From Policy to Practice: The EU’s Industrial Carbon Management

Authors: Aleksi Maunumäki, Julia Ranta, and Tuuli Salmia

The EU Industrial Carbon Management Strategy and Carbon Capture

The EU is committed to achieving climate neutrality by 2050. To accomplish this, the EU is implementing a comprehensive policy framework aimed at reducing its net emissions by at least 55% by 2030. This ambitious objective, first introduced in the EU’s “Fit for 55” policy plan, is particularly challenging due to the difficulty and higher costs associated with decarbonising certain industrial processes, transportation, and agricultural practices. In this context, various technologies for the removal, capture, storage, and utilisation of carbon dioxide (“CO₂”) are poised to play an important role in the EU’s decarbonisation efforts.

To enhance carbon management in industrial sectors with hard-to-abate emissions, the European Commission adopted the EU Industrial Carbon Management Strategy (COM(2024) 62 final) (“Strategy”) on 6 February 2024. The Strategy outlines a common approach and vision for carbon managements solutions, with a strong focus on the capture, storage, transport, and utilisation of industrial CO₂ emissions. Furthermore, the actions required to establish a single market for CO₂ in Europe are listed in the Strategy. Envisioned regulatory actions include a possible new CO₂ transport regulatory package as well as several changes to the existing regulatory frameworks, including the EU Emissions Trading System (“ETS”). As a key tool for the EU in reaching its climate targets, the ETS is being reformed to support industrial carbon management efforts.    

Recent Regulatory Developments Regarding Carbon Capture

While the ETS has traditionally incentivised emission reductions primarily through carbon capture and storage (“CCS”) solutions, certain carbon capture and utilisation (“CCU”) applications have recently gained more recognition within the ETS framework. According to Directive 2003/87/EC, as amended (“ETS Directive”), the entities included in the scope of the ETS must surrender allowances equal to their emissions unless the CO₂ is captured and permanently stored in a geological storage or permanently chemically bound in products that do not release emissions to the atmosphere under normal use or at the end of the product’s life. Previously, the latter exception applied only to precipitated calcium carbonate, but the Commission’s Delegated Regulation (COM(2024) 5294 final), adopted on 30 July 2024, broadened the range of qualifying products and clarified the conditions under which CCU applications can count towards CO₂ removals or reductions within the ETS. The Delegated Regulation stipulates that for the chemical binding to be deemed permanent, CO₂ must remain incorporated in a product for several centuries. Products that meet these criteria are listed in the Annex to the Delegated Regulation, including construction products like carbonated concrete, bricks, and cement. Despite the broadened range of qualifying products, most CCU applications still require the surrender of allowances under the ETS, as in many CCU products, the CO₂ is not permanently bound and thus will eventually be released into the atmosphere, such as when CO₂ is utilised in the production of synthetic fuels.

In respect of accounting CO₂ emissions from the combustion of renewable fuels of non-biological origin (“RFNBOs”), including renewable hydrogen and renewable hydrogen-derived fuels and recycled carbon fuels (“RCFs”) produced from non-renewable waste streams, the Commission has on 23 September 2024 adopted an Implementing Regulation 2024/2493 as regards updating the monitoring and reporting of greenhouse gas emissions. The Implementing Regulation incorporates the necessary definitions and detailed arrangements for the monitoring and reporting of emissions from RFNBOs and RCFs and ensures proper alignment with sustainability and greenhouse gas savings criteria laid down in the Renewable Energy Directive 2018/2001, as amended (“RED”), for the monitoring and reporting of emissions from the transport of CO₂ by other means than pipelines for geological storage, emissions from aviation including monitoring and reporting of non-CO₂ aviation effects, and emissions from the new emission trading system for buildings, road transport, and non-ETS industry.

The Net-Zero Industry Act (Regulation 2024/1735, “NZIA”), adopted on 13 June 2024, also plays a critical role in advancing the Strategy's ambition to establish a single market for CO₂ in Europe. The NZIA aims to scale up the EU’s manufacturing and development capabilities for key decarbonisation technologies, including CCS, CCU, hydrogen, solar, and wind technologies. Additionally, recognising the lack of CCS infrastructure as the single largest bottleneck for the materialisation of CO₂ capture investments, the NZIA provides a framework that coordinates and incentivises investments in CCS infrastructure. The NZIA also establishes the EU’s target to have 50 million tonnes of annual operational CO₂ storage capacity by 2030, with this figure potentially growing to around 280 million tonnes by 2040 and 450 million tonnes by 2050.

Future Directions for the Regulatory Framework

While the EU has made significant strides in incentivising CCS and CCU projects, many opportunities remain to fully realise the objectives of the EU Industrial Carbon Management Strategy.

Firstly, current regulations and technical standards are complex and fragmented, making cross-border CO₂ transport challenging. In this regard, a CO₂ transport regulatory package could facilitate the creation of the envisioned single market for CO₂ transport and storage. Additionally, since the CCS Directive 2009/31/EC, as amended, and the NZIA have already laid the regulatory groundwork for CO₂ transport and storage infrastructure to be built, a focus on policy measures that attract and direct investments into CCS projects may be the key to achieving the EU’s carbon storage capacity targets.

Secondly, while some CCU applications, such as the production of synthetic fuels, are incentivised by the existing EU regulatory framework, including the ETS and the RED, other innovative pathways, like the use of CO_₂ in plastics or advanced manufacturing processes, have not received the same level of attention. Therefore, we hope to see the development of a more coherent framework that encompasses all industrial carbon management activities and removes possible regulatory barriers for investments in CCU projects, while also ensuring that these activities accurately reflect the climate benefits throughout their value chains. Ultimately, a technology-neutral approach is essential to ensure the effective implementation of the EU Industrial Carbon Management Strategy and the achievement of the EU’s climate objectives.

Hannes Snellman routinely provides clients with expert advice on the permitting, construction, operation, and financing of industrial and infrastructure projects. Our team is actively following the development of the aforementioned legislative regimes and will gladly discuss and assist with any related legal questions.