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DET NORSKE VERITAS

Updated Gap Analysis – Legal, Regulatory and Economical Issues

related to Carbon Capture and Storage

The Ministry of Petroleum and Energy Norway

DNV Report no 2008-0185

DET NORSKE VERITAS

Report for the Ministry of Petroleum and Energy - Norway, as input to the North Sea Basin Task Force, Phase II Updated Gap Analysis

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Table of Contents Page

CONCLUSIVE SUMMARY................................................................................................... 4

1 INTRODUCTION ............................................................................................................. 7 1.1 Background ................................................................................................................... 7

1.2 Objective ....................................................................................................................... 7

1.3 Rationale ....................................................................................................................... 8

2 LEGAL ISSUES................................................................................................................. 9 2.1 London Convention and its 1996 Protocol ................................................................... 9

2.2 OSPAR Convention .................................................................................................... 11

2.3 EU regulatory framework ........................................................................................... 14

2.4 UK regulatory issues ................................................................................................... 24

2.5 Norwegian regulatory issues ....................................................................................... 26

2.6 Transboundary Issues.................................................................................................. 29

3 INCENTIVES .................................................................................................................. 33

3.1 Greenhouse Gas Emission Trading Schemes.............................................................. 33

3.2 EU incentives .............................................................................................................. 38

3.3 National incentives...................................................................................................... 41

4 LONG TERM LIABILITY ............................................................................................ 44

5 DRIVERS AND INITIATIVES...................................................................................... 47

5.1 Strategic Energy Technology Plan (SET) ................................................................... 47

5.2 EU ZEP ....................................................................................................................... 48

5.3 The ACCSEPT Project................................................................................................ 51

5.4 The Need for Development of CCS Guidelines.......................................................... 54

5.5 The need for guidelines for MVAR of CO2 stores in the North Sea.......................... 56

6 COMPARISON – PLANNED ACTIVITIES UNDER PHASE II AND THE UPDATED GAP ANALYSIS ......................................................................................... 57

REFERENCES ....................................................................................................................... 61

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CONCLUSIVE SUMMARY

This updated gap-analysis builds upon the Det Norske Veritas (DNV) report “North Sea Basin

Task Force on CO2-injection and Permanent Storage in Sub-Seabed Geological Structures: Legal

and Regulatory Issues. Gap Analysis” /1/ which was carried out on behalf of the Ministry of

Petroleum and Energy in work phase I of the North Sea Basin Task Force (NSBTF). This report

was completed in January 2007 and findings included in the main report from the NSBTF in June

2007 /2/. The updated gap-analysis is updated as per January 2008.

As for the phase I report, traffic lights (red/amber/green) have been assigned to classify short-

term and long-term gaps in expected results from initiatives outside of the NSBTF with respect to

the objectives of the NSBTF. Red means “not solved in the time period” (i.e. a barrier). Amber

means “will probably be solved” (i.e. follow-up). Green means “solved” (i.e. an enabler). Barriers

and enablers are classified as international, regional or national.

The most significant gap-closing activities identified to have happened since the first gap-analysis

were: the amendments made to the OSPAR Convention to allow CO2 storage in sub-sea soil, the

energy proposals package launched by the European Commission including a proposal for a

directive on CO2 storage, and the national CCS projects launched in both UK and Norway. These

are all considered to be substantial efforts towards removing legal, regulatory and financial

barriers for CCS.

However, there are still issues that are assigned with red traffic lights, considered as barriers to

CCS deployment. In order to prioritize its further actions, DNV recommends that the NSBTF

should emphasize on the short-term gaps marked as ‘red’, such as liability issues and risk

acceptance criteria. Moreover, trans-boundary movement of CO2 should also be given emphasis.

Table 1 provides an updated assessment of gaps identified from phase I of the project, with

references to the gap-closing activities and the corresponding discussions in various parts of this

report. The time periods categorized as short (<2 years) and long-term (2-5 years) in the gap

matrix take account for the fact that one year has passed since the initial gap analysis was

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undertaken. The “expected time till solved” has been updated to go from January 2008 since the

phase I report already is one year old. The “potential barriers or enablers” where the traffic sign

has changed since phase I are coloured “blue”.

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Table 1: Updated Gap Analysis Expected time till solved

< 2 years 2-5 years

Potential barriers or enablers PHA

SE I

UPD

ATE

PHA

SE I

UPD

ATE

International (I)

Regional (R)

Nationa

l (N)

Gap closing activity

Reference

UNFCC-IPCC National Inventories N, I OK /20/Kyoto Protocol (CDM and JI) I Kyoto Protocol conferences in Nairobi, Bali Section 3.1.1

UNCLOS I OK http://www.unclos.com/London Convention and Protocol I Amendments in force from February 2007 Section 2.1

OSPAR R Amendments to OSPAR Convention Section 2.2

Trans-boundary movement and/or damage I London Protocol, EU CCS regulations (International law, Basel Convention) Section 2.6

The Aarhus Convention I OK http://www.unece.org/env/pp/EU ETS R Proposal for revision of EU ETS Section 3.1.2

EU enabling legal framework R Proposal for an EU directive on CO2 storage Section 2.3Norway regulations and CCS N Mongstad/Kårstø projects Section 2.5

UK regulations and CCS N UK CCS Demo competition Section 2.4Long term liability N, R, I Proposal for an EU directive on CO2 storage Section 4

Risk assessment methods I Section 2.2, 4, 5.3, 5.4, 6Risk acceptance, site approval criteria I Section 2.2, 4, 5.3, 5.4, 6

Monitoring and verification I Section 2.3, 3.1.2, 5.5Public support (stakeholder acceptance) I Section 5.3

Accounting and certification of credits I Section 3Costs and economics I, R, N Section 5

Incentives I, R, N Revised EU environmental state aid guidelines/ proposal for revised EU ETS Section 3

Technology maturity I Section 5

http://www.unclos.com/

http://www.unece.org/env/pp/

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1 INTRODUCTION

1.1 Background

The North Sea Basin Task Force on CO2 injection and permanent storage in sub-seabed

geological structures was established between Norway and UK November 2005. The NSBTF is

composed of public and private bodies from the participating countries. The aim of the

cooperation is to develop common principles as guidelines for managing and regulating

transmission, injection and permanent storage of CO2 in sub seabed geological formations in the

North Sea. The NSBTF has now from September 2007 embarked on phase II of the collaboration.

Besides UK and Norway, the Netherlands and Germany have joined the NSBTF in phase II.

In relation to the first phase of this collaboration, and on behalf of the Ministry of Petroleum and

Energy, DNV carried out in 2006 a gap analysis on issues related to legal and regulatory

frameworks, public acceptance, on emissions accounting, monitoring, verification and risk

management /1/. The Ministry of Petroleum and Energy has in this context requested an update of

the gap analysis on legal and regulatory issues from 2006. The update is per January 2008.

1.2 Objective Based on the previous gap-analysis, our primary objective has been to identify recent

developments and efforts made in order to:

1) establish a legal framework;

2) give incentives; and

3) handle liability issues

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1.3 Rationale The first three sections of this report focus on gap closing activities where substantial measures

have been taken in order to remove legal and financial barriers for CCS since the first gap

analysis /1/. All traffic lights assigned as amber or red from phase I have been reviewed and

updated based on recent and expected results and initiatives from national, regional and

international authorities. The fact that one year has passed is also taken into account.

There is a diversity of emerging projects, networks and organizations working with CCS world-

wide involving various stakeholders. Some of these initiatives and efforts are important drivers

in promoting the implementation and demonstration of CCS on an industrial scale. However,

their formal influence is for the purpose of this report not considered substantial due to their lack

of mandate or a clear role. Nevertheless, we recognize their importance and Section 5 discusses

initiatives and drivers for CCS that not necessarily have closed any of the gaps identified from

phase I of the project. However, these initiatives have been important instruments on for instance

issues like public acceptance and to be influential, to some extent; on the policy developments

related to CCS and are for these reasons included in this updated gap-analysis.

Finally, in Section 6 we delineate where the NSBTF could focus their future efforts in order to

accelerate the process of large-scale deployment of CCS, taken into account the ongoing

discussions on Terms of Reference for phase II of the NSBTF.

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2 LEGAL ISSUES

The development of an efficient and properly harmonised regulatory system for capture, transport

and long term storage of CO2 is the first step towards developing confidence in CCS. Moreover, a

regulator must also ensure that effective risk assessment strategies, as well as monitoring and

mitigation strategies, are incorporated.

Section 2.1 and Section 2.2 cover the recent development of two important marine environment

protection instruments; the London Convention and its Protocol and the OSPAR convention,

respectively. The London Convention requires the Contracting Parties to be guided by a

precautionary approach to environmental protection of marine environment, whereas OSPAR is

markedly stricter and its decisions are legally mandatory as opposed to politically binding to its

Contracting Parties /3/. The remaining sub-sections consider the recent legislative developments

in the EU, Norway and the UK.

2.1 London Convention and its 1996 Protocol Contracting Parties to the London Protocol, at their first meeting held in London from 30th of

October to 3rd of November 2006, adopted amendments to the 1996 Protocol to the Convention

on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter, 1972 (London

Convention). The amendments regulate the sequestration of CO2 streams from CO2 capture

processes in sub-seabed geological formations. Storage of carbon dioxide under the seabed is

allowed from 10th of February 2007, under amendments to an international convention governing

the dumping of wastes at sea /4/.

With the new amendment to the Protocol, CO2 streams from CO2 capture processes for

sequestration can be stored if they meet three criteria:

(1) Disposal is into a sub-seabed geological formation; and

(2) They consist overwhelmingly of carbon dioxide. They may contain incidental associated

substances derived from the sources material and the capture and sequestration processes

used; and

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(3) No wastes or other matter are added for the purpose of disposing of those wastes or other

matter.

The parties also agreed to develop guidelines for sub-seabed geological sequestration of CO2. A

Risk Assessment and Management Framework1 was adopted at the joint session of the

28th Consultative Meeting of Contracting Parties under the London Convention and the 1st

Meeting of Contracting Parties under the London Protocol (30th of October – 3rd of November

2006).

In this draft guideline, six stages of a Risk Assessment and Management Framework is delineated

and can be summarized as follows:

1 Problem Formulation is a critical scoping step of risk assessment as it defines the

bounds of the assessment, including the scenarios and pathways to be considered.

2 Site Selection and Characterization concerns the collection of data necessary for

describing the physical, geological, chemical, and biological conditions at the site.

3 Exposure Assessment is concerned with describing the movement of the CO2

stream within geological structures and the marine environment. The processes

and pathways for migration of CO2 from geological storage reservoirs and leakage

to the marine environment, during and after CO2 injection, can be assessed.

4 Effects Assessment assembles the information necessary to describe the response

of receptors within the marine environment resulting from exposure to the CO2

stream if leakage were to occur. The main effects of concern to such an

assessment include effects on human health, marine resources, relevant biological

communities, habitats, and ecological processes, and other legitimate uses of the

sea.

5 Risk Characterization integrates the exposure and effects information to provide

an estimate of the likelihood for adverse impacts. Risk characterization should be

considered using site-specific information.

1 http://www.imo.org/includes/blastDataOnly.asp/data_id%3D19064/CO2SEQUESTRATIONRAMF2006.doc

http://www.imo.org/includes/blastDataOnly.asp/data_id%3D19064/CO2SEQUESTRATIONRAMF2006.doc

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6 Risk Management includes both monitoring during and after CO2 injection,

planning and mitigation actions.

The Guidelines for assessment of CO2 capture and storage in sub-seabed geological formations

were subject to completion at the 2nd meeting of Contracting Parties to the 1996 Protocol (5th – 9th

November 2007).

Remarks

• CO2 storage in sub-seabed geological formation was allowed according to the

amendments to the London Convention and its 1996 Protocol from February 2007. The

legal position of CCS under the London Protocol is now clarified.

• The London Convention and its 1996 Protocol therefore continue to be considered as an

enabler rather than a barrier to CCS implantation in this updated gap analysis.

• Since then, we recognize that the work of the London Convention and its 1996 Protocol is

adapted and forms the basis for [proposed] guidelines for Risk Assessment and

Management Framework for CO2 Sequestration in Sub-Seabed Geological Structures.

2.2 OSPAR Convention Two major reports on Ocean Acidification and CO2 Capture and Storage were made available

from the OSPAR Commission in 2006 as a result of the work of its Offshore Industry Committee

and Biodiversity Committee:

The OSPAR report Effects on the marine environment of ocean acidification resulting from

elevated levels of CO2 in the atmosphere (2006) /5/ contains an overview of ecosystem sensitivity

to CO2 exposure. Increasing levels of CO2 in the atmosphere leads to CO2 uptake across the air-

sea interface and increased carbon concentrations in the ocean. This increases the acidity of the

seawater and a pH reduction of 0.2-0.3 by 2100 are expected and even larger reductions may

occur thereafter depending on future emission scenarios. Moreover, an increased concentration of

dissolved CO2 in seawater also implies reduced concentration of carbonate ions. This has

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consequences for the carbonate saturation state of the seawater and implies that it is becoming

gradually more difficult for marine organisms to build carbonate shells. Corals including those

living in cold water coral reefs in the OSPAR maritime area, are likely to be significantly

negatively affected by the ongoing acidification. Also, the report expresses that changes in ocean

carbon chemistry are rapid, at least 100 times more rapid than any experienced over the past

100,000 years. Individual species which may be especially vulnerable have little possibility to

adapt, but some species which may exist in different forms e.g. with and without carbonate shells

may shift towards dominance of the latter.

The second report, Placement of CO2 in Subsea Geological Structures (2006) /6/ looks at the

technical aspects of CO2 capture and storage (CCS) in geological structures under the seabed.

The report concludes that CCS in sub-seabed geological structures is technically feasible using

existing tried and tested technology. The North-East Atlantic offers significant potential for

CCS: it could take most of the European Union’s CO2 emissions from major point sources for

several centuries. With well selected, designed and managed sites, retention of CO2 for several

thousand years (or even longer) could be achieved. Evaluation of any proposed sites needs to

take account of the risks to the marine environment as well as the benefits in mitigating climate

change and acidification of the oceans. Monitoring will be important and the report describes

how seismic and gravimetric techniques can be used. The report concludes that guidelines or a

framework for risk management for the storage of CO2 are needed.

On the 28th of June 2007 a press statement on New Initiatives on CO2 Capture and Storage and

Marine Litter was released from the OSPAR Commission /7/:

“The OSPAR Commission has taken decisive action towards reducing the negative effects of

climate change at this year’s Commission meeting in Ostend by adopting amendments to the

Annexes to the Convention to allow the storage of carbon dioxide in geological formations under

the seabed. This follows publication last year by OSPAR of reports on ocean acidification, which

confirmed that high levels of carbon dioxide (CO2) in the atmosphere are changing ocean carbon

chemistry at least 100 times faster than at any time in the last 100,000 years, and detailed

consideration of technical aspects of CO2 capture and storage (CCS) in geological formations

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under the seabed. In association with this OSPAR has adopted a Decision to ensure

environmentally safe storage of carbon dioxide streams in geological formations and OSPAR

Guidelines for Risk Assessment and Management of that activity. The Commission has also

adopted a Decision to legally rule out placement of CO2 into the water-column of the sea and on

the seabed, because of the potential negative effects”.

The amendment to the OSPAR Convention2 /8/ was done under Annex II and III and will permit

the storage of CO2 provided that:

i. disposal is into a sub-soil geological formation;

ii. the streams consist overwhelmingly of carbon dioxide. They may contain

incidental associated substances derived from the source material and the

capture, transport and storage processes used;

iii. no wastes or other matter are added for the purpose of disposing of those

wastes or other matter;

iv. they are intended to be retained in these formations permanently and will not

lead to significant adverse consequences for the marine environment, human

health and other legitimate uses of the maritime area.

The wording of the amendment is very similar to what is found under the amended London

Protocol. However, the OSPAR amendment has an additional requirement of permanently

retaining CO2 in the geological formations.

Whilst adopting the amendment, OSPAR also put in place a requirement to use the OSPAR

Guidelines for Risk Assessment and Management of Storage of CO2 streams in Geological

Formations /9/. The Framework for Risk Assessment and Management of storage of CO2 streams

in geological formations (FRAM) is an integral part of these guidelines. This Framework has

made use of relevant developments within the framework of the London Convention and its 1996

Protocol, including developments relating to the draft Risk Assessment and Management

Framework for CO2 Sequestration in Sub-Seabed Geological Formations (see section 2.1 on the

London Convention and its 1996 Protocol).

2 http://www.ospar.org/eng/html/convention/

http://www.ospar.org/eng/html/convention/

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Note that OSPAR requires ratification by seven contracting parties before the amendments will

come into force. The timing of ratification is uncertain as this is likely to be influenced by

national and European regulatory developments, but the process is expected to take at least two

years.

Remarks

• Amendments to the OSPAR Conventions are made in accordance to the prior

amendments made for the London Convention, permitting storage of CO2 in sub-soil

geological formations.

• These amendments, together with the announced guidelines for risk assessment and

management of CCS activities are significant developments.

• A requirement on adopting an OSPAR developed guideline for risk assessment and

management of storage site is developed along with the amendments.

• The UK CCS Project launched by the UK Government in November 2007 states that

regulations for injection and storage of CO2 will take account of the content of these

OSPAR guidelines. Moreover, the UK Department for Business, Enterprise and

Regulatory Reform (BERR) will seek to ensure that the OSPAR Convention is ratified as

soon as possible.

• The OSPAR Commission has ruled out storage of CO2 in the water column and on the

seabed because of potential negative effects.

Assignment of traffic light on OSPAR:

Short term (1-2 years): GREEN

Long term (>2 years): GREEN

2.3 EU regulatory framework On 23rd of January 2008 the Commission proposed a significant Energy and Climate Change

legislative package /10/, which amongst others, included:

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• A proposal of a directive on geological storage of CO2 (the CCS Directive), included several proposed amendments to existing directives

• A Communication on supporting early demonstration of sustainable power generation

from fossil fuels

• Renewable energy targets for EU member states

• Proposal for revision of the EU emissions trading scheme (EU ETS) for the period

beyond 2012

• Revised Community guidelines on state aid for environmental protection

The Commission's proposed directive on geological storage of CO2 /11/ with proposed

amendments to existing legislation, provide an enabling legal framework for CCS and a

comprehensive regulatory framework to ensure the safety of CCS deployment. With risks

mitigated, legal barriers to CCS can be addressed and the proposal includes the appropriate

provisions. The proposal of the CCS Directive covers issues such as exploration licences to

search for suitable storage sites, monitoring of stored carbon and financial guarantees to cover

liabilities.

It is recognized that if no action is taken, many pieces of existing legislation on waste, water and

industrial emissions could apply to CCS and the situation would be legally uncertain. The

proposal intends to clearly establish what provisions of existing legislation should apply to which

aspects of carbon capture and storage. Rather than having to adapt transposing legislation for

water, waste and industrial emissions to regulate CO2 storage, one single framework is

considered to be sufficient. Moreover, the proposal is intended to ensure that CO2 capture is

regulated under the IPPC Directive 96/61/EC (Integrated pollution prevention and control) and

that both CO2 capture and pipeline transport are regulated under the EIA Directive 85/337/EEC

(Environmental Impact Assessment). However, its main scope is the regulation of CO2 storage

and the removal of barriers in existing legislation to CO2 storage.

Moreover, the intention behind the CCS Directive is that the EU ETS Directive 2003/87/EC

(Emission Trading Scheme) will provide the main incentive for CCS deployment. CO2 captured

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and safely stored according to the EU legal framework will be considered as not emitted under

the ETS. In Phase II of the EU ETS (2008-12) CCS installations can be opted in. For Phase III

(2013 onwards), under the proposal to amend the Emissions Trading Directive, capture, transport

and storage installations would be explicitly included in Annex I of the EU ETS.

The main key issues from the CCS Directive proposal are extracted and presented below:

• The Directive should apply to the geological storage of CO2 within the territory of the

Member States, their exclusive economic zones and on their continental shelves. The

Directive should not apply to research projects. It should, however, apply to demonstration

projects with a total intended storage of 100 kilo tonnes or more. This threshold would also

seem appropriate for the purposes of other relevant Community legislation. The storage of

CO2 in geological formations extending beyond the territorial scope of this Directive and the

storage of CO2 in the water column should not be permitted.

• Member States should determine in which cases exploration is required to generate the

information necessary for the site selection. Such exploration should be made subject to a

permit requirement. Member States should ensure that the procedures for the granting of

exploration permits are open to all entities possessing the necessary capacities and that the

permits are granted on the basis of objective, published criteria. In order to protect and

encourage exploration investments, exploration permits should be granted for a limited

volume area and for a limited time, during which time the holder of the permit should have

the sole right to explore the potential CO2 storage complex. Member States should ensure that

no conflicting uses of the complex are permitted during this time.

• The geological storage of CO2 shall also be made subject to a permit requirement. The storage

permit is the core instrument to ensure that the substantial requirements of the Directive are

met and that geological storage hence takes place in an environmentally safe way. All draft

storage permits shall be submitted to the Commission for review. The Commission will be

assisted by a scientific panel or technical experts, and issue an opinion on the draft permits

within six months of their submission. The national authorities shall take this opinion into

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consideration when taking a decision of the permit and shall justify any departure from the

Commission's opinion. The final permitting decision shall remain with the national competent

authority, according to the Subsidiary principle. The review at EU level shall help to ensure

consistency in implementation of the requirements of the Directive across the Community and

also enhance public confidence in CCS.

• Monitoring is essential to assess whether injected CO2 is behaving as expected, whether any

migration or leakage occurs, and whether any identified leakage is damaging the environment

or human health. To that end, Member States should ensure that during the operational phase,

the operator monitors the storage complex and the injection facilities on the basis of a

monitoring plan designed pursuant to specific monitoring requirements. The plan should be

submitted to and approved by the competent authority. This monitoring plan shall confirm

expected behaviour of CO2 in site and detect leakage. The monitoring plan shall be integrated

with monitoring and reporting guidelines under EU-ETS (see section 3.1.2) in order to

quantify any leaked emissions (currently under preparation; proposal expected end 2008). The

Commission may review the permits but final decision on permitting remains with competent

authority

• The key issue regarding the risk of leakage is the appropriate selection and management of

sites. The requirements on site selection are designed to ensure that only sites with a minimal

risk of leakage are chosen, and the review of draft permit decisions by the Commission –

assisted by an independent scientific panel – will provide additional confidence that the

requirements will be implemented consistently across the EU. A monitoring plan must be set

up to verify that the injected CO2 is behaving as expected. If, despite the precautions taken in

selecting a site, it does leak in practice, corrective measures must be taken to rectify the

situation and return the site to a safe state. Emissions Trading Allowances must be

surrendered for any leaked CO2, to compensate for the fact that the stored emissions were

credited under the ETS as not emitted when they left the source. Finally, the requirements of

the Environmental Liability Directive (Directive 2004/35/EC) on repairing local damage to

the environment will apply in the case of leakage.

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• The responsibility for the storage site, including all ensuing legal obligations, should be

transferred to the competent authority, if and when all available evidence indicate that the

stored CO2 will be completely contained for the indefinite future. To this end, the operator

should prepare a report documenting that the criterion has been fulfilled and submit it to the

competent authority for approval of the transfer.

• Financial provision should be made provided in order to raise confidence that closure and

post-closure obligations, obligations arising from inclusion under the EU ETS Directive

2003/87/EC, and obligations under this Directive to take corrective measures in case of

significant irregularities or leakages, can be met. Member States should ensure that financial

provisions, by way of financial security or any other equivalent, are made by the applicant

prior to the submission of the permit application.

Amendments to existing directives are proposed as follows:

Amendment of Directive 85/337/EEC

(1) Annex I is amended as follows:

(a) Point 16 is replaced by the following:

"16. Pipelines for the transport of gas, oil, chemicals and pipelines for the transport of carbon

dioxide streams for the purposes of geological storage with a diameter of more than 800 mm and

a length of more than 40 km, including associated booster stations."

(b) The following points 23 and 24 are added:

"23. Storage sites pursuant to Directive XX/XX/EC of the European Parliament and of the

Council.”

“24. Installations for the capture of CO2 streams for the purposes of geological storage pursuant

to Directive XX/XX/EC of the European Parliament and of the Council from installations covered

by this Annex, or where the total yearly capture of CO2 is 1.5 mega tonnes and more.”

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(2) In Annex II, the following point (j) is added to point 3:

"(j) Installations for the capture of CO2 streams for the purposes of geological storage pursuant

to Directive XX/XX/EC of the European Parliament and of the Council from installations not

covered by Annex I of this Directive.”

Amendment of Directive 96/61/EC

In Annex I to Directive 96/61/EC, the following point 6.9 is added:

"6.9 Capture of CO2 streams from installations covered by this Directive for the purposes of

geological storage pursuant to Directive XX/XX/EC of the European Parliament and of the

Council”


In point (j) of Article 11(3) of Directive 2000/60/EC, the following indent is inserted after the

third indent:

“- injection of carbon dioxide streams for storage purposes into geological formations which for

natural reasons are permanently unsuitable for other purposes, provided that such injection is

authorised under Directive XX/XX/EC of the European Parliament and of the Council”


In Directive 2001/80/EC, the following Article 9a is inserted:

" Member States shall ensure that all combustion plants with a capacity of 300 megawatts or

more for which the original construction license or, in the absence of such a procedure, the

original operating licence is granted after the entry into force of Directive XX/XX/EC of the

European Parliament and of the Council, have suitable space on the installation site for the

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equipment necessary to capture and compress CO2 and that the availability of suitable storage

sites and suitable transport facilities, and the technical feasibility of retrofitting for CO2 capture

have been assessed.”


In Annex III to Directive 2004/35/EC, the following paragraph 14 is added:

"14. The operation of storage sites pursuant to Directive XX/XX/EC of the European Parliament

and of the Council;”


Point (a) of Article 2(1) of Directive 2006/12/EC is replaced by the following:

"(a) gaseous effluents emitted into the atmosphere and carbon dioxide captured and transported

for the purposes of geological storage and geologically stored in accordance with the provisions

of Directive XX/XX/EC of the European Parliament and of the Council;”

Amendment of Regulation (EC) No 1013/2006

In Article 1(3) of Regulation (EC) No 1013/2006, the following point (h) is added:

"(h) shipments of CO2 for the purposes of geological storage in accordance with the provisions

of Directive XX/XX/EC of the European Parliament and of the Council.;”

Figure 1 below is an attempt to illustrate the roles of the operator, competent authority of a

member state, and the EC (possibly assisted by independent external experts as verifiers)

throughout the life cycle of a CCS project according to the CCS Directive /11/.

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Figure 1: Roles and steps under the CCS Directive. For comparison Figure 2 illustrates the roles and steps under the EU ETS. If there are emissions

from a CCS project including from the storage site, this is expected to be the procedure to be

followed.

Figure 2: Steps in the EU ETS process.

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Remarks

The Commission launched an energy and climate change legislative proposal package in January

2008, where a proposed directive on geological storage of CO2 was included, as part of the EU’s

goal to abate its carbon emissions by at least 50% by 2050.

According to the proposal for a directive it seems likely that the Member States will grant permits

for exploration and operation of storage sites through dedicated competent authorities on a

national level, whereas the role of the EC will be to help to ensure consistency in implementation

of the requirements of the Directive across the Community. Note that the Commission’s opinion

from reviewing the draft permits is not expected to be legally binding on member state

authorities.

The main argument for the review procedure by the Commission of draft storage permits (Article

10), is to secure sufficient environmental integrity across Europe, and to avoid or reduce risks of

distortions on competition. Since geological storing of CO2 is proposed to be linked to the

European Emissions Trading Scheme (ETS) and the carbon market, the issue of securing

confidence in and trust to a high, overall level of environmental integrity is of vital importance. It

is, however, not clear how this review procedure will be carried out. The role of a third party

verifier of the review done by the Commission needs to be considered. Under the proposal, no

substantial changes and updates of storage permits does qualify for a second review by the

Commission. Who makes the judgment whether a change is substantial or not? Is this sufficient

for the carbon market in order to securing trust in geological storage projects?

Why is verification important: a) demonstrate compliance (EU ETS Directive requires

verification, EU Reporting and monitoring guidelines set objectives, criteria, methods); b) avoid

loss - or liabilities resulting from unjustified gain (over-reporting or underreporting have financial

consequences); c) fairness in competition.

It is also anticipated that the Commission will let the member states to decide how to support

their own CCS projects and can consider options including feed-in tariffs, direct grants and CO2

price guarantees.

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The draft proposal do not impose CCS technology on coal or gas-fired power plants from a

specific date, however, it stipulates that any large fossil fuel combustion plants built after the

entry into force of the directive must "have suitable space on the installation site for the

equipment necessary to capture and compress CO2". This means the Commission has chosen to

use the ‘Capture-Ready” concept rather than making CCS mandatory.

The proposal is at the moment on its first reading in the European Parliament and in the Member

States in parallel. Several modifications are being discussed by the Parliament including making

CCS mandatory. The aim of the European Commission is to have finalized the reading by

December 2008, and issue the final directive at the spring Council 2009.

The Monitoring plan under the CCS Directive shall be integrated with monitoring and reporting

guidelines (MRG) under the EU-ETS in order to quantify any leaked emissions (see section

3.1.2). These guidelines are currently under preparation and a proposal is expected first towards

the end of 2008.

The Annexes of the CCS Directive are useful to make it operational, but the implementation

process will be even more efficient when supported by publicly available and recognized

reference documents. Recognized guidelines have a role in demonstrating compliance, managing

and minimizing risks (and uncertainties), avoiding future loss or liabilities, providing assurance

to stakeholders and the public, as well as in securing a transparent, consistent and cost-effective

implementation process. Such recognized guidelines could also play an important role in

harmonizing the implementation of the Directive among the various member states and regions.

Assignment of traffic light on EU CCS legislation:

Short term (1-2 years): AMBER


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2.4 UK regulatory issues A project information memorandum /12/ for the competition for a CO2 capture and storage

demonstration project in the UK was released 19th of November 2007 by The Department for

Business, Enterprise and Regulatory Reform (BERR). From this project information

memorandum there are indications on how regulatory issues in UK could apply for the winning

of CCS project(s) and how current hurdles could be solved.

The storage of CO2 is currently prohibited, unless as part of an EOR process licensable under the

Petroleum Act of 1998. BERR intends to seek powers in the Energy Bill 2007-2008 that will

enable licences to be issued for the regulated storage of CO2 below the surface of the UK seabed.

In addition to obtaining a licence to explore for suitable storage sites, and actually store CO2

BERR anticipates that it will also be necessary for an operator to obtain a lease or licence from

the Crown Estate, in a similar arrangement which already apply for offshore wind farms.

The UK Government published its Energy Bill 2007-2008 on 10th January 2008 /13/. The Bill

covers the following main areas: offshore gas infrastructure, renewables obligation,

decommissioning of energy installations (nuclear, renewables, oil & gas), offshore transmission

and geological storage of CO2. The principal objective of the Bill is to update the legislative

framework to make it more appropriate for today’s energy market.

The Energy Bill establishes a framework for the licensing of geological storage of CO2 and the

enforcement of the licence provisions. It also applies existing offshore legislation (for example

the decommissioning legislation in the Petroleum Act 1998) to offshore structures used for the

purposes of CO2 storage. The framework is limited to the offshore area. This is due to the fact

that this area is likely to be of primary interest to developers in the short-term. Moreover, storage

of CO2 onshore requires amendment of existing EU Directives.

According to the Bill, a licence for storing CO2 may include the following type of provisions:

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• provision about the circumstances in which financial security (which may be provided by way

of a trust or other arrangements) may be required before a licence is granted and the form of

any such security;

• provision about the circumstances in which financial security may be released (in whole or

in part);

• provision enabling the Secretary of State to review the licence in specified circumstances or

at specified intervals;

• provision enabling the Secretary of State to modify the licence in specified circumstances

(with or without the consent of the licence holder);

• provision preventing or enabling the Secretary of State to prevent a licence holder, in

specified circumstances, from carrying on an activity in respect of which the licence was

granted;

• provision about closure of a carbon storage facility;

• provision about obligations of a licence holder between closure of a carbon storage facility

and termination of the licence;

• provision about termination of the licence (which may include provision about financial

arrangements).

The approach the UK Government is following could put the UK in a position where it is able to

regulate the storage of CO2 before EU legislation is finalised, which means that any steps taken

nationally are likely to be interim measures, pending the introduction of an EU-wide regime.

BERR intends to keep any differences between UK and future EU legislation to a minimum by

using the experience of developing a domestic regime to influence what finally applies in the EU.

Remarks

• The UK is working closely with the European Commission in order to establish a national

CCS regulatory system that is consistent with the legislative proposals from the

Commission in order to minimize delays on national CCS legislation. The Energy Bill

2007-2008 proposes primary legislation that will lay the foundations for a regulatory

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framework for CCS projects in the UK, and is likely to get Royal Assent by summer

2008.

• The UK has indicated that the regulations for injection and storage of CO2 will take

account of the content of the OSPAR Guidelines for Risk Assessment and Management of

Storage of CO2 streams in Geological Formations requirement (see section 2.2), and seeks

to enable a ratification of the OSPAR Convention as soon as possible.

Assignment of traffic light on UK CCS legislation:



2.5 Norwegian regulatory issues The Norwegian government considers emission trading to be an important tool in reducing

greenhouse gas emissions. The Norwegian emission trading system will cover more than 35% of

the greenhouse gas emissions from Norwegian sources. In addition, the Norwegian government

has high ambitions regarding the role of CCS as a mitigation option in the overall portfolio in

Norway. Hence, the Pollution Control Act opens up for issuing emissions permits with

technology requirements, and the government issued some years ago emissions permit for the

energy plant at Snøhvit field in the northern part of Norway with the “capture ready” concept,

e.g. “have suitable space on the installation site for the equipment necessary to capture and

compress CO2 and assess the availability of storage sites and transport networks, as well as the

technical feasibility of retrofitting for CO2 capture “.

StatoilHydro plan to build a Combined Heat and Power (CHP) plant at Mongstad. As a

consequence of the government’s policy on CCS, the Norwegian State and StatoilHydro have

signed an agreement to establish a full-scale CCS project in conjunction with the CHP plant. The

project will develop in two stages:

1) The first stage of the project, the technology development stage, will be in place at the

start-up of the cogeneration facility in 2011. In this first stage, different technological solutions

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will be tested in parallel at the European CO2 Test Centre Mongstad (TCM). The purpose is to

develop the technology in order to bring down capture costs and risks. This testing activity could

be of considerable interest also to owners of other fossil-fuelled power plants. In order to abate

the carbon emissions from the test facility, the government intends to include the CO2 emissions

in the national emission trading scheme. This will give an annual reduction in global emission

equivalent to 100,000 tons of CO2.

2) In stage two of the project, a full scale CCS facility will be constructed. This should be

operational by the end of 2014, capturing 1.3 million ton of CO2 per year from the CHP plant.

The government is also planning a retrofit CO2 capture facility at the Kårstø gas-fired power

plant, named CO2 Kårstø. The aim is to have a full scale capture and storage plant in operation as

soon as possible. Preparatory work shows that a full-scale carbon capture plant at the earliest

could be operational by 2011/2012.

Gassnova SF3 was established in July 2007 and is a subsidiary of the Norwegian Ministry of

Petroleum and Energy. It was established to stimulate the development of technology for natural

gas power generation with CCS. Gassnova is now responsible for the government’s involvement

in both CO2 Kårstø, TCM and the project preparing for full scale transport and storage of CO2

from Kårstø and Mongstad.

Remarks

• The regulatory framework in Norway is under development /15/ /16/.

• The Norwegian Pollution Control Authority (SFT) has so far issued two permits under the

Pollution Control Act. This act applies to geological storage of CO2:

- injection and storage of CO2 from Sleipner West in the Utsira formation (issued 13

December 2002).

- injection and storage of CO2 from Snøhvit in the Tubåen formation (issued 13

September 2004)

3 http://www.gassnova.no/

http://www.gassnova.no/

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• CCS as part of petroleum activities (whether for the purpose of EOR or permanent storage

on the continental shelf) can today be regulated under the ordinary legal regime for

petroleum activities:

- The Petroleum Act and Regulations (including HSE),

- The Pollution Control Act and Regulations, and

- The CO2-levies Act.

• CCS for permanent storage on the continental shelf, but not part of petroleum activities:

- Onshore capture plant: Energy Act/Planning Act/Pollution Control Act

- Permit to inject CO2 on the continental shelf: Pollution Control Act

- Building and operation of pipelines: No applicable legislation at present.

- Exploration for and use of offshore reservoir for permanent storage: No applicable

legislation at present.

• Issues that need to be regulated (on the basis of existing petroleum legislation) – not

exhaustive:

- Permit to:

Explore for and use subsea geological structures for permanent storage of CO2

Build and operate pipeline for transportation of CO2 from capture plant to offshore storage

site

- Plan for use of an offshore geological structure for permanent storage of CO2 – subject

to approval by competent authorities

- Obligation to carry out EIAs

- Safety issues – risk analyses

- Responsibility for long term monitoring of storage reservoir

- Third party access to CO2 pipelines and storage reservoirs – division of responsibility

for injected CO2?

A possible obstacle to the coming major CCS projects in Norway could be restrictions in allowed

state aid involvement in these types of projects. This is handled by the EFTA Surveillance

Authority (ESA). The Norwegian government argues the importance of the State to be allowed –

also legally – to contribute to financing the investment and operational cost of a full-scale CCS

facility to prove and verify the technology. ESA is expected to decide medio July 2008 on the

TCM project.

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Assignment of traffic light on Norwegian CCS legislation:



2.6 Transboundary Issues

From the initial discussion paper (June 2008) circulated by the NSBTF’s sub-group on trans-

boundary issues /17/ /18/: (quote start) This paper briefly sets out progress to date on putting in

place the right international regulatory framework for CCS. It identifies outstanding legal and

practical issues in order to facilitate discussion in a proposed North Sea Basin Task Force sub-

group on trans-boundary issues.

2.6.1 Regulation for storing CO2 in the North Sea A significant amount of progress has already been made on getting the right international

regulatory framework in place to allow CCS and in particular storage in the North Sea. In

November 2006, after two years of work the global marine environment convention, namely the

1996 Protocol to the London Convention, was amended to allow carbon dioxide to be stored in

geological formations below the sea. The amendment came into force 10 February 2007 to allow

carbon dioxide capture processes for sequestration. Then in June 2007, following a proposal

from Norway, the UK, France and the Netherlands, the OSPAR Convention was also amended to

allow all routes for storage of CO2 in the sub-seabed geological formations (i.e. extending what

is already permissible to allow the re-use of existing infrastructure, such as oil and gas

platforms, in the transport and storage of CO2, and to allow ship borne transport of CO2). This

amendment will come into force once seven Contracting Parties to OSPAR have ratified. At the

same time a decision was taken by OSPAR countries to prohibit CO2 storage in the water

column, and to use specially developed guidance on how to permit CO2 disposal.

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2.6.2 Regulation for transboundary transport and storage of CO2 in the North Sea Last year, the North Sea Basin Task Force commissioned a report into the development of a CO2

transport and storage network in the North Sea, which was published in November 2007 /14/.

This has been well received and pointed towards many areas for future work.

In January 2008, the European Commission proposed a new EU Directive on the geological

storage of CO2 as part of its Climate Change and Energy package /10/ /11/. This contains

provisions for trans-boundary co-operation between Member States, who are also required to

take steps to ensure open access to CO2 transport and storage networks. It is clear that the

Commission would like to encourage cooperation in this area and in its recent communication on

Early Demonstration of Sustainable Fossil Fuels, it also proposed considering the use of TEN-E

budget to undertake further infrastructure studies on the maximisation of EU storage capacity.

On 25-27 February 2008 the first meeting of the London Convention legal and technical working

group was held on trans-boundary movement of CO2. The conclusion of this meeting was that

Article 6 of the Protocol prohibits the export of CO2 streams from the jurisdiction of one

contracting party to any other country, whether that is a contracting party or not. This means

that an amendment is needed to permit such movements. A possible amendment has been drafted

but as yet no-one has proposed this amendment.

Remarks

Outstanding concerns on transboundary CO2

Thus, whilst progress has been made on a number of fronts towards enabling transboundary

transport and storage of CO2, a number of legal and practical issues still remain to be resolved.

As the European Commission’s proposed EU Directive on the geological storage of CO2 is silent

on some of the more detailed points, this provides an opportunity for the North Sea Basin Task

Force to show leadership in a number of areas. The main issues are detailed further below.

• Legal issues: Cross-border export prohibition under London Protocol

As explained above, until an amendment to Article 6 of the London Protocol is proposed, and

subsequently ratified, cross-border export of carbon dioxide for disposal into a sub seabed

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formation will be prohibited. This will need to be resolved if we are to maximise the potential of

storage sites in the North Sea by encouraging co-operation. Clarity is needed on how any

amendment is to be taken forward and according to what timescales.

• Developing a network: role of industry and Government intervention

Article 20 of proposed EU Directive on the geological storage of CO2 requires Member States to

take the necessary measures to ensure that potential users are able to obtain access to CO2

transport networks and to storage sites for the purposes of geological storage. The North Sea

Basin Task Force (NSBTF) is also minded to develop a network for CCS activities in the North

Sea, but how this might work in practise needs further consideration. In the absence of detail in

the proposed Directive, this is an area where the NSBTF can show leadership. This will include

the determining the extent to which a network might develop naturally through the market and

the level of Government intervention that might be required. The recent report to the NSBTF on

CCS infrastructure listed among its conclusions the need for Government to play an active role to

help gather data, prioritise and co-ordinate sink availability.

• Dispute settlement

The proposed EU Directive on geological storage of CO2 requires Member States to have in

place dispute settlement arrangements, including an authority independent of the parties, to

enable disputes relating to access to CO2 transport networks and to storage sites to be settled

swiftly. For cross-border disputes, the dispute settlement arrangements of the Member State

having jurisdiction over the CO2 transport network or the storage site to which access has been

refused shall be applied. Where more than one Member State covers the CO2 transport network

or storage site concerned, the Member States concerned shall consult with a view to ensuring

that the provisions of this Directive are applied consistently. Is there a need for new

arrangements or can we build on existing practices used elsewhere?

• Practicalities of co-operation: Contingent liabilities

Under the proposed EU Directive on geological storage of CO2, it is clear that following transfer

to the state of the responsibility for a closed site, all ensuing legal obligations shall be

transferred to the competent authority. This means that if there was a leak following transfer of

the site to the State, the competent authority would be responsible for taking corrective measures

and would also be responsible for any ETS liabilities. However, the proposed Directive is silent

on dealing with stores that have been receiving CO2 from more than one Member State.

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Consideration should be given to how we deal with this issue – should liabilities be shared

between those Member States using the store? How might this be enforced? (quote end)”

Assignment of traffic light to Transboundary Issues: Short term (1-2 years): YELLOW Long term (>2 years): YELLOW

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3 INCENTIVES Widespread deployment of full scale CCS projects is not a commercial option today. The capital and

operating costs associated especially with capturing CO2 typically represent the largest single cost

element of a CCS life cycle. Additional incentives are necessary, especially in the near term, if CCS

is to play a significant role in reducing global GHG emissions.

The inclusion of CCS in greenhouse gas emission trading schemes is an important incentive that

is currently being considered, and is described in section 3.1. EU CCS incentives are discussed in

section 3.2, whereas issues concerning incentives for national CCS demonstration projects in the

UK and Norway are covered in section 3.3.

3.1 Greenhouse Gas Emission Trading Schemes

3.1.1 The Kyoto Protocol: CCS in CDM and JI In November 2006, at the second meeting of parties to the Kyoto Protocol /19/ in Nairobi, parties

decided that more work is required before allowing CCS projects to qualify as Clean

Development Mechanism (CDM) project activities. Organisations were given until May 2007 to

submit views in legal, policy and technical issues that need to be addressed before CCS is eligible

under the CDM. Parties to the UNFCCC and the Kyoto Protocol were given until September

2007 to submit views. Moreover, it was agreed that the discussions on CCS in CDM should

continue at the fourth meeting of the Kyoto Parties in the fall of 2008.

In December 2007, the United Nations Climate Change Conference at Bali /21/ took place. From

this meeting it was evident that there is a split opinion among the Parties whether CCS should be

included in the CDM. The parties agreed to do further work on this topic and established a work

plan for 2008 that will include receiving and considering input on technical, legal, policy and

financial issues associated with CCS. This input will be considered at the Climate Change

Conference in Poznan in 2008.

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Remarks

There are still ongoing discussions among the Parties to the Kyoto Protocol on the issue of

including CCS in the Clean Development Mechanism, which will continue at the Climate Change

Conference in Poznan in late 2008. The resistance to CCS in the CDM seems more related to

more fundamental issues associated with the introduction of new and risky technology which not

yet has been fully implemented in industrialised countries. There are also concerns related to

CCS crowding-out investments in energy efficiency, renewable energy and other project types in

the CDM. It is therefore great uncertainty whether CCS projects will be approved as CDM

activities within the next 1-2 years.

The implementation of CCS projects in the CDM is not relevant for the North Sea, but CCS as JI

projects could become.

Assignment of traffic light on CCS in CDM:

Short term (1-2 years): RED

Long term (>2 years): AMBER

3.1.2 CCS in the EU Emissions Trading System (EU ETS) The role of CCS under the EU ETS will be addressed in the proposal of improving and extending

the EU greenhouse gas emission allowance trading system related to post-2012. Also, a working

group on ETS has been set up under the Commission to address to what extent to recognise CCS,

considering the need for comparable treatment of low or non-CO2 emitting activities and a level

playing field both between various CO2 storage options and across the EU for investment in CCS

technologies /3/.

The Commission has expressed its intention to recognise CCS in Phase II of the EU ETS (2008-

12) through voluntary Member State opt-in under Art 24 of the Emissions Trading Directive.

Under the present Directive, Art. 24 opt-in would require the whole chain of CO2 source, capture,

transport, injection and storage to be included in the ETS as one installation, and appropriate

monitoring and reporting guidelines (MRG) to be established. The installation will be allocated

allowances in line with similar installations (CO2 sources) not employing CO2 capture.

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A discussion paper /22/ to the European Commission discusses two main future options, taking

into account that multiple operators in the future will be using common carriage networks:

1. Consider elements of the CCS chain (source and capture; transport; injection and storage) as

separate installations in their own right, and establish appropriate MRGs for each (excluding

the CO2 source which would already be subject to incumbent MRG provisions). The capture

plant in this case is assumed to form part of the source installation, which transfers CO2 to

the pipeline installations (and subsequently the storage installation). Pipelines and storage

facilities would be allocated zero allowances (EUAs) in order to incentives minimal loss of

CO2. This has the advantage of severing links between different components of the chain,

facilitating multiple-operator developments, and clearly allocating the risk and liability for

emissions to each element across the chain of operations, and would create a “chain of

custody” for the CO2 from source to storage.

2. Consider the CO2 source and capture plant as one installation, and apply transfer provisions

for this installation to licensed transport and storage facilities. The EU ETS monitoring and

reporting guidelines or a licensing or permitting regime would include provisions for pipeline

and storage site operators to monitor and report emissions back to the transferring

installation in order that they reconcile these emission against their inventory of exported

CO2 (i.e. creation of a “chain of custody” for CO2 via the EU ETS monitoring and reporting

guidelines). Risk and liability for reconciling emissions would likely need to spread amongst

operators through private contracts between exporting installations, pipeline operators and

storage site operators; this would be an entirely commercial matter.

The Option 1 is in essence a more transparent and certain way of regulating than Option 2, the

latter relying on private contracts which could be open to dispute, litigation and lack of

transparency. As such, Option 1 is recommended as the preferred policy option for the EU

beyond Phase II (beyond 2012).

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The proposal for amending Directive 2003/87/EC /22/, published January 2008, states that it

intends to set out a predictable trend line for the EU emissions trading system to contribute to

achieving the EU’s long-term objective of 30% reduction of greenhouse gas emissions by 2020

compared to 1990 levels. In the proposal it is stated that the EU-wide quantity of allowances

issued each year starting in 2013 shall decrease in a linear manner compared to the average

annual total quantity of allowances issued by Member States pursuant to Commissions Decisions

on Member States’ national allocation plans for the period 2008-12.

In view of the long-term potential for emissions reductions from CCS, and pending the entry into

force of Directive XX/2008/EC on the geological storage of carbon dioxide (the CCS Directive /11/),

installations undertaking the capture, transport and geological storage of greenhouse gases should be

included in the Community system. While Article 24 offers the appropriate legal framework for

unilateral inclusion of such installations pending the entry into force of the said Directive, activities

concerning capture, transport and geological storage of greenhouse gas emissions should be explicitly

mentioned in Annex I of the Directive, in order to provide clarity. Consequently, Appendix I of the

proposed directive is now amended to include capture, transport and geological storage of

greenhouse gas emissions.

From 2013 onwards, the capture, transport and geological storage of greenhouse gases should be

covered by the Community scheme in a harmonised manner.

Also, it is stated that at least 20% of the proceeds from the auctioning of allowances should be

used to reduce greenhouse gas emissions, to adapt to the impacts of climate change, to fund

research and development for reducing emissions and adaptation, to develop renewable energies

to meet the EU’s commitment to using 20% renewable energies by 2020, to meet the

commitment of the Community to increase energy efficiency by 20% by 2020, for the capture

and geological storage of greenhouse gases, to contribute to the Global Energy Efficiency and

Renewable Energy Fund, for measures to avoid deforestation and facilitate adaptation in

developing countries, and for addressing social aspects such as possible increases in electricity

prices in lower and middle income households.

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At least 20 percentages of the proceeds from the auctioning of allowances should be used to

reduce greenhouse gas emissions by funding of research and development of renewable energy,

measures to avoid deforestation and carbon capture and storage.

Remarks

• CCS can be opt-in under Article 24 of the current EU ETS Directive (2003/87/EC)

• According to the proposal of the revised ETS, stored CO2 will be accounted for as ‘not

emitted’ from 2013 onwards. It is also indicated that a percentage of the proceeds from

auctioning of allowances will de dedicated to funding of CCS projects.

• The Monitoring plan under the CCS Directive shall be integrated with the coming

monitoring and reporting guidelines (MRG) under the EU-ETS in order to quantify any

leaked emissions (see section 2.3). These guidelines are currently under preparation and a

proposal is expected first towards the end of 2008.

Assignment of traffic light on CCS in the EU ETS:



3.1.3 Linking EU ETS with CDM and JI

The EU's "Linking Directive" (2004/101/EC) amends the Emissions Trading Directive

(2003/87/EC) and provides for the use of credits from the Kyoto Protocol's project mechanisms

in the EU Emissions Trading Scheme during 2008-2012.

The mechanisms provide for projects to be carried out in other countries and to receive credits for

emissions reductions or limitations:

• Joint Implementation (JI) operates in countries which are Parties to the Protocol and

which have a quantified emissions reduction or limitation target (Annex I Parties).

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• Clean Development Mechanism (CDM) operates in Parties which do not have a target

(non-Annex I Parties).

3.2 EU incentives The European Commission has assumed the EU ETS to provide the main incentive for CCS

deployment. CO2 captured and safely stored according to the EU legal framework will be

considered as not emitted under the ETS. In Phase II of the ETS (2008-12) CCS installations can

be opted in. For Phase III (2013 onwards), under the proposal to amend the Emissions Trading

Directive, capture, transport and storage installations would be explicitly included in Annex I of

the ETS (section 3.1.2). There are also voices in the Parliament wanting CCS to be mandatory.

The conclusion is not given at the present stage.

The Communication on Supporting Early Demonstration of Sustainable Power Generation /24/

sets out the Commission's commitment to early effective demonstration of CCS and calls for

timely and bold industry and public initiatives. In view of the importance of early demonstration

of CCS in power generation and given that a number of those projects may require some public

funding, the Commission is ready to view favourably the use of state aid for covering the

additional costs related to CCS demonstration in power generation projects. This commitment is

reflected in the revised Environmental State Aid Guidelines adopted with the package, described

in section 3.2.1. Moreover, the 'Framework programmes' (FPs) have been the main financial tools

through which the European Union supports research and development activities covering almost

all scientific disciplines. CCS R&D projects are currently supported under the FP7, described in

section 3.2.2.

3.2.1 Guidelines on State Aid for Environmental Protection in the EU Support for CCS projects at the Member-State level will require amendment of the Community

Guidelines for State Aid for Environmental Protection. In view of the importance of early

demonstration of CCS in power generation and given that a number of those projects may require

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some public funding, the Commission is ready to view favourably the use of state aid for

covering the additional costs related to CCS demonstration in power generation projects.

The Commission adopted new guidelines on State aid for environmental protection, published

23rd of January 2008 /25/. The relevant points covering CCS are found below:

69. Finally, some of the means to support fossil fuel power plants or other industrial

installations equipped with CO2 capture, transport and storage facilities, or individual

elements of this Carbon Capture Storage chain, envisaged by Member States could

constitute State aid but, considering the lack of experience, it is too early to lay down

guidelines for authorising any such aid. Considering the strategic importance of this

technology for the EU in terms of energy security, reducing greenhouse gas emissions and

meeting its agreed long-term objective to limit climate change to 2°C above preindustrial

levels and its stated support for the construction of industrial-scale demonstration plants

up to 2015, provided that they are environmentally safe and contribute to environmental

protection, the Commission will have a generally positive attitude towards State aid for

such projects33. Projects could be assessed under Article 87(3)(c) of the Treaty, or

eligible as important projects of common European interest under the conditions set out

in Article 87(3)(b) and point 147 of the present guidelines.

In point 147 of the guideline the criteria of ‘important project of common European interest’ is

further elaborated:

147. Aid to promote the execution of important projects of common European interest which

are an environmental priority may be considered compatible with the common market

according to Article 87(3)(b) of the EC Treaty provided that the following conditions are

fulfilled.

(a) The aid proposal concerns a project which is specific and clearly defined in respect of

the terms of its implementation including its participants, its objectives and effects and the

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means to achieve them. The Commission may also consider a group of projects as

together constituting a project.

(b) The project must be in the common European interest: the project must contribute in a

concrete, exemplary and identifiable manner to the Community interest in the field of

environmental protection, such as by being of great importance for the environmental

strategy of the European Union. The advantage achieved by the objective of the project

must not be limited to the Member State or the Member States implementing it, but must

extend to the Community as a whole. The project must present a substantive contribution

to the Community objectives. The fact that the project is carried out by undertakings in

different Member States is not sufficient.

(c) The aid is necessary and presents an incentive for the execution of the project, which

must involve a high level of risk.

(d) The project is of great importance with regard to its volume: it must be substantial in

size and produce substantial environmental effects.

Remarks

• The Guidelines for State Aid for Environmental Protection states that Member State

support will be allowed provided that the project is substantial in size and environmental

effect and is of common European interest. Also, the project must involve a high level of

risk, which will be the case for the first large-scale CCS projects to be launched across

Europe. Therefore, it is likely that a handful of projects, launched as the first large-scale

pioneer CCS projects in will qualify for state aid within the short term perspective.

• Also, according to the guidelines, it can be interpreted that once CCS is established as a

viable technology for the reduction of CO2 emission and the level of risk is reduced based

on the experience gained from the first prove-of-concepts plants, member state aid will

not be granted.

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3.2.2 The EU 7th Framework Programme (FP7)

'Framework programmes' (FPs) have been the main financial tools through which the European

Union supports research and development activities covering almost all scientific disciplines. It

has been proposed for FP7 to run for seven years. It will be fully operational as of 1 January 2007

and will expire in 2013. In the Commission's amended proposals for FP7, it was proposed that the

maximum overall amount for Community financial participation in the EC Seventh Framework

Programme should be EUR 50 billion for the period 2007 – 2013, where 2.3 billion is allocated to

energy research.

CCS projects are supported under the ‘Energy’ theme where the objective is to pursue research,

development and demonstration of technologies to drastically reduce the adverse environmental

impact of fossil fuel use aiming at highly efficient and cost effective power and/ or steam

generation plants with near zero emissions, based on CO2 capture and storage technologies, in

particular underground storage.

Priorities have also been determined in accordance with those identified by the work of the

Technology Platform for zero emission (see section 5.2), with a view to getting to the vision

established by the ZEP platform of having integrated solutions for zero emission fossil fuel based

power available by 2020. This requires large scale demonstration in place by 2015 at the latest.

Whilst the Commission cannot aspire to financing significant investment costs from FP7, a

limited financing of preparatory stages may be provided to a few most deserving projects, e.g. the

most innovative or promising early risers. In the first call for proposals under FP7, the

Commission opened the possibility of supporting feasibility and engineering studies for large-

scale CCS demonstration projects. In the 2008 call for proposals, a similar topic will be open.

3.3 National incentives

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3.3.1 Norwegian State Aid issues for the European CO2 Test Centre Mongstad (TCM) The Norwegian Royal Ministry of Government Administration and Reform submitted their

comments to the first draft on Community Guidelines for State Aid for Environmental Protection

in June 2007 /26/.

In this consultation, the Norwegian Government stresses the importance of the State to be

allowed – also legally – to contribute to financing the investment and operational cost of a full-

scale CCS facility to prove and verify the technology. Furthermore, the importance of gaining

the Commission’s acceptance that the early CCS projects in Norway and Europe may qualify for

the exemption under the EC Treaty, as indicated in the draft Community guideline (section 3.2.1)

is underlined.

In July 2007, the Norwegian Government submitted a notification to the EFTA Surveillance

Authority (ESA) regarding the investment in European CO2 Test Centre Mongstad (TCM). In the

notification the Government argues primarily that the investment does not constitute state aid

within the meaning of Article 61(1) EEA in that the Market Economy Investor Principle (MEIP)

is fulfilled. Recently, the Norwegian Government submitted a Second Reply to the Information

Requests4 from the EFTA Surveillance Authority (ESA). Here, the government states that the

TCM investment is made from a commercial point-of-view, where they are acting as an investor.

The ESA is expected to decide medio July 2008 (cf. section 2.5).

3.3.2 The UK CCS competition incentives According to The Department for Business, Enterprise and Regulatory Reform (BERR) the

payment mechanism for the operational support to the UK CCS competition Project (described in

section 2.4) will most likely be based on the tonnage of CO2 abated (i.e. CO2 not emitted in

4

http://www.regjeringen.no/upload/OED/pdf%20filer/Mongstad%20ESA/301107%20Andre%20svarbrev%20til%20ESA%20vedr%20Mongstad.pdf



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comparison with a suitable benchmark), and may involve a contract for difference between a

fixed carbon price in the Project Contract and the market price of European Union Allowances

(EUAs) under the EU ETS. BERR considers this payment system as likely to be the most suitable

form of operational support because:

• It will provide an incentive to operate the power plant and capture facility efficiently;

• It avoids any perverse incentive for the production of CO2 which might arise if the

payment was based on actual tonnage of CO2 stored; and

• The level of support from the Government will decrease when the market price of EUAs

increases and vice-versa.

BERR believes that structuring the payment mechanism as proposed is most likely to incentivise

the Project Developer to deliver the development, construction and operational elements of the

Project efficiently, within the Government’s overall objectives and constraints, and ensures an

appropriate allocation of risks to the parties which are best able to manage them.

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4 LONG TERM LIABILITY The allocation of liability and risk is crucial to the development of a commercially and

environmentally sound legal regime governing CCS. Of particular importance is striking the right

balance in the liability regime between government and private entities. It is improbable that a

private company would be prepared to embark on a CCS project without certainty as to whether it

may be liable for the release of CO2 decades or centuries into the future. The legal regime must

address the appropriate scope of liability for private companies, ensuring high procedural

standards for maintaining the integrity of storage sites, while at the same time guarding against

dis-incentivising CCS project development.

In the UK Competition for a Carbon Dioxide Capture and Storage Demonstration Project

Memorandum /12/ the Department for Business, Enterprise and Regulatory Reform (BERR)

states that it would be unreasonable for operators to retain permanent responsibility for stored

CO2 and that it will be necessary for the state to take responsibility for the store once it has

reached the end of its operational life.

The model that BERR is proposing is designed to provide for the transfer of the long-term

responsibilities and liabilities relating to the store from the licensee to the State, whilst ensuring

that for the period the licensee is in charge of the store it is incentivised to manage the store with

regard to its long-term management, and that the transfer arrangements do not pass undue risk to

the public purse.

In order to ensure that operators have the funds in place to meet any liabilities that might arise

during the injection stage, and any responsibilities and liabilities that may arise post-injection

while the store is being monitored to ensure its safety and stability, it is envisaged that the

licensee will be required to provide an appropriate form of financial security. The security would

be financed or accumulated in the course of the injection phase. In addition to its responsibilities

for the store, the operator will also be required to provide for the decommissioning of the

structures and pipelines used to inject the CO2.

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In the proposal for the directive on CO2 storage (see section 2.3) from the European Commission,

an Article on the transfer of responsibility to the Member State is included:

Where a storage site has been closed (….), the responsibility for the closed site, including all

ensuing legal obligations, shall be transferred to the competent authority on its own initiative or

upon request from the operator, if and when all available evidence indicates that the stored CO2

will be completely contained for the indefinite future. To this end, the operator shall prepare a

report documenting that this criterion has been met and submit it to the competent authority for

the latter to approve the transfer of responsibility.

As for the financial model proposed by BERR for the UK CCS competition project, the proposal

of the EU directive adapts the same approach on financial security:

Member States shall ensure that adequate provisions, by way of financial security or any other

equivalent, on the basis of modalities to be decided by the Member States, are made by the

applicant prior to the submission of the application for a storage permit to ensure that all

obligations arising under the permit issued pursuant to this Directive, including closure

procedures and post-closure provisions, as well as any obligations arising from inclusion under

Directive 2003/87/EC can be met.

Remarks

There is an emerging consensus that agreed terms and conditions for decommissioning

requirements and longer-term monitoring must be in place before liability can be transferred from

the operator to the State.

According to draft directive proposal from the EU Commission on geological storage of CO2 -

the time of transfer of liability should be set to the point when all available evidence suggests the

long-term security of the storage site. Moreover, the operator shall prepare a statement

documenting the assessment of this criterion which on approval by the competent authority shall

be made public. Details on how this assessment should be performed by the competent authority

on a national level are unclear, and issues concerning third party verification upon transfer of the

storage site to the state are not covered in the draft proposal.

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It is up to the member states to put in place appropriate financial security/insurance to ensure that

obligations under the permit can be met by the operator. Furthermore, it is stated that financial

provision must be made by the applicant prior to the submission of the permit application. It is

unlikely that these instruments will be in place in the short-term perspective. However, we

consider that on a longer term perspective the post-closure liability issues now is likely to be

solved faster as a framework of how it should be done is delineated and the implementation is

passed on to the national governments.

Assignment of traffic light on long-term liability

Short term (1-2 years): RED

Long term (>2 years): AMBER

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5 DRIVERS AND INITIATIVES In addition to the gap-closing activities identified and described in the preceding sections, there a

several initiatives that we consider to some extent to be influential. Some of these are briefly

described below.

5.1 Strategic Energy Technology Plan (SET) Recently, the European Commission proposed a Strategic Energy Technology (SET) Plan /27/

with the goal of boosting research into the new, low carbon technologies which Europe will need

if it is to meet its climate change targets.

The new plan sets out a number of actions to tackle the fragmented nature of European energy

research. These include the creation of European Industrial Initiatives, which will bring together

the relevant resources and actors in a particular sector such as wind, solar, bio-energy and nuclear

fission. How these initiatives work will vary from sector to sector, but it is likely that some could

be set up as Joint Technology Initiatives. The Commission also proposes the establishment of a

European Energy Research Alliance, which will boost cooperation between the many scientific

disciplines engaged in research that impacts upon energy technologies, such as physics,

chemistry, materials science and engineering.

In order to ensure all policy makers and stakeholders in the energy sector are aware of the latest

technologies and ideas, the Commission will set up and run a European Energy Technology

System. This will provide the latest information on new technologies and barriers to uptake and

further development.

Switching Europe's energy infrastructure and networks to a low carbon system will require

massive changes entailing significant investments in a wide range of sectors. Planning how to

carry out these changes as efficiently as possible is therefore a major priority, and the

Commission will develop its ideas in this area in 2008. For example, the Commission proposes

to initiate in 2008 an action on European energy infrastructure networks and systems transition

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planning. It will contribute to optimise and harmonise the development of low carbon integrated

energy systems across the EU and its neighbouring countries. It will help the development of

tools and models for European level foresight in areas such as smart, bi-directional electricity

grids and CO2 transport and storage and hydrogen distribution.

5.2 EU ZEP The EU established a European Technology Platform (TP) for Zero Emission Fossil Fuel Power

Plants (ETP-ZEP) in 2005. Its aim is to enable EU fossil fuel plants with zero emission of carbon

dioxide by 2020. In September 2006, the Zero Emission Technology Platform presented its

Strategic Research Agenda and a Deployment Strategy. After the approval in September 2006,

the ETP-ZEP has set up 4 taskforces /28/ to make the recommendations of these documents

happen. The different taskforces and their term of references are listed below:

• Taskforce on Technology

Taskforce Technology is responsible for accelerating technology development in order to bring

current CO2 capture technologies (together with improved power plant efficiency) to commercial

readiness by 2020; and validating new concepts for implementation beyond this date. This

includes implementing the following tasks:

1 Organise R&D

1.1 Map R&D needs & landscape, identifying gaps and priorities

1.2 Initiate a higher level of R&D activities & expertise

1.3 Provide input reflecting the strategies of ZEP for next update of the FP7 CCS Work

Programme

1.4 Improve coordination between national programmes and FP7, and international

R&D initiatives

1.5 Maintain SRA & working group papers, e.g. through a technology assessment group

2 Secure public funding

2.1 Map the need for additional finance for R&D

2.2 Via public bodies (EC, member states), jointly with Taskforce Policy & Regulation

2.3 Initiate public-private-partnership(s), e.g. JTI

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3 Network and disseminate

3.1 Organise technical days aimed at networking researchers and industry

Taskforce Technology will closely work with Taskforce Policy & Regulation regarding task 2

(secure public funding).

• Taskforce on Demonstration and Implementation

Taskforce Demonstration & Implementation is responsible for identifying and implementing

10-12 demonstration projects as quickly and effectively as possible in order to facilitate the wide-

scale deployment of CCS in Europe and beyond.

This includes implementing the following tasks:

1 Organise and finance demonstration projects

1.1 Define process for specifying the 10 -12 demo projects, incl. choice of technology,

location and contractors

1.2 Initiate projects in eastern & southern Europe, India & China, if possible

1.3 Map the need for additional finance of these demonstration projects

1.4 Initiate public-private-partnership(s) to ensure adequate funding

1.5 Establish cooperation between industrial partners for sharing knowledge/experiences

and reducing costs.

1.6 Clarify cost estimates of technology

1.7 Assess project models, e.g. Mongstad

2 Disseminate the knowledge

2.1 Ensure close cooperation, facilitate a discussion by organising events

2.2 Communicate best practice

3 Map regulatory problems, e.g.

3.1 Develop a framework for the risk analysis of CCS projects

3.2 Map existing legal barriers to CCS projects

N.B. The revision of the regulatory framework should be done in close cooperation with

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Taskforce Policy and Regulation.

• Taskforce on Policy and Regulation

Taskforce Policy & Regulation is responsible for establishing a long-term policy framework and

economic incentives in order to promote the wide implementation of CCS, including all new and

existing projects.This includes implementing the following tasks:

1 Working closely with the EU in order to identify regulatory issues

1.1 Regulatory work DG TREN, ENV and other relevant DG’s

1.2 Public funding for R&D (e.g. FP7, JTI, EIB)

2 Coordinate and interface between ETP-ZEP taskforces and EC, related institutions & national

governments

3 Developing commercial incentives as outlined in the SDD (e.g. EU ETS, Early Mover Fund)

4 Ensure that CCS is introduced under the ETS

5 Propose necessary regulation corresponding to greenhouse gas avoidance costs

6 Map Member States’ involvement and disseminate best practice to national governments Taskforce Policy and Regulation will take the lead in the dialogue with the European

Commission to improve the regulatory framework.

• Taskforce on Public Communications

Taskforce Public Communication is responsible for developing a communication strategy for

gaining clear public support for CCS as a vital solution for combating climate change. This

includes implementing the following tasks:

1 Develop and execute a communication strategy for gaining public support, including

1.1 The educational task

1.2 The political debate/parliament

2 Advocate and push implementation of CCS in Member states

3 Involve NGO’s, e.g. through organizing workshops

4 Ensure transparency & communication of results

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5.3 The ACCSEPT Project The Acceptance of CO2 Capture, Storage, Economics, Policy and Technology (ACCSEPT)

project /29/ was completed December 2007. The project was carried out under contract with the

EU Commission, DG Research, by a multidisciplinary project consortium consisting of: Det

Norske Veritas, Energy Research Centre of the Nertherlands (ECN), Insititute for European

Environmental Policy (IEEP), Baker & McKenzie, Manchester Business School and University

of Cambridge. The overall aim of the project was to contribute to timely and responsible

application of Carbon Capture and Storage (CCS) in the EU.

The key messages and findings, from which a set of recommendations has been developed for

relevant decision-makers in the EU, are summarized as follows:

1. Geological storage capacity in the EU: There are numerous potential geological storage

sites for CO2 in Europe, though as yet there is no robust methodology for calculating CO2

storage volumes, particularly in saline aquifers. Estimates of storage volumes can differ by a

factor of 30. Nevertheless, even using more conservative assumptions, storage volumes for

different reservoirs range from millions to billions of tonnes of CO2. Hence, there is sufficient

storage volume for CCS to be regarded as a major option even if the larger estimates of

storage volumes prove to be over-optimistic. Some of the reservoirs are within reasonable

transport distance of major sources of CO2, but other sources of CO2 are not in close

proximity of suitable storage formations. Until more reliable methodologies are available, it is

prudent for the geological community to err on the side of caution when presenting estimated

storage volumes.

2. Risk assessment and management: The growing body of knowledge about the

implementation of CCS should be guiding our initial decisions about site location and

exploitation, and ongoing monitoring and evaluation should be robust enough to draw further

conclusions. Management decisions about storage are as important as, if not more important

than, physical risks. Because geological sites can be found and managed safely in such a way

as to all but rule out leakage, does not mean they will be found and managed in that way if the

proper guidelines, incentives and oversight are not in place.

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3. Legal issues: There are no insurmountable legal barriers to CCS deployment in the EU.

However, a number of issues or 'gaps' in the present international and European framework

need to be addressed. In particular, although each stage of the CCS process raises potential

legal concerns, the long-term storage of CO2 and the need to implement a robust liability

regime for that storage presents the most significant challenge for legislators. Appropriate risk

allocation between government and private entities, together with the need to incentivise CCS

projects, means that a bespoke legal instrument is likely to be required. In this context, it is

vital to strike the right balance between encouraging investment and maintaining the high

procedural standards necessary to ensure the integrity of the environmental rationale for

developing CCS technologies.

4. Poor data on costs: Existing information on the costs of implementing CCS is poor and

potentially misleading. Much of the detailed information is held by the private sector and is

confidential. Analyses in the academic literature tend to be based on just a few sources, and

have not been updated to take account of rising fuel and material costs.

5. Economic incentives: The European Commission’s own analysis suggests that there is a risk

that CCS will not be deployed at a sufficient scale sufficiently rapidly to meet climate change

objectives without the implementation of economic incentives and/or regulation (in addition

to the Emissions Trading Scheme (ETS)). EU-level policies under consideration to

complement the ETS include a portfolio standard (a requirement to source a minimum

percentage of electricity from a specific kind of sustainable energy source or fuel, probably

combined with tradable certificates), an emission standard for power production, or an

obligation to capture and store CO2 from all fossil-fuel-fired power production and other large

point sources. Member State policies that could enhance the economic feasibility of CCS

include investment support for demonstration projects, guaranteed CO2 prices to enable

domestic implementation, or feed-in subsidies for CCS-based electricity supply.

6. Stakeholder opinions: The majority of the ACCSEPT stakeholder survey sample (n=512)

was moderately supportive of CCS and believed that it had a role to play in their own

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country’s plans to mitigate carbon emissions. The respondents tended to regard the risks of

CCS as being moderate or non-existent and did not perceive there to be highly negative

impacts arising from investment in CCS upon efforts at improving energy efficiency and

reducing energy demand. However, 44% of the sample did think that there might be some

negative impacts arising from CCS for investment in other low- or zero-carbon energy

technologies (LZCT), compared to 51% who did not think that there would be any negative

impacts or thought that impacts might even be positive. Environmental NGO respondents

were much more concerned about the risks associated with CCS and the implications for

renewable energy than energy industry and governmental stakeholders.

7. Public opinions and communication: Comparative information on public perceptions of

CCS in the EU27 countries is not available. A couple of country-level studies exist, e.g. for

the Netherlands and UK. For some projects, where storage is offshore, it is likely that CO2

pipelines may elicit the greatest concern, whereas for onshore storage, it may be the storage

site itself that emerges as the focal point for opposition. If CCS is perceived as being

responsible for rises in consumer electricity bills, then one might expect that CCS will be

perceived more negatively. Existing efforts at communicating CCS to the public have in

general not been well coordinated or effective. A more proactive and interactive approach to

public communication and engagement would be desirable and will require additional

resources to be devoted to developing more accessible materials.

8. Coal supplies: It is commonly stated that coal supplies are sufficient to last for ‘hundreds of

years’, but recent re-evaluations of supplies in several countries indicate that there is more

uncertainty over the longevity of supplies than has been generally acknowledged. Given a

likely increase in the demand for coal, furthermore, supplies might diminish even more

rapidly. The uncertainty surrounding coal supplies does not imply that CCS should not be

implemented, however, because many hundreds of coal-fired power plants will likely be

constructed worldwide over the next several decades, and CCS can be deployed progressively

and more efficiently with the build-up of know-how.

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9. Negative externalities of CCS: CCS has potential negative externalities, e.g. greater

utilisation of coal with associated impacts, greater demand for water for cooling and running

the capture process, an extensive CO2 pipeline infrastructure with space claims and risks,

potential conflicts with other users of geological storage reservoirs, etc. The nature and cost

of these externalities are not currently well understood and more research is therefore needed.

10. CCS and the Clean Development Mechanism (CDM): The debate around CCS in the

CDM has so far mainly focussed on technical and procedural issues, which can be resolved

relatively easily. The resistance to inclusion of CCS in the CDM is related to more

fundamental issues, however, which have their origin in different beliefs and convictions.

These include the conviction that new and risky technology should be tested first in

industrialised countries before it is implemented in developing countries, the belief that CCS

might displace adoption of more sustainable project types within the CDM, such as renewable

energy, and the appreciation of scientific, technological and economic uncertainties.

11. CCS and renewables: There is no necessary conflict between CCS and other low- and zero-

carbon energy technologies (LZCTs). CCS could, however detract from LZCTs by diversion

of funding for Research, Development and Demonstration (RD&D) from other LZCTs to

CCS, diversion of government incentives, diversion of private sector investment and

diversion of attention by government and policy makers. As yet, however, there is little actual

evidence that funding or policy attention has been diverted to the detriment of other options,

though it is really too early for such an effect to have been detected.

5.4 The Need for Development of CCS Guidelines

A barrier to effective large scale deployment of CCS is a lack of recognized standards and

guidelines. There is a need for guidelines for capture, transport and storage. This gap must be

closed to assure a transparent and consistent process that guides in managing and minimising

risks; provides confidence and trust to stakeholders; simplifies demonstration of compliance with

legal and regulatory requirements; and explains how to obtain credits under CDM, JI, ETS, etc.

To this end, it is crucial that the large base of knowledge gained in R&D and demo projects (see

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for example is transferred and translated into standards and guidelines. Recognition will then

come gradually as ownership grows among stakeholders.

The Annexes of the CCS Directive (section 2.3) are useful to make it operational, but the

implementation process will be even more efficient when supported by publicly available and

recognized reference documents. Recognized guidelines have a role in demonstrating

compliance, managing and minimizing risks (and uncertainties), avoiding future loss or

liabilities, providing assurance to stakeholders and the public, as well as in securing a transparent,

consistent and cost-effective implementation process. They can play an important role in defining

procedures for qualifying new technological solutions. Such recognized guidelines could also

play an important role in harmonizing the implementation of the Directive among the various

member states and regions.

Remarks

• Efficient implementation of legal and regulatory frameworks for CCS need publicly available

and recognized guidelines as references.

• Guidelines can assist in assuring harmonised implementation in compliance with conventions,

regulations, directives.

• Industry will benefit from guidelines where current knowledge and experience from R&D and

Pilots are converted into recommended practice and guidelines.

• Stakeholders and the public confidence in geological storage of CO2 as a trustworthy option

to mitigate global warming to requires that transparent and consistent procedures are

available.

• Guidelines can be efficient in assuring proper management of risks, uncertainties and

liabilities throughout a CCS project’s life cycle

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5.5 The need for guidelines for MVAR of CO2 stores in the North Sea.

There is a need to develop specific environmental Monitoring, Verification, Accounting &

Reporting (MVAR) requirements for individual storage sites in the North Sea. MVAR should

only be for as long as deemed necessary to ensure long-term security from CO2 emissions to the

atmosphere and to fulfil reporting requirements under the EU ETS and other relevant Directives.

MVAR requirements should be the responsibility of an appropriate competent regulatory

authority, for which a broad framework of guiding common principles is required (and which

should be developed in line with the 2006 IPCC Guidelines for National Greenhouse Gas

Inventories).

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6 COMPARISON – PLANNED ACTIVITIES UNDER PHASE II AND THE UPDATED GAP ANALYSIS

Some critical issues recommended for solution within the next years to enable CCS were

identified in the gap analysis to the NSBTF in phase I of the project.

In January 2008 a proposed work programme for NSBTF in phase II was discussed and

objectives and terms of reference for the NSBTF were revisited /36/:

Phase II of the Task Force’s work will build on the findings of Phase I and address the critical

issues identified, share knowledge and follow up on the infrastructure study. The Task Force will

ensure that its activities are fully complementary, compliant and consistent with other ongoing

international activities in these areas. In particular with the European Union’s work on CCS and

international treaties like OSPAR and the London Convention.

The objective of the Task Force is for its member countries to work together with the intention of

finding mutually agreeable common solutions to issues which arise around the transport and

storage of CO2 beneath the North Sea over the longer term (i.e. up to and possibly beyond the

establishment of a mature CO2 transport and storage infrastructure in the North Sea) Outputs

from the European Commission related to the transport and storage of CO2 will also have an

interest to the work of the Task Force. The member countries of the Task Force will work

towards developing a collective strategy to influence the European Commission and other

international levels.

These issues will cover a number of areas of common interest, including:

• CO2 Transport and storage Infrastructure

• Geological aspects

• Legal and regulatory issues

• Trans-boundary issues

• Economic and market issues relating to CO2 management

• Political issues where relevant

• Technical and knowledge transfer where this does not infringe Intellectual Property.

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Five areas of work have been identified:

1. Legal and Regulatory Frameworks: (a) Trans-boundary Issues and principles for access to CO2 transport and Storage

(b) Long Term Liability & Stewardship

(c) Criteria for Risk Acceptance & Site Qualification (permitting & licensing)

(d) Monitoring, Verification, Accounting & Reporting (MVAR) Requirements

(e) Joint Projects (e.g.

2. Financial and Other Incentives

3. Stakeholder Acceptance

a. Leakage monitoring workshop

b. Other workshops as identified.

4. Knowledge Sharing

5. Collaboration

(a) International

(b) Regulatory collaboration

Table 2 below indicates how the activities within phase II of the NSBTF correspond to the

updated gap analysis in terms of solving the most critical gaps.

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Table 2: Proposed activities for NSBTF in phase II compared with findings in this gap analysis.

NSBTF phase II: Terms of

Reference

Updated gap analysis

Phase II activity Potential barriers or enablers < 2 years 2-5 years Trans-boundary issues and principles

for access to CO2 transport and Storage

Trans-boundary movement and/or damage

Long Term Liability & Stewardship Long term liability

Risk acceptance, including site approval criteria

Criteria for Risk Acceptance & Site Qualification

(permitting & licensing) Risk assessment methods

Monitoring and verification Monitoring, Verification, Accounting & Reporting (MVAR) Requirements Accounting and Certification of

credits

Incentives

Costs and economics Financial and Other Incentives

EU ETS

Stakeholder Acceptance Public support (stakeholder acceptance)

Technology maturity Cross cutting issues for CCS deployments

Knowledge Sharing

Environmental monitoring and baseline data International conventions

(National inventories, UNCLOS, London, OSPAR, Aarhus) =

N/A

Kyoto Protocol (CDM and JI)

EU enabling legal framework

Norway regulations and CCS

UK regulations and CCS

Collaboration

Dutch regulations and CCS ? ? Joint Projects Priority geological storage structures

Most of the planned work in phase II of the NSBTF seems to be in accordance with the critical

gaps identified in this report, as shown in the above table.

However, in order to prioritize its further actions, the NSBTF should emphasize on the short-

terms gaps marked as ‘red’, such as liability issues and risk acceptance criteria. There is an

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emerging consensus that the liability should be transferred from the operator to the State when

the storage site has reached the end of its operational life, when all evidence suggests the long-

term security of the storage site. Although this principle seemingly has gained recognition as a

viable methodology for transfer of liability, work remains on establishing a common

understanding on defining acceptable risk criteria associated with this liability transfer.

The development of guidelines for consenting offshore storage sites for captured carbon dioxide

has identified a need to clarify the availability and capability of monitoring techniques to detect

and quantify potential leakage of CO2 from sub-seabed storage sites into the marine environment

and to monitor the impacts of CO2 leaks in the seabed or in the overlaying water column.

Moreover, as already indicated trans-boundary movement of CO2 should also be given emphasis.

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