CCS Environmental Analysis, May

EU sets out rules for how green hydrogen will help to achieve energy independence from Russia

In May, the European Commission published its proposals for concrete regulations on how to incentivise the market to achieve the rapid scaling-up of renewable energy and green hydrogen, known as “REPowerEU”, which was announced in March. Its goal is to increase the volume of green hydrogen before 2030 and for consumption to reach 20 million tonnes by 2030, of which half will come from EU-based production and the other half will come from imports. The share of renewable power in the energy system will be doubled to 45% by 2030, and the share of solar and wind in the energy system will increase from 33% today to 67%. Blue hydrogen (“low-carbon hydrogen”) will also be prioritised up to 2030, given that it’s carbon footprint is 70% lower than today’s grey hydrogen. The regulations that were presented in May initially addressed the transport sector, but it is expected that the regulations will also cover other sectors in the future, such as industry. Today, the EU consumes around 10 million tonnes of hydrogen per year, most of which is produced using steam methane reforming without carbon storage (grey hydrogen).

Investments will increase

Compared to “Fit for 55”, which was launched less than a year ago, the European Commission assumes that total investments through REPowerEU will increase to €300 billion by 2030, but that it will see savings of almost €100 billion per year which is currently spent on energy imports from Russia. Increased imports of natural gas from other countries will not be enough to compensate for the shortfall in Russian natural gas by 2027. It is therefore assumed that the use of natural gas in industry will see a reduction of almost 40% from 92 to 57 bcm per year, while consumption of oil and coal is expected to increase somewhat. Total energy consumption will nevertheless be reduced by about 5%. The European Commission will find the money to finance these changes through a reprioritisation of funds and the sale of quotas that have so far been held back from the quota market, amongst other things.

War in Ukraine is creating increased momentum for LNG, CCS may be next

 European imports of natural gas from Russia have reduced by around 40% (1 bcm per week) compared with 2021, while imports of LNG to the EU have seen a corresponding increase over the same period. 1 bcm is equal to around 10% of the global trade of LNG. The global market for LNG has increased by around 60% over the last ten years, driven in particular by increased demand from East Asia. Since the production and transport of LNG over long distances may involve a significantly higher carbon footprint compared with other forms gas transport, it has become increasingly common for LNG suppliers to sell “carbon-neutral LNG” in recent years. The means that emissions related to production and transport are offset using carbon credits. Not all credits have been sufficiently transparent to provide the credibility buyers need, and pressure on suppliers to reduce their own emissions has increased. An opinion piece from Wood Mackenzie indicates that this may open up opportunities for CCS to be adopted by numerous LNG producers, and Australia is pinpointed as a region with strong conditions for such a development.

CO2 transport network in Germany

The German energy authorities recently announced that one of two planned LNG import terminals is also set to receive a pipeline for CO2 exports. The plans are viewed in light of the war in Ukraine and plans to import more LNG or synthetic methane from green hydrogen. The energy authorities are soon expected to present an overall strategy that includes possibilities for a more comprehensive CO2 transport network in Germany. Earlier this year, it was also announced that the Japanese oil company Inpex is working on plans to finance a major CCS facility for LNG in northern Australia for delivery to Japan by 2026 at the earliest.

HeidelbergCement sets ambitious new 2030 climate goals

 The EU’s climate ambition of a 55% reduction in greenhouse gases by 2030 and its associated taxonomy are putting pressure on most industries to meet these requirements and to secure their social legitimacy in order to continue operating.  For the cement industry, the taxonomy has set requirements for maximum emissions of 498 kg of CO2 per tonne of cement. For HeidelbergCement, this requirement entails a 12% reduction in carbon emissions from their 2021 levels. According to a press release, HeidelbergCement has set a goal of a maximum of 400 kg of CO2 per tonne of cement by 2030. Other major cement producers, such as Holcim and Cemex, have previously set goals of 475 kg of CO2 per tonne of cement, under the same taxonomy requirement.

Plans to cut carbon emissions

At Heidelberg’s “Capital Markets Day” in May, the company presented its concrete plans to cut carbon emissions, including its ambition of removing 10 million tonnes of CO2 through CCUS by 2030. One Canadian and six European projects were mentioned in addition to several pilot projects and CCU initiatives. In May, Heidelberg also announced that their project at Slite on Gotland is going ahead with funding from Swedish authorities.

GCCA supporting start-ups

The industry is also collaborating more broadly to promote technology development for more affordable CCUS solutions in the long run. In May, the Global Cement & Concrete Association selected six start-ups to receive backing through their “Innovandi Open Challenge” programme, which has presented promising concepts that the industry may benefit from in the run up to 2050.

CCU unites waste and food in the Netherlands

The Netherlands’ many horticultural greenhouses produce 17.5% of the country’s total export revenues. Natural gas is an important component in this, and the industry is responsible for 9% of the total domestic consumption of natural gas. It provides heating, light and CO2 – all essential for the greenhouses. This energy consumption resulted in 5.7 million tonnes of CO2 emissions in 2018. OCAP, the Linde-based network of pipelines for carbon transport, alone provides around 0.5 million tonnes of CO2 captured from various industrial sources for use in greenhouses, and so contributes to reducing the consumption of natural gas and therefore reducing carbon emissions for the country overall. Demand for CO2 is reported to be high, and interest in connecting to more CO2 suppliers and users is growing. Higher carbon prices in the quota market are making users look for “climate-neutral” CO2 sources based on biogenic sources or from incinerating waste that cannot be recycled.

Converting household waste

In May, it was announced that OCAP, along with the local company GIDARA Energy, has received €110 million in funding from Dutch authorities to use household waste from the Amsterdam area for the production of 90,000 tonnes of green methanol and 84,000 tonnes of CO2 per year for horticultural greenhouses. At the same time, Aker announced that it has received a contract from Netherlands-based Twence for the delivery of a carbon capture facility for the production and delivery of 100,000 tonnes/year of CO2 to local greenhouses from a waste-to-energy plant in the east of the country. This project also received support from authorities because the project contributes to reducing Dutch carbon emissions.

The World Bank: Rising carbon emission prices globally in 2021, but still a long way to go

In May, the World Bank published their report on the state and trends of carbon pricing. It points to the fact that after many years of limited growth, carbon prices have grown rapidly in 2021. Both the level of carbon taxes and quota systems reached record levels in a number of jurisdictions. The underlying drivers are more ambitious climate policies and economic factors such as global energy prices.

Price per tonne of CO₂

The expansion of a number of quota systems and increases in quota prices have led to a similar increase in state revenues, and for the first time, revenues from quota sales have surpassed revenues from carbon taxes. However, the prices in most areas remain lower than necessary to achieve the goals of the Paris Agreement. The average level of carbon taxes globally in 2021 was $6 per tonnes. Among quota systems, the EU and UK stand out with prices of up to $100 per tonne of CO2, while most other quota markets have prices around $10-30 per tonne. According to the World Bank, around 23% of global carbon emissions are subject to some form of carbon pricing instrument.

Need for transparency and verification

Regarding the voluntary markets for carbon credits, the World Bank writes that these are now at a crossroads. Market dynamics over the past year have driven a strong demand and increased diversity expressed by new buyers, different market niches and trade channels with distinct preferences. This has created a more varied pricing picture. Eventually, as the carbon credits market takes on a more important role in contributing to meeting climate goals, the need for transparency and verification of the credits sold will also grow. This will be a significant development going forwards. The volume of traded carbon credits in 2021 corresponds to 478 million tonnes of CO2 at an average price of almost $4 per tonne. Credits focusing on removing CO2 from the atmosphere were the most expensive, and were traded at prices of between $15 and $20 per tonne.

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The Environmental Analysis is prepared by Gassnova’s analysis team.