The International Association of Oil & Gas Producers Europe (IOGP Europe) has proposed a groundbreaking initiative to accelerate Carbon Capture and Storage (CCS) deployment within the European Union: the establishment of a “European CCS Bank.” This initiative, anchored in a competitive Carbon Contracts for Difference (CCfD) auctioning mechanism, aims to bridge the gap between the cost of CO2 capture and carbon allowance prices under the EU Emissions Trading System (ETS). Set to leverage the Innovation Fund, the CCS Bank could become operational as early as 2025.

Tackling the CCS Bottleneck

CCS is widely recognized as a critical technology for achieving industrial decarbonization. The EU has set ambitious goals under its Green Deal objectives, including capturing 280 million tonnes of CO2 annually by 2040 and 450 million tonnes by 2050. The Net Zero Industry Act (NZIA) further establishes a near-term target of 50 million tonnes of CO2 injection capacity by 2030. However, the lack of a viable business model and persistent economic barriers have stymied progress. The European CCS Bank aims to address these challenges by fostering a sustainable business case for CCS investments.

How the European CCS Bank works

The proposed CCS Bank would function through a competitive auction mechanism, similar to the European Hydrogen Bank. Project developers would bid for CCfDs, outlining the financial support needed to cover the gap between CCS costs and carbon market prices. Payments would be contingent upon verified CO2 capture and storage, ensuring accountability and incentivizing cost-efficient solutions.

Four key benefits of the CCS Bank

• Market-Based Incentives: The mechanism ensures transparent and competitive bidding, rewarding cost-effective projects.
• De-Risking Investments: By enhancing financial predictability, the CCS Bank mitigates risks for project developers and fosters private investment.
• Price Discovery: Competitive auctions provide valuable insights into market dynamics, helping shape future CCS policies and strategies.
• Streamlined Processes: Reduced administrative burdens and shorter evaluation timelines make the mechanism accessible and efficient.

“If we do not incentivize CO2 capture for strategic industries, we won’t decarbonize; we will deindustrialize the EU,” emphasized François-Régis Mouton, Managing Director of IOGP Europe. “Contracts for Difference have successfully scaled renewable energy and hydrogen projects. The European CCS Bank can create the value chain reaction needed to accelerate CCS deployment as of 2025.”

The CCS Bank draws inspiration from the Hydrogen Bank’s pilot auction, which attracted 132 bids for renewable hydrogen projects between November 2023 and February 2024. This approach not only revealed unexpectedly low costs but also provided invaluable market insights. The same principles are expected to catalyze the nascent CCS market, fostering innovation and competitiveness.

The CCS Bank will complement the EU’s Industrial Carbon Management Strategy by providing “predictable revenue for project developers” through market-based mechanisms. By leveraging ETS auction revenues and unlocking private capital, the mechanism aims to align economic and environmental objectives.

The instrument should allow for the cumulation with other public financing sources, which should be subtracted from the application amount, as a measure for ensuring a level playing field and guaranteeing fair competition among the bidders.

The mechanism should follow the principle outlined by the European Commission in the European Hydrogen Bank Communication16 of “Auctions-as-a-service” for Member States. Running a single auction at the EU level would guarantee the allocation of funds to the most competitive projects first from the Innovation Fund budget, and then from Member States’ ones. This open approach would allow willing Member States to actively participate in the implementation of additional projects, while reducing the overall administrative burden.

By combining action at Member State and Commission level – and setting a stable path for CCfD auctions – the EU will provide a timely framework for the development of the CO2 value chain, enabling industry to decarbonise in a cost-effective way, promoting competitiveness by avoiding deindustrialisation, maintaining Europe’s global cleantech leadership and contributing to meeting climate goals.

DOWNLOAD THE IOGP’s POSITION STATEMENT

As the EU strives to balance industrial competitiveness with decarbonization, the European CCS Bank represents a critical step forward. By de-risking investments and fostering a sustainable CCS value chain, this initiative has the potential to position Europe as a global leader in industrial carbon management.

For a detailed exploration of the CCS Bank proposal, listen to the dedicated podcast interview available on Spotify and YouTube, or access IOGP Europe’s CO2 storage projects map and other relevant documents. Together, these resources outline a comprehensive strategy for scaling CCS and achieving Europe’s climate goals.