April 18, 2024
Blog

Decoding the Net-Zero Industry Act – Implications for carbon removal

Ahead of the 23 April Parliament's confirmation vote, Carbon Gap gives you an overview of the NZIA provisional text.

Key Takeaways

  • Carbon dioxide removal (CDR) is not included in the list of net zero technologies. Inclusion on this list is important since these technologies are to be given special support to develop. A future inclusion is still possible, as the Commission will review the list within the next four years.
  • The NZIA establishes a Union-wide target of 50 million tonnes of yearly CO2 injection capacity by 2030, with improved provisions taking a value chain approach. The Commission is empowered to renew the storage targets beyond 2030, in line with the EU climate goals.
  • The final text maintains an obligation on domestic oil and gas producers to contribute to the storage target while member states are called to establish penalties for non-compliance.

By Policy Analyst, Eloisa Viloria and Associate Policy Lead, Matteo Guidi

The Net Zero Industry Act (NZIA) is a positive first step in the path to support the EU’s cleantech industry, but gaps still remain in the provisionally agreed text that makes it inadequate to fully address the comprehensive needs of carbon dioxide removal (CDR).

The NZIA proposal was adopted by the European Commission in March 2023, following its announcement in the Green Deal Industrial Plan Communication. The Act came in part as the EU’s response to the US’s Inflation Reduction Act (IRA), and the need to develop a coherent EU industrial policy on the path towards the EU 2030 climate target of reducing greenhouse gas (GHG) emissions by 55%, as well as to climate neutrality by 2050. A year later, a provisional agreement was reached by the Parliament, the Council and the Commission.

The agreed text includes a welcomed chapter on CO2 storage, aimed at unlocking the potential of carbon management technologies by accelerating the development of carbon storage sites across Europe. The NZIA also takes the unprecedented step of introducing an obligation on oil and gas producers to contribute to this target, following the producer responsibility principle. Carbon removal, however, was not given explicit support as a key family of net zero technologies.

Here is a breakdown of the most important aspects for the carbon removal ecosystem in the final text.

 

Definitions and list of net zero technologies

Net zero technologies: The agreed text includes a single definition and list of net zero technologies; carbon capture and transport technologies (CCS) are included, but carbon removal is not. CCS-based removal methods, such as Bioenergy with Carbon Capture and Storage (BECCS) and Direct Air Capture with Carbon Storage (CCS) could fall within the scope of the regulation, as part of the CCS definition. The final list is decoupled from the Technology Readiness System (TRL) but still focuses on market-ready technologies. Technologies on the list are treated favourably and become eligible for fast-tracking permitting procedures for expansion or construction and guidance to access financing. The lack of inclusion of CDR on this list could have negative consequences for the development and deployment of carbon removal in Europe.

(Other) innovative net zero technologies: The text includes two other categories for technologies with a lower degree of maturity that can have access to regulatory sandboxes, – controlled environments that allow for the development, testing and validation of new technologies for a limited time before they’re placed into the market – : (1) innovative net zero technologies tied to the definition of net zero technologies provided in the Act, that do not include CDR; and (2) other innovative net zero technologies with potential for industrial decarbonisation not linked to the definition of net zero technologies; these could be argued to encompass carbon dioxide removal (CDR).

 

CO2 storage capacity and the contribution of oil and gas producers  

EU-level CO2 injection capacity target: The regulation establishes a Union-wide target of 50 million tonnes a year of storage capacity to be reached by 2030. The definition makes it clear that CO2 storage will be relevant to both carbon capture and carbon removal. This inclusion is an important first step, but more ambitious post-2030 targets are likely to be needed. Meanwhile, the complete financial responsibility of paying for the storage was left vague.

Oil and gas producer’s contribution (Art. 18): The NZIA establishes an obligation for oil and gas producers operating in the Union’s territory to contribute to reaching the CO2 storage capacity target, with a contribution pro-rata to their share of their CO2 oil and gas production in the EU between 2020-2023. The final text, however, includes exemptions for entities with an oil and gas production lower than a certain threshold, to be defined in a forthcoming Delegated Act. Member states can also exempt their domestic oil and gas producers as long as their national injection capacity is already greater than the contribution quota allocated to producers.

Penalties for non-compliance (Art. 18): Although proposed as an obligation to provide storage, no penalties were included for non-compliant entities in the Commission’s proposal. The agreed text addresses this gap by introducing a greater degree of enforcement: penalties for non-compliance must be introduced by member states at the latest two years after the regulation enters into force.

CO2 capture, transport and storage: The focus on CO2 infrastructure in the NZIA proposal was to develop CO2 storage capacity. However, without supporting the rest of the infrastructure within the value chain – capture, removal, and transport – this storage capacity would have been disconnected from the rest of the value chain. The final text proposes a value chain approach, which supports the development of carbon capture and transport infrastructure, with the respective projects being classified as net zero strategic projects. Although CDR can share CO2 transport and storage capacity, the specific needs of CDR and removal capacity infrastructure were overlooked in the final text.

 

Progress assessment and potential reviews

While critical details of the net zero list and CO2 storage chapter need clarification, the final text’s introduction of monitoring and assessing requirements is an encouraging progress. In particular, the Commission is tasked with:

  1. Assessing storage site distribution and infrastructure needs, as well as publishing guidelines on CO2 purity and trace elements within the CO2 streams allowed.
  2. Proposing a new CO2 injection capacity target by 2040 by no later than 31 December 2028, doing so will help the Union stay on top of its storage needs in the longer term.
  3. Monitoring the progress in CO2 capture, transport and storage:
    1. By the end of 2028, the Commission must assess the balance between CO2 capture, transport and storage capacity. Member states may be able to ask for adjustments in their contributions in case of an imbalance.
    2. A market assessment for captured CO2 will be conducted after three years of entry into force, potentially leading to legislative proposals to address shortcomings, especially for hard-to-abate emissions.
  4. Assessing the possibility of including other technologies to the list of net zero technologies four years after the entry into force of the regulation, opening a window of opportunity for CDR. The evaluation will take into account: (1) updates to the National Energy and Climate Plans, (2) the Strategic Energy Technology (SET) Plan and (3) the State of the Energy Union Report.

The final version of the NZIA also offers several windows of opportunity in the future that could be used to strengthen existing provisions, renew targets, and evaluate the list of net zero technologies. Carbon Gap expects the upcoming revision to address the remaining shortcomings in the file and provide clearer support for CDR as a key family of net zero technologies.

 

Next steps – Which elements to keep an eye on for the future?

  • Making the case for CDR to count as an ‘other innovative technology’ in the NZIA.
  • Member state level penalties on oil and gas producers to be established for Art. 18 compliance.
  • National Energy and Climate Plans (NECPs) focus on research and innovation (R&I) – a strategic channel to advocate for the inclusion of CDR in innovation agendas at the member state level.
  • The EU Commission will review the list of net zero technologies looking at the updated NECPs, the Strategic Energy Technology (SET) Plan and the State of the Energy Union Report. An opportunity for the inclusion of CDR.
  • The Commission to potentially propose a CO2 storage target for 2040 by 2028.