EU Reaches First Milestone Agreements on Fit-for-55, with Key Provisions for CCU
Over the last weeks, EU policymakers have struck several major deals in interinstitutional negotiations (known as “trilogues”), with immediate and unprecedented implications for Carbon Capture and Utilisation (CCU) projects.
Last weekend, the EU institutions agreed on a new emission trading system (ETS) revision. The new revision sets new very ambitious goals for reducing ETS emissions by 62% by 2030 compared to 2005 by:
- Reducing progressively the number of free allowances as well as the total number of allowances available on the market.
- Including unprecedented incentives for CCU mineralisation, in which companies that are mineralising CO2 from industrial point sources will not need to surrender ETS allowances.
- Ending double-counting for CCU fuels and chemicals.
- Provide new funding support for defossilisation in particular via the Innovation Fund.
The week before, the EU also agreed on a new carbon tax at its borders, referred to as Carbon Border Adjustment Mechanism (CBAM). CBAM aims to create a level playing field for producers inside and outside Europe. It is in essence a carbon tax for products made outside Europe to make sure there is no carbon leakage (importing products from outside Europe which do not respect EU climate standards). Key figures:
- Producers outside Europe will need to pay the difference between the carbon price in a given third country and the EU ETS carbon price.
- The tax will apply first to raw materials like iron and steel, cement, aluminium, fertilisers and electricity. It will also apply to hydrogen and certain indirect emissions.
- CBAM will later be assessed to include other downstream products (e.g. plastics & chemicals).
The EU also agreed on new rules for ETS in aviation:
- ETS-free allowances will be completely phased out for aviation: 25% in 2024, 50% in 2025 and 100% in 2026. In other words, as of 2027, airlines will need to pay their ETS fees in full.
- 5 million allowances from revenues collected will go to the Innovation Fund, which represents 450 million euros in today’s ETS prices.
- 20 million allowances (in today’s prices: about 1.8 billion euros) will be allocated to support the sector’s transition to sustainable aviation fuels between 2024 and 2030. It will in particular cover 95% of the price differential between RFNBOs (CCU fuels) and fossil equivalents.
Finally, EU policy-makers also agreed on the REPowerEU package, aiming to boost the independence and security of the EU’s energy supply. The deal includes new funding mechanisms for EU Member States to accelerate renewable energy deployment, renewable hydrogen production & other decarbonisation efforts.
More Fit-for-55 legislations are expected to be adopted in the coming months to complete that regulatory framework.
This first set of agreements is nonetheless a major step in the right direction and confirms the place of CCU in the EU’s energy transition strategy. Those different legislations are now being formally adopted and will be implemented in the coming months.
The CCU community looks forward to contributing to contribute to reaching climate goals with a new regulatory framework in place.
