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International Journal of Greenhouse Gas Control 19 (2013) 19–25

Contents lists available at ScienceDirect

International Journal of Greenhouse Gas Control

j ourna l h o mepage: www.elsev ier .com/ locate / i jggc

ER300: Lessons learnt in attempting to secure CCS projects in Europe

onica Lupion ∗, Howard J. Herzogassachusetts Institute of Technology, Cambridge, MA 02139-04307, USA

r t i c l e i n f o

rticle history:eceived 25 April 2013eceived in revised form 5 August 2013ccepted 14 August 2013vailable online 13 September 2013

eywords:ER300EPRemonstration projects

a b s t r a c t

CO2 Capture and Storage (CCS) has become an integral and priority part of European energy policy overthe last years. However, CCS is not a feasible climate change mitigation option yet. In order to bringthe technology towards reduced costs and to make CCS an economically viable mitigation option, theEuropean Commission created a comprehensive demonstration programme aimed to encourage devel-opment and accelerate commercial CCS deployment. The goal was to have up to 12 CCS demonstrationprojects by 2015.

This is far away from reality today. Despite the tremendous effort, the two major European CCS funds– the European Energy Programme for Recovery and more recently the New Entrants Reserve of theEU Emissions Trading Scheme Programme (NER300) – are struggling to secure a single demonstration

uropean CCS programme project to move forward.Originally intended as a CCS instrument, the NER300 first round published on November 2010 has

been followed with great expectation by CCS community. However, in December 2012 the Commissionannounced that not one CCS project was awarded.

This paper reviews the NER300 process, analyses the reasons for the programme’s lack of success insecuring CCS demonstration projects, and distills the lessons learnt.

. Introduction

Over the last years the European Union (EU) has put significantfforts in the construction of a comprehensive EU energy policyased on competitiveness, sustainability and security of supply.ith the ambitious target of reducing greenhouse gas emissions

o 80–95% below 1990 levels by 2050 (European Council, 2009), EUolicies and measures aim to transform the European energy sys-em, with considerable motivation for Carbon Capture and StorageCCS) to play a major role in decarbonisation process.

The European Commission (EC) recently analysed the implica-ions of this in its Roadmap for moving to a competitive low-carbonconomy in 2050 (European Commission, 2011c). The Energy 2020oals and the Energy 2020 strategy proposed by the Commissionith 20-20-20 by 2020 goals (20% reduction in greenhouse gas emis-

ions below 1990 levels, 20% share of renewables in the final energyonsumption, and reduction in primary energy use to 20% belowhe baseline projection for 2020) are still insufficient to achieve

he EU’s 2050 decarbonisation objective (European Commission,008a, 2010c, 2011b; European Council, 2007).

∗ Corresponding author. Tel.: +1 617 253 0688; fax: +1 617 253 8013.E-mail addresses: mlupion@mit.edu, monicalupion@hotmail.com,

lupion@etsi.us.es (M. Lupion).

750-5836/$ – see front matter © 2013 Elsevier Ltd. All rights reserved.ttp://dx.doi.org/10.1016/j.ijggc.2013.08.009

© 2013 Elsevier Ltd. All rights reserved.

The Energy Roadmap 2050 explores routes towards decarbon-isation of the energy system and challenges posed by deliveringthe ambitious EU’s decarbonisation objective. A number of scenar-ios to achieve an 80% reduction in greenhouse gas emissions havebeen examined. CCS appears as a pivotal role in the energy sys-tem transformation, with a particularly strong contribution of upto 32% in power generation in the case of constrained nuclear pro-duction, and shares between 19% and 24% in other scenarios, withthe exception of the high renewables scenario. To make such a con-tribution, CCS would apply to all coal and gas power plants by 2030,and around half of the EU’s heavy industry (European Commission,2011e).

The EU has just confirmed in its recent Communication on theFuture of Carbon Capture and Storage in Europe the essential roleof CCS as a technology able to significantly reduce CO2 emissionsfrom the use of fossil fuels in both the power and industrial sectors(European Commission, 2013b).

However, CCS is not an economically viable climate changemitigation option yet. The European Commission has put inpractice specific actions towards undertaking a Europe-wide pro-gramme of CCS demonstration projects that can bring down thetechnology costs, and to make CCS a feasible and economically

mitigation option in the long term. This is required to enablecommercial deployment in the period 2020–2030, contributingto reaching EU’s decarbonisation objective before CCS is marketdriven.

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The Green Paper, A European Strategy for Sustainable, Compet-tive and Secure Energy, published in 2006 was the first step toecognise the potential of CCS as near zero emission technol-gy, as well as recognising the need of stimulus to create theecessary economic and legal certainty to incentivise the develop-ent of CCS. Since then, all actions related to CCS and designed

y the European Commission follow these principles (Europeanommission, 2006).

In January 2007, the Commission issued the first EU Energyction Plan which was endorsed by the European Council in March007 (European Commission, 2007a). European leaders agreed thathe EU should aim to have up to 12 CCS demonstration projects by015 (European Council, 2007). This was the first initiative of itsind to unite public and private efforts towards the common goalf achieving the deployment of CCS by 2020. In November 2007,he Commission presented the EU Strategic Energy Technology PlanSET-Plan), which recognises the demonstration of the use of CCSn fossil fuels-based power generation as one of the 10 key tech-ology areas on which European technology development should

ocus (European Commission, 2007b). This would ensure the EU’slimate objectives towards a secured low-carbon economy, andhe development into commercial opportunities for businesses andew high-skilled jobs in Europe.

The Commission proposed in January 2008, as part of the Energynd Climate package, the legal framework for CO2 capture and stor-ge technology. An action plan to strengthen EU energy securityas also put forward in the Second Strategic Energy Review which

ntroduced the perspective of low carbon economy to be achievedy 2050 (European Commission, 2008b).

To speed up and secure investments in infrastructure and tech-ology development in the energy sector, the European Energyrogramme for Recovery (EEPR) was agreed in July 2009 (Europeanommission, 2009c). The EEPR allocated D 4b to co-finance projects,iming to make energy supplies more reliable while simultaneouslyoosting Europe’s economic recovery and reducing greenhousemissions. The funds covered 3 broad fields, with financial supporto 44 gas and electricity infrastructure projects, 9 offshore windrojects and 6 CCS projects.

In order to provide complementary financing, CCS was includedn the scope of the revised Emissions Trading System (ETS) Direc-ive. It ensures that stored CO2 is not regarded as emitted androvides a financial incentive for CCS. The Directive covers 300 mil-

ion allowances from the New Entrants Reserve (NER) of the EUmissions Trading System as part of the scheme for greenhouseas emission allowance trading (NER300 funding programme).ommercial-scale CCS and innovative renewable energy technolo-ies (RES) demonstration projects in the European Union shall beupported under the NER300 programme (European Commission,009a).

With 6 large-scale projects underway co-funded under the EEPR,nd the NER300 scheme to incentivise Member State and privateector investments, the future for CCS in Europe looked bright in009. The goal endorsed by European leaders to stimulate the con-truction and operation of up to 12 CCS demonstration projects by015 felt very close.

However, in late December 2012, the European Commissionnnounced that not one CCS project was awarded under NER300rst round. At the same time, the EEPR funding provided by theuropean Commission’s Directorate-General for Energy is failing toecure a single project able to move forward, due to technical andermitting delays by some and the absence of public or Membertate support in others.

This paper analyses the NER300 process in the context of the EUCS demonstration programme, and examines the driving factorshat have influenced in the decision not to support any CCS projectnder the NER300 first round.

Greenhouse Gas Control 19 (2013) 19–25

2. NER300 scheme

Article 10a(8) of the Directive 2009/29/EC establishes a mech-anism for the financing of environmentally safe capture andgeological storage of CO2 as well as innovative renewable energytechnologies demonstration projects. 300 million allowances fromthe New Entrants Reserve of the EU ETS would be available tosupport commercial-scale CCS and innovative RES demonstrationprojects in the territory of the Union (European Commission, 2003,2009a).

Criteria and rules for the selection and implementation of com-mercial demonstration projects lay down under the EC Decision2010/670/EU of 3 November 2010, including basic rules for themonetisation of allowances and for the management of revenues(European Commission, 2010a). Pursuant to Article 5(1) of the ECDecision, the Commission published a first call for proposals cov-ering the proceeds of 200 million allowances on 9 November 2010(European Commission, 2010b). The second round of calls woulduse the equivalent of 100 million allowances together with anyunused allowances from the first round. The purpose of holding twosuccessive rounds of calls is to allow on the one hand for matureprojects to receive financing already in the first round, and on theother hand to provide for the possibility to adjust any technical orgeographical imbalance in the second round.

Eligibility criteria include the implementation of the full chain(capture, transport and storage), specifications of minimum size of250 MWe in power generation or 500 kt/y stored CO2 in industrialapplications, and capture rate of at least 85% of CO2 from the gasesto which capture is applied.

The Commission sought to involve the European InvestmentBank (EIB) in the project selection, the monetisation of allowancesand the management of the revenues.

A remarkable difference incorporated is the role of MemberStates. In addition to collecting and evaluating the applicationson the basis of the eligibility criteria, submitting them to the EIBand informing the Commission, Member States would have to con-firm the value and structure of the total public funding contributionbefore the NER300 award decision is taken.

2.1. Combination with other European fund programmes

NER300 funds are not part of the general budget of the Euro-pean Union, and can therefore be combined with financing fromother instruments, including the Structural and Cohesion Funds,the European Energy Programme for Recovery or loan financingprovided under the Risk-Sharing Finance Facility (RSFF) set up bythe Union and the European Investment Bank.

2.1.1. EEPRJust prior to the launch of the NER300, the European Energy

Programme for Recovery selected six projects to receive fast-trackassistance. In July 2009, the European Council and the EuropeanParliament adopted the Commission proposal for the EEPR. TwelveCCS projects applied for assistance under the EEPR, eventually sixprojects were granted in December 2009 (Fig. 1).

2.1.2. UK CCS CompetitionUnited Kingdom is probably the best placed EU Member State

to deliver CCS. With a robust CCS programme at national level,UK is one of the drivers for the development of CCS demonstra-tion projects in Europe. In addition to the industry required, UKhas plenty of offshore storage potential and Enhanced Oil Recovery

(EOR) capabilities.

The first round of the UK CCS Competition was launched in 2010.£1 billion funds were available for one selected integrated post-combustion project. After over 1 year negotiation, the Competition

M. Lupion, H.J. Herzog / International Journal of Greenhouse Gas Control 19 (2013) 19–25 21

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nded up without award when the Government announced not toroceed with the last-standing Scottish Power’s Longannet project

n March 2011.The second round of the Competition opened for bids in April

012, and closed in July 2012. Eight bids were received, includinghe EEPR Don Valley project. Four integrated projects were short-isted in October 2012 (Table 1). On January 2013, all the shortlistedids submitted revised proposals. The two preferred bidders in theK Competition were announced on March 2013: the Peterheadroject in Aberdeenshire, Scotland, and the White Rose Project inorkshire, England. Awarded projects are expected to be opera-ional between 2016 and 2020.

. NER300 first round

The European Commission, Directorate-General for Climatection, formally launched the first call for proposals for innovativeenewable energy and carbon capture and storage projects underhe NER300 competition on November 2010. Eight CCS demonstra-ion projects were expected to be co-funded in the first round: ateast one and at most 3 projects in each project category, at least

with hydrocarbon reservoir storage, and at least 3 with salinequifer storage.

.1. NER300 first round applications

The closing date for project sponsors to submit application formso their Member States finished on 9 February 2011, three monthsfter the publication of the first call for proposals. A total number of2 CCS projects were submitted, distributed as 6 precombustion, 8ostcombustion, 4 oxycombustion and 4 for industrial applicationsEuropean Commission, 2011a).

The number of applications forwarded from the Member Stateso the EIB was shortened. On 13 May 2011, the Commission pre-ented the number of project proposals submitted to the EIBEuropean Commission, 2011d). The list contained 13 proposals,ncluding only four of the six EEPR projects; Compostilla and Rotter-am projects were not there. The total amount of funding requestedas D 11.8 billion. United Kingdom forwarded 7 proposals, the

argest number by far per Member State, even though according tohe EC Decision no more than three projects shall be funded withinny one Member State.

On 9 February 2012, the EIB submitted a list of projects to the

uropean Commission, which examined the information providednd confirmed EIB’s findings. The Commission finally publishedhe interim results of the selection process in July 2012, rankedy their cost-per-unit performance which is the total request for

me for Recovery projects.

public funding plus the best estimate of the net present value ofadditional benefits, divided by the amount of CO2 stored (Table 2)(European Commission, 2012b).

Some might argue that this parameter should be reconsideredas the only criteria to rank the projects. Other parameters, suchas the total investment of the project, are not taken into consid-eration. Larger projects would benefit of economies of scale to getbetter cost-per-unit performance while the total investment, andconsequently financial support, could be unrealistic to undertakeunder the current European economy situation. Likewise, the con-sideration of this parameter only would favour coal over naturalgas-based projects, which have relatively higher CO2 avoidancecosts than coal-fired power plants due in part to the lower CO2production (European Technology Platform for Zero Emission FossilFuel Power Plants (ZEP), 2011).

Three of the candidates selected were EEPR projects, 2CO’s DonValley Power and PGE’s Belchatow projects ranking for 1st and 2ndpositions respectively. Two CCS projects, Jaenschwalde in Germanyand Longannet in the UK, had been withdrawn in the course of theprocess; one further CCS project was withdrawn after completionof the assessment. United Kingdom still had 4 projects out of the8 competing for NER300 funding. All four projects had applied forfunds under the UK CCS Competition too. It looked like in countriessuch as the UK, interests and timing for demonstration projects atnational and EU levels would align.

The document published by the Commission in July 2012 alsoincluded an indication of the amount of funding available, esti-mated around D 1.3–1.5 billion from the monetisation of the first200 million allowances. This estimation is explained in a sum-mary report published by EIB about the sales from the 200 millionEU allowances corresponding to the first round of the NER300programme, from December 2011 to September 2012 (EuropeanInvestment Bank (EIB), 2012). EIB achieved an average sales priceof D 8.05, which is considerable lower than previsions, due to thecollapse of the carbon price under the EU ETS. This would only allowco-funding some 3 CCS demonstration projects, instead of 8 CCSprojects as originally expected.

The last step of the process before the award decision is theconfirmation by the Member State of candidates (3 maximum perMember State) and reserve projects, and the total public fund-ing contribution based on the overall funding packages. Arduousdiscussions at national level and with the EC were finalised onOctober 2012, when the confirmation process was closed. In par-

allel, the DECC-UK announced 4 CCS projects out of a total of8 to move to the next stage of its £1 billion Competition, sur-prisingly excluding the NER300 first ranked project Don ValleyPower.

22 M. Lupion, H.J. Herzog / International Journal of Greenhouse Gas Control 19 (2013) 19–25

Table 1Shortlisted bids of the UK CCS Competition (October 2012).

Project Main developer Technology NER300 first round

Captain Clean Energy Project Summit Power Pre-combustion 570 MW, offshore ×Peterhead Shell and SSE CCGT 340 MW Post-combustion retrofitting, offshore

√Teesside Low Carbon Progressive Energy Pre-combustion coal, depleted oil field and saline aquifer

√White Rose Alstom 304 MW supercritical coal-fired oxycombustion

√

Table 2Lists of candidates for award decision and reserve lists of projects for award decision published on 12 July 2012 by the European Commission under the NER300 first round.

Project State Developer Technology Status comment

CandidatesDon Valley Power UK 2CO Energy Precombustion EEPR (D 180 m)Belchatow CCS PL PGE Postcombustion EEPR (D 180 m)Green Hydrogen NL Air Liquide Industrial applicationTeesside Low Carbon UK Progressive Energy Precombustion Awaiting UK competitionWhite Rose UK Alstom Oxycombustion Awaiting UK competitionC.GEN North Killingholme UK C.GEN NV PrecombustionPorto Tolle IT ENEL Postcombustion EEPR (D 100 m)ULCOS-BF FR ArcelorMittal Industrial application

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.2. NER300 Award Decision

The European Commission published the Award Decision of theER300 first round on 18 December 2012 (European Commission,012d). Originally intended as a CCS instrument – the inclusionf renewable projects was a later addition – the NER300 Awardecision was highly anticipated.

According to the EC Award Decision, nearly all RES projectsere confirmed whereas most CCS projects were, however, not

onfirmed by the Member State concerned, and could there-ore not be retained. Member States were unable to confirm therojects for various reasons: funding gaps in some cases and inad-quate maturity in others. One further CCS project was confirmed,rcelorMittal’s steel mill CCS ULCOS-BF project in France, but thenithdrawn after the closure of the confirmation process alleging

hat the project faced insurmountable technical challenges. Theroject had been scrutinised though by the EIB that found ULCOSroject to be sound.

To great discontent for European efforts to address climatehange, no single CCS demonstration project was awarded. OnlyES projects were co-funded with D 1.2 billion. The D 275 millionnvisaged for CCS projects in the first call remains available to fundrojects under the second phase of the NER300 programme.

. Influencing factors

There are a number of factors that have influenced in the finalecision not to support any CCS projects under the NER300 first

ound. Tight specifications of criteria for project assessment inhe NER300’s rules, major complexity and cost of CCS projects asompared to the RES projects, and austerity measures and lack ofomprehensive climate policies in most of the Member States areritical factors affecting the reality of CCS in Europe.

In combination to these, the current situation of climate pol-cy worldwide is uncertain (Eide, 2013). The momentum reachednternationally in 2009 seems to be lost. The newly elected Pres-dent Obama announced that the USA would take serious stepso mitigate climate change, while the EU launched the Stimulus

rogramme under which D 4 billion were set out for the Europeannergy Programme for Recovery. International efforts today do notontain sufficient commitments to emissions reductions to achievelimate change goals. Expectations were low for the last UNFCCC

Post-combustionPost-combustion Awaiting UK competition

Conference of the Parties climate negotiations in Doha, Qatar (COP –18) in December 2012. This slowed momentum has adverse effectson the development of low carbon technologies in general, and CCSin particular.

4.1. Lack of flexibility

While the legal and regulatory framework to reach climatetargets has been established at the European level, it does notspecifically address CCS aspects. The EU ETS mechanism providesthe long-term framework to achieve the emissions targets, but itleaves the market to select the most cost-effective abatement tech-nologies. However, in the short and medium term, the evidenceshows that a more flexible ETS and inclusion of additional policymeasures are required to deliver sufficient investment security anda sound business case for CCS technologies.

The ETS Directive establishes December 2015 as the latest datewhen NER300 funds can be awarded. Tight specifications in relationto technological and geographical representation have constrainedthe funding programme implementation, especially relevant forCCS projects. Factors such as policy preferences at Member Statelevel or market circumstances have critically affected the NER300first round decision. Not every European country has CCS as toppriority in their climate agenda. Even so, only a minority wouldhave the required technical skills and industrial support, CO2 stor-age options, and level of public funds. In this regard, R&D resourcesshould be allocated into projects with the highest chances of suc-ceeding in demonstrating the technology, for which more flexibilityto be able to adjust further external factors should be consid-ered. The rule on the limitation of number of projects to three perMember State also marked the Member State to decide whetherto support relatively more expensive CCS projects or smaller RESprojects. This will also establish important restrictions for CCSprojects in the NER300 second round: the higher number of RESprojects awarded in the first round, the lower chances for CCSprojects in that Member State.

Important differences are found too in the transposition intonational law of the European CCS Directive, which provides a com-

mon legal framework for CCS activities (European Commission,2009b). By the transposition deadline in June 2011, only a fewMember States reported full transposition. Nearly all MemberStates with planned CCS projects adopted the Directive by January

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012 (European Commission, 2012a). However, a clear candidateo host CCS demonstration projects like Germany failed to fullyranspose the European Directive. The lack of public acceptanceas the main reason for the delayed transposition of the CCS direc-

ive. In July 2011, Germany’s lower house approved a bill allowinghe underground storage of CO2 but it was rejected by the upperouse on September 2011. Following the rejection of the bill byhe Bundesrat, a mediation committee was formed without result.his caused Vattenfall to abandon its CCS demonstration projectn Jaenschwalde, Brandenburg, and stop the planned D 1.5 bil-ion investment (Vattenfall, 2011). The project had been awarded

ith D 180 million from EEPR and submitted an application for theER300 funding programme.

A lesser evil would be to reallocate the unspent money fromhe cancellation of Jaenswalde, or any other EEPR project, towardsther CCS demonstrators. However, according to the EC Regulation63/2009 the unspent CCS funds resulting from the official cancel-

ation of projects are to be returned to EEPR (European Commission,009c). After Janschwalde’s cancellation, many voices claimed theno put forward legal changes that would allow the reallocation ofunds already allotted to CCS projects that are not going ahead,nd keep the momentum alive by supporting the ones with higherikelihood of succeeding. Even the timing seemed to be compatible

ith the NER300 first round schedule. This unfortunately did notappen.

This situation contrasts with other CCS programmes. In USA,he Department of Energy (DOE) selected six projects under thelean Coal Power Initiative focuses on the demonstration phase ofarbon capture technology for coal-based power plants. The totalOE share of funding was $1.5 billion for the six projects in five

tates: Texas, California, North Dakota, West Virginia, and Alabama.owever, the projects in Alabama, North Dakota, and West Virginiaithdrew from the programme. The DOE was allowed to reallocateart of the previously allotted funding from these three cancelledrojects for the remaining three projects. $140 million of the $295illion previously allotted to the Southern Company Plant Barry

roject in Alabama was divided between the Texas Clean Energyroject and the Hydrogen Energy California project, together withdditional DOE funding, so that each project received an additional100 million total above its initial awards. The remaining fundingrom the cancelled project was allocated to the NRG Energy projectn Texas (Folger, 2012).

In respect to the NER300 first round timing, the EU was urged byeveral organisations to delay a few months the funding decisiono allow the companies that have tabled bids to obtain the financialupport from the Member State. Such reschedule did not succeed,eaving no time for further discussions between the National Gov-rnments and the Commission to resolve outstanding issues.

The European Commission announced the launch of the sec-nd call for proposals under the NER300 programme on 3 April013. The second call will be implemented in compliance with theame Commission Decision 2010/670/EU than the first call. All therovisions of the Decision will apply mostly unchanged (Europeanommission, 2013a). There are no distinctions in the provisionsor CCS or RES projects. Hypothetically, the NER scheme, initiallyonceived for CCS, might only support RES projects.

.2. Complexity and cost of CCS demonstration projects

Major complexity and higher co-funding requirements of CCSrojects in relation to other energy-related projects such renew-bles – an order of magnitude larger – are a clear barrier to

echnology development. This is especially critical in first-of-a-ind demonstration projects. Each CCS large scale project can meandditional costs of more than D 1b. Geographical spread of awardsf CCS demonstration projects under NER300 is, in consequence,

Greenhouse Gas Control 19 (2013) 19–25 23

more difficult to achieve, especially in the current situation of bud-getary restrictions on public funds.

However, CCS projects have a strong CO2 abatement impactand, unlike intermittent renewable energy sources, can deliverboth base-load power generation and balancing capacity. Besides,CCS can be more cost-effective than other low carbon technolo-gies. Most calculations for current costs fall in the range of D 30to D 100/tCO2 stored, depending on the fuel, technology and stor-age type (European Commission, 2013b). It should be noted thatcosts will significantly decrease once CCS power plants start beingdeployed. Existing studies indicate that CCS is a competitive powersector emissions abatement tool when compared to other mitigat-ing technologies. In relation to the cost estimates for first-of-a-kindCCS plants, onshore wind power and hydropower have lower costsof avoided CO2 emissions but are limited in availability due toresource constraints. Avoided cost for offshore wind is higher thancoal-CCS, slighter higher than for gas-CCS. The current costs to miti-gate CO2 emissions of solar PV and solar thermal options range fromtwo to three times larger than coal-fired CCS plants (Abellera andShort, 2011; SBC Energy Institute, 2012; Wang et al., 2013). Caremust be taken though in drawing conclusions when comparingcosts of intermittent technologies with dispatchable generation.

Moreover, CCS applied to industrial processes such as cement,paper or steel industry is the only option available to reach near zeroCO2 emissions, which makes the need for CCS even more crucial toachieve European climate targets. The assessment of the Roadmap2050 indicates that CO2 emissions from the industrial sector needto be reduced by 34–40% by 2030, and by 83–87% by 2050 comparedto 1990.

CCS should not be considered as a competitor of renewables buta different and complementary option to fulfil mitigation goals, abridge to renewables in the energy transition in the long term. Thequestion that arises is why the late addition of RES in the NER300competition, when two separate competitions would have beenmore logical, given the significantly different characteristics of CCSvs. RES technologies.

4.3. Low price for carbon market

The current price for CO2 allowances is well below the assess-ment for the Climate and Energy Package in 2008, which projectedprices in the order of 30D by 2020. Prices reached about 3D in April2013 after a vote in the European Parliament opposing a schemeknown as “backloading” to help boost the carbon prices by extract-ing allowances from the market and reinjecting them later. Whilethe carbon price continues at low level, the incentives for CCS bypricing carbon are substantially limited. The structural surplus inthe EU Emissions Trading System of around 2 billion allowanceswill prolong low carbon prices if major reform to tighten the EUETS instrument is not taken (European Commission, 2012c).

The collapse of the carbon price under the EU ETS has similarlyreduced stimulus for action indirectly via the NER300 programme.Since the programme was set up funded by ETS allowances, thelevel of funds available under the first tranche (which has reserveof D 1.5 billion compared to the projected reserve of ∼D 6 billion)is far from securing the envisaged 8 CCS projects to be funded inthe first round. This is not necessarily a failure of the EU-ETS, whosemain goal is to meet emissions targets. Adding an additional burdento the EU-ETS of funding CCS demonstrations was going beyond theprimary purpose of the trading system and carried the risk of lowpermit prices. Economists would argue that the lower the permitprices to meet an emissions cap are a sign of success for the trading

system.

Another implication of the business model of CCS projects basedon the carbon price, along with the relatively high costs associ-ated with commercial CCS, is the reluctance of private operators to

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nvest in the projects themselves and absence of industry leader-hip. Most of the CCS proposals submitted to NER300 relied on highhare of public sources for their funding while failed, unlike RESrojects, to leverage significant private funding. Outside Europe,

ndustry seems in contrast to have found effective business models.rojects are moving forward in Canada and USA even in the absencef strong policy commitment to reduce carbon emissions, due to aombination of revenues from Enhanced Oil Recovery (EOR), taxncentives and public grants (Raveendran, 2013).

Europe needs to reflect carefully on its climate policy priori-ies and CCS Programme in order to get CCS back on the rightrack. Effective funding mechanisms and complementary actionshould be in place as technology matures to reach the required CCSnowledge and infrastructure, and to get industry engaged in largecale European CCS demonstration projects. While the EU ETS mustemain the spine of an overall incentive system, a wide variety ofnstruments and compensatory measures consistent with EU and

orld Trade Organization law may be suitable. These might includeeed-in tariffs payable via the public treasury (through EUA rev-nues) or by energy consumers via a levy on tariffs, CCS purchaseontracts, an EUA set-aside and capacity payments, or public loansmongst others (European Technology Platform for Zero Emissionossil Fuel Power Plants (ZEP), 2012).

.4. Tight public funds at Member State level and lack of stronglimate policy

The European economy is still struggling. This becomes morevident in countries such as Italy or Spain. With their EEPR projectsehind schedule, and uncertain private funds to support the invest-ent to move forward, it is no wonder that Governments did not

ommit co-funding to NER300 during the first round process. Onlyhe French project was confirmed, but withdrawn in the last minuteiting technical issues.

They were however willing to support RES projects. Effectiveolicy mechanisms such as feed-in tariff are common in Euro-ean countries as a way to accelerate the investment in renewablenergy technologies. The same is not true for CCS. The lack of immi-ent climate policy as regards CCS in most Member States togetherith austerity measures due to economic crisis has undermined

he business case for CCS demonstration projects.UK would appear to have sufficient funds to support a cou-

le of CCS demonstration projects, and strong policy to deliverCS. Unfortunately, it was not enough to support the NER300 top-anked Don Valley project, already awarded with EEPR D 180 m.t a total cost of almost £5 billion the project would have rep-esented a major investment in UK infrastructure, expecting tomploy more than 3800 people (2CO Energy, 2012). With a maxi-um of 2 or 3 CCS projects able to be supported across Europe, theK Government decided not to secure funding for 3 UK CCS projectsut of the 7 applications submitted to NER300 (Department ofnergy and Climate Change – UK (DECC), 2012). UK confirmationf the 2 CCS projects selected was non-compliant with NER300equirements.

The Dutch project Green Hydrogen was not confirmed eitherccording to the requirements of the NER300 Decision. The ongoingEPR Rotterdam’s ROAD project did not apply for NER300 despitef the leading position and being ready for Final Investment Deci-ion since mid-2012. The financial shot of D 100 m from the Dutchovernment appeared as a good option to NER300 competition, buttill funding gaps of D 130 m are blocking the continuation of the

roject.

Ideally, an appropriate global European strategy should be ableo compensate the existing imbalances between Member Statesith differently ambitious climate change policies. However, in the

Greenhouse Gas Control 19 (2013) 19–25

current situation, effort should focus on the support of projects withhigher chances of success.

5. Conclusions

The European Union has invested billions of euros to take thelead on CCS development; however none of the world’s operatingfull size projects are located in the EU. One of the major instrumentsto promote CCS in Europe, the NER300 fund programme, failed todeliver even the most promising EU demonstration projects underits first round.

Diverse factors have contributed to the decision of the EC notto support any CCS project. The political and economic realities inEurope have changed since the European CCS demonstration pro-gramme was set in 2009. By not adjusting ambitions in response tothem, it is seriously threatening the future of CCS in Europe.

Austerity measures in public funds as result of the financial andenergy crises affecting Europe, and a lack of comprehensive climatepolicies in most of the Member States are critical factors affectingthe reality of CCS in Europe. As for CCS funds under the first trancheof the NER300 programme, the combination of tight specificationsof criteria for project assessment, and major complexity and costof CCS projects as compared to RES projects have proved fatal.

The collapse of the carbon price under the EU ETS is not helpingeither. At current ETS prices close to D 5/tCO2 and without any otherlegal constraint or incentive, there is no rationale for economicoperators to invest in CCS. This has similarly reduced stimulus foraction indirectly via the NER300 programme, originally designedto provide about D 9 billion funds but eventually shortened as lowas D 1.5 billion for the first tranche.

Finding the right balance between providing public funding sup-port in the short term, and leveraging private investment to drivethe early deployment of CCS while establishing a sufficient carbonbusiness case in the medium to long term is a critical aspect thatrequires the immediate attention of regulators and policymakers.

The second round of calls of NER300 needs to succeed if the Com-mission aspires to achieve its 2050 climate targets. Europe shouldtake a proactive approach by making CCS instruments more flex-ible and adaptable, improving collaborative efforts to strengthenthe ETS and creating the right political commitment and supportfrom Member States. There is still time to secure CCS projects inEurope, but a repeat of recent efforts is not envisaged to be enough.

Acknowledgement

Authors wish to acknowledge Prof. Vicente J. Cortes for his valuecomments and feedback on this paper.

Appendix. Amendment – NER300 second round

The European Commission, Directorate-General for ClimateAction, announced the launch of the second call for proposals underthe NER300 programme on 3 April 2013 (European Commission,2013a). According to the Commission analysis after the first call,the provisions in the NER300 Decision remain adequate and rele-vant for the second call (European Commission, 2013c). MemberStates submitted 33 project proposals by the 3 July 2013 deadlinein response to the second call for proposals. Only one CCS proposal(White Rose from the UK) was submitted (European Commission,2013d).

The failure to receive a sufficient number of CCS project appli-

cations under NER300 second round supports the conclusionspresented in this paper. The combination of the diverse factorsexposed, particularly the tight specifications in the NER300’s ruleswhich have applied mostly unchanged from the NER300 first round,

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ave certainly contributed to the decision of most Member Statesnd project developers not to submit CCS projects to the secondound.

Even in the most optimistic scenario that funding is made avail-ble to the White Rose project, one project alone will not have thempact needed for CCS to play a key role in addressing European CO2mission reduction targets. It is therefore of utmost importance todjust ambitious and actions to properly response to the reality ofCS in Europe, and to put in place innovative CCS instruments inhe support of this technology.

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