Financing of CCS Demonstration Projects - State Aid, EEPR and NER Funding - An EU and EEA Perspective
European Business Law Review, Forthcoming
100 Pages Posted: 12 Jan 2011 Last revised: 31 May 2012
Date Written: March 18, 2011
The EU’s environmental commitment is firmly stated in Article 191 TFEU (ex Article 174 TEC) Establishing a "high level of protection" the "precautionary principle" and that "the polluter should pay". This was i.a. followed up by the recognition by the European Council of 8 and 9 March 2007 of the vital importance of achieving the strategic objective of limiting the 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 the EPE the Member States and the European Commission (Commission) were urged to work towards developing the necessary technical, economic and regulatory framework to bring environmentally safe carbon capture and sequestration storage (CCS) to deployment with new fossil-fuel power plants, if possible by 2020. In this connection the European Council welcomed the intention of the Commission to establish a mechanism to stimulate the 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 the committed to goal of 20% reduction of greenhouse gas emissions.
In Norway, the coalition government and most of the opposition parties entered into a Climate agreement on 17 January 2008, based on the Government’s recommendation of 22 June 2007. Here the broad lines of Norway’s climate policy in the 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 the 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 the 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 the Council’s conclusions on EU relations with EFTA countries of 14 December 2010 it is i.a. noted that the cooperation between Norway and the EU on environmental and climate change matters continues to be good.
In spite of the general positive attitude towards applying state aid to CCS demonstration projects, Norway, as an EEA Member state, was the first state to commit state aid to CCS demonstration projects. In October 2010 the Commission authorised the 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, the 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 the European Energy Programme for Recovery (EEPR) with total funds of initially Euro 1,050 billion for CCS demonstration projects and the 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 the 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 the different sources of financing, the question of a minimum financial commitment from the operator and possible required results concerning captured CO2 will be given special attention. The analysis attempts to answer to the question whether the total available aid addresses the market failure in a cost-efficient way, without unduly distorting competition and trade.
This article was updated on 18 March 2011.
Keywords: CCS, carbon capture, environmental law, state aid
JEL Classification: K32, K33
Suggested Citation: Suggested Citation