The European Union's ambitious goal of capturing and storing carbon is facing significant hurdles, according to a recent analysis by Wood Mackenzie. This independent study, commissioned by major energy companies like ExxonMobil, OMV Petrom, Shell, and TotalEnergies, reveals a stark reality: the EU is set to fall short of its legally mandated carbon capture and storage (CCS) target by a substantial margin.
The target in question is the Net Zero Industry Act (NZIA) injection target, which aims to capture and store 50 million tonnes of carbon per year by 2030. However, Wood Mackenzie's analysis paints a grim picture. Even if all projects in advanced development proceed without delays, the EU will still fall short by at least 17.5 million tonnes per year. This shortfall is a result of a complex interplay of challenges within the CCS ecosystem.
One of the primary issues highlighted is the fragmented nature of the value chain. The hub-based model, where ownership is split among multiple parties, creates a bottleneck. No single component of the value chain can advance without guarantees from others, leading to a lack of progress. This fragmentation is further exacerbated by the EU's policy framework, which treats capture, transport, and storage as separate activities rather than interconnected processes.
The analysis also points to a critical shortage of capture supply. The EU's capture pipeline capacity of 36.5 million tonnes per year falls short of the target, and a significant portion of the 26 million tonnes lacking a confirmed storage solution is at risk of being stranded. This stranded capacity, coupled with insufficient storage capacity, creates a vicious cycle that hinders progress.
Delays are another major obstacle. On average, EU storage projects experience overruns of 1.5 years, and this trend is worsening. These delays not only push back project timelines but also impact the overall investment landscape, making it challenging to meet the NZIA target.
The economics of CCS present yet another challenge. Wood Mackenzie's modeling reveals that the EU Emissions Trading System (ETS) price will likely remain below the levelized cost of CCS for projects approaching final investment decisions (FID). This means that while CCS projects are necessary for emissions reduction, they may not generate sufficient revenue to justify the investment.
Furthermore, the distribution of obligations and public funding raises concerns. The NZIA obligations are based on oil and gas production rather than industrial emissions, leading to a mismatch. Some obligated countries lack pre-2031 storage capacity and have limited EU Innovation Funding, making it even more challenging to meet their commitments.
In conclusion, the EU's journey towards carbon capture and storage is fraught with obstacles. The fragmented value chain, insufficient capture supply, persistent delays, and economic challenges all contribute to a significant shortfall in meeting the NZIA target. Addressing these issues will require a comprehensive approach that fosters collaboration, streamlines processes, and ensures a balanced distribution of resources across the CCS ecosystem.
