ZEP to Rescue CCS in Europe?

The European carbon market is currently in a depressed state, and looks set to remain so for the foreseeable future. This is due primarily to a combination of excess supply of credits, and anemic demand due to stagnant growth and the ongoing Eurozone crisis. Among the many casualties of low-priced carbon, CCS may be particularly hard hit, for a couple of reasons. First, in the short term, funding for demonstration projects in the EU is tied directly to carbon prices via set-asides of emission allowances under the New Entrants' Reserve (NER) 300 financing mechanism. Lower allowance prices mean less funding available for CCS. Second, in the longer term, with a weak carbon price, the business case for CCS begins to fall apart, as there is little incentive to invest in costly capture and storage infrastructure.

In response to this situation, the Zero Emissions Platform (ZEP), a collaborative of European industry, civil society, and academia that works to promote adoption of CCS across the continent, has unveiled a new strategy designed to bolster prospects for the technology. The ZEP plan has four components:

1. Targeted support for the 11 remaining NER300 CCS candidate projects.

2. Recommend Emissions Trading Scheme (ETS) market reforms, such as a floor price for EU Allowances (EUA).

3. Increase efforts to promote investments in transport and storage, not just capture.

4. Push for greater R&D funding to enable eventual commercial deployment.

Given the present economic and fiscal climate in Europe, it is highly unlikely that calls for additional spending on CCS will be met either by the EU or by individual member states. As such, the most promising option to boost CCS in Europe probably lies in reducing the supply of carbon credits in the ETS, by withdrawing a large quantity of EUAs from the system. The EU is currently considering removing up to 1.4 billion EUAs from the market, and ZEP supports this move. However, utilities and manufacturers will be loathe to accede to the higher carbon prices resulting from such a measure, and can be relied on to resist any such attempt.