London, 2 February 2010

On 2 February, EU member state representatives  reached agreement  on how to use the funds generated from the sale of 300 million CO2 allowances from the New Entrants’ Reserve (NER) of the EU Emissions Trading Scheme (ETS) to finance demonstration of carbon capture and storage (CCS) and innovative renewable energy (RES) technologies. EURELECTRIC welcomes the decision reached by EU member state representatives on how to use the funds generated from the sale of 300 million CO2 allowances from the New Entrants’ Reserve (NER) of the EU Emissions Trading Scheme (ETS) to finance demonstration of carbon capture and storage (CCS) and innovative renewable energy (RES) technologies.

RES will have a major role to play in arriving at a carbon-neutral energy system in the coming decades and EURELECTRIC also sees CCS technologies as a key potential solution to the challenge of reducing emissions of greenhouse gases while enabling continued use of the plentiful fossil fuel sources that help to ensure energy supply security in Europe.  Our recent Power Choices study shows it is feasible to attain a carbon-neutral electricity supply in the EU by mid-century using the full range of low-carbon and carbon-neutral power options through a market system.  The study also shows that any delay in commercial deployment of CCS will seriously retard efforts towards a carbon-neutral economy. The RES and CCS demonstration projects now envisaged for financing are vital to drive this process forward across Europe.

The decision reached on 2 February in the EU Climate Change Committee - which means that EU funds could cover up to 50% of the eligible costs of the demonstration projects - will allow companies to draw up proposals for financing large demonstration projects, which should then be operational by end-2015. After further scrutiny by the EU legislators, the decision could be formalised in May.

The agreement proposes to fund eight CCS projects and 34 renewable energy projects in various categories. Four new RES categories were added. As regards CCS, at least one and at most three projects could be financed in each of the three capture technology fields - post and pre-combustion and oxyfuel. At least three projects must demonstrate storage of the captured carbon dioxide in hydrocarbon reservoirs and at least three in saline aquifers. The earlier artificial link between categories of capture and storage technologies has now been deleted in order to allow greater flexibility. At least one project will be financed in each EU member state.

Selection of projects for financing will take place in two rounds of calls for proposals, allocating funds to individual projects to the value of 200 and 100 million EU emissions allowances (EUAs) respectively. The funds will cover 50% of the relevant costs of the demonstration plant. After the European Commission has published a call for proposals, it will be up to member states to collect project proposals and - provided they fulfil the criteria and enjoy the support of the government - submit them for financial and technical due diligence by the European Investment Bank. The EIB will also be in charge of auctioning the NER allowances. The disbursement of cash to projects will take place annually, based on performance. Member states may allow part or all of the funds to be disbursed prior to a project’s entry into operation - which will be vital for many projects - while a strong ‘claw-back’ clause ensures control of the funds.

Provided no objections are raised in the scrutiny by the EU Parliament and the Council, the Commission could formally adopt the text in May, enabling the call for proposals to be issued in the summer. Member states would then have until end-2010 to submit their pre-selected projects to the EIB. Final award decisions could be taken by end-2011, which would still allow the demonstration projects to be up and running by end-2015.

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