17 January 2008, based on Government’s recommendation of 22 June 2007. Here broad lines of Norway’s climate policy in coming years were drawn up. This included i.a. that Norway was to become carbon neutral by 2030 reducing emission of greenhouse gases of 15-17 million tons CO2 equivalents by 2020 including effect of forests. This implies that 2 3 of Norway’s total emission reduction is to take place in Norway. Norway is to actively participate in international climate negotiations, based on goal of a reduction of global temperature increase of less than 2 degrees C, compared to pre-industry level. It was further agreed to launch a CCS action plan. In Council’s conclusions on EU relations with EFTA countries of 14 December 2010 it is i.a. noted that cooperation between Norway and EU on environmental and climate change matters continues to be good. In spite of general positive attitude towards applying state aid to CCS demonstration projects, Norway, as an EEA Member state, was first state to commit state aid to CCS demonstration projects. In October 2010 Commission authorised Netherlands to provide State aid of EURO 150 million to a CCS project in Rotterdam. There are clear indications that several EU Member states are prepared to allocate state funds to CCS demonstration projects. The dependency on CCS, urgency of establishing CCS demonstration projects and a recognised market failure as regards investments in such projects, create a pressure both on EU and EU funds and on EU and EEA Member states to provide funding. The EU has not limited itself to stating its favourable attitude towards state aid to CCS demonstration projects, but has launched primarily two projects facilitating financing of such projects. These are European Energy Programme for Recovery (EEPR) with total funds of initially Euro 1,050 billion for CCS demonstration projects and New Entrants Reserve (NER) providing for 300 million allowances being available partly for CCS, partly for renewable energy, demonstration projects. This article will describe and assess divergent objectives and different conditions for obtaining financial support from state aid according to Article 107 (3) (b) and (c) TFEU Article 61 EEA, EEPR and NER funding. The interplay and possibility of cumulation of different sources of financing, question of a minimum financial commitment from operator and possible required results concerning captured CO2 will be given special attention. The analysis attempts to answer to question whether total available aid addresses market failure in a cost-efficient way, without unduly distorting competition and trade. This article was updated on 18 March 2011.