News

Net Zero Industry Act: Oil & Gas producers finally on the hook for their emissions?

Publish date: March 16, 2023

On 16 March, the European Commission published several initiatives as part of the Green Deal Industrial Plan (GDIP). The Net-Zero Industry Act brings key elements to the table to ensure Europe follows through on its climate ambitions. Ranging from a welcome acceleration of permitting procedures to a CO2 storage target, it also presents a risk of giving blanket support to technologies that could use a more robust regulatory framework, like hydrogen, to ensure their positive contribution to climate change mitigation.

On 16 March, the European Commission published several initiatives as part of the Green Deal Industrial Plan (GDIP). The Net-Zero Industry Act brings key elements to the table to ensure Europe follows through on its climate ambitions. Ranging from a welcome acceleration of permitting procedures to a CO2 injection capacity target, it also presents a risk of giving blanket support to technologies that could use a more robust regulatory framework, like hydrogen, to ensure their positive contribution to climate change mitigation.

In short;

  • 50 Mt CO2 injection capacity targets set unprecedented responsibility on oil & gas producers but require further clarification to ensure open access;
  • Support for access to financing for set of eight Net-Zero Technologies will need input from civil society to work for the climate;
  • Hydrogen keeps riding the hype with no conditions set on its efficient use, and a missed opportunity to ensure climate benefits are upheld for its production;
  • Public procurement includes sustainability criteria in the bid ranking process but fails to include embodied carbon considerations to promote the use of low-carbon materials.

Target for CO2 injection capacity: oil and gas producers finally obliged to contribute

Bellona Europa welcomes the EU-wide target for 50Mt CO2 injection capacity by 2030. The target would come in addition to CO2 storage capacity developed outside the EU territory, meaning EEA states such as Norway and Iceland. This is therefore an ambitious and appropriate target.

In an unprecedented move, the proposal firmly places a responsibility on EU oil and gas producers to contribute to the development of CO2 injection capacity. Notably, by setting in place individual contributions of such entities pro-rata based on their contribution to crude oil and natural gas production.

While clarifications on open access to CO2 storage for industrial emitters are sorely needed in the proposal, it goes a long way in ensuring that producers of fossil fuels carry their share of the responsibility for the pollution they create.” said Bellona Europa Director, Jonas Helseth.

Clarity on this point is also needed in the legislative text to ensure that we continue to incentivise decarbonisation with renewable energy deployment, in particular for the power sector. Bellona particularly welcomes the framing of CCS in relation to industrial decarbonisation, where alternatives such as direct electrification are not always viable.

Supporting access to finance through legal certainty and faster permitting

The proposal sets out measures to reinforce the Net-Zero Technology Ecosystem, with a particular focus on projects facing difficulties in accessing finance within the eight identified “strategic net-zero technologies”. While recently revised State Aid guidelines will enable EU Member States to support such projects where private capital is insufficient, the proposal importantly acknowledges the role of private capital in the just and green transition.

To facilitate access to finance, several proposed measures promise to de-risk projects, by increasing legal certainty and accelerated permitting procedures. The proposed “Net-Zero Europe Platform” could play a crucial part in identifying and addressing bottlenecks and challenges facing projects within the eight identified technologies.

While the platform is a welcome development, and in line with Bellona’s call for increased coordination and cooperation, engagement and involvement of civil society in the platform is now lacking but is crucial to safeguard and overcome barriers and challenges facing several of the identified eight technologies, in particular to increasing issues related to public perception.” said Lina Strandvåg Nagell, Senior Manager Projects & EU Policy.

Unconditional Hydrogen support is not the best use of the Innovation Fund

Hydrogen is addressed both in the Net-Zero Industry Act and the Communication on the Hydrogen Bank. €800 million from the Innovation Fund is set to cover a fixed green premium per kilo of hydrogen produced, aimed covering the difference in price between the cost of production and the willingness of consumers to pay.

This so-called green premium is set to be given to all projects, regardless of the end users of the hydrogen. As such, this scheme misses a key opportunity to channel hydrogen to those sectors that would need it the most and have no alternative decarbonisation pathway.” Said Marta Lovisolo, Policy Advisor on Renewable Energy Systems.

Such a conditional approach is needed considering the high energy demand and inefficiencies of hydrogen production. Without it, production risks resulting in increased emissions and a derailment of the overall energy transition. Moreover, given the current uncertainty surrounding the recently adopted additionality delegated act, the Commission could have used this opportunity to add an additionality clause as a prequalification, but chose not to.

Public procurement and the missing embodied carbon piece

Even though the need for decarbonisation of construction materials, such as cement and steel, is explicitly mentioned in the NZIA proposal, it only covers a part of the issue. For example, CCS is a key element to decarbonise cement as it captures its inevitable process emissions, but the uptake low-carbon cement produced with other technologies (i.e., clinker replacements and alternative materials) should also be promoted.

A way of enabling market access is through public procurement, as it is clearly recognised in the NZIA proposal.

It is positive that the proposal looks at sustainability criteria for “awarding the contracts or ranking the bids”, but there is no mention that criteria would include embodied carbon considerations. This could be  a missed opportunity, to prioritise projects that plan to procure low-carbon materials, and therefore send strong signals to the market.” said Marika Andersen, Senior Project Manager.

 

Bellona awaits the next steps of this legislative file, where we will seek to further clarify and improve the Act.

More News

All news

The role of CCS in Germany’s climate toolbox: Bellona Deutschland’s statement in the Association Hearing

After years of inaction, Germany is working on its Carbon Management Strategy to resolve how CCS can play a role in climate action in industry. At the end of February, the Federal Ministry for Economic Affairs and Climate Action published first key points and a proposal to amend the law Kohlenstoffdioxid Speicherungsgesetz (KSpG). Bellona Deutschland, who was actively involved in the previous stakeholder dialogue submitted a statement in the association hearing.

Project LNG 2.

Bellona’s new working paper analyzes Russia’s big LNG ambitions the Arctic

In the midst of a global discussion on whether natural gas should be used as a transitional fuel and whether emissions from its extraction, production, transport and use are significantly less than those from other fossil fuels, Russia has developed ambitious plans to increase its own production of liquified natural gas (LNG) in the Arctic – a region with 75% of proven gas reserves in Russia – to raise its share in the international gas trade.