Heavy Industries Go Light: Carbon Dioxide Capture and Storage – Better stored deep down than blown high up7 October 2024

Legal framework in Germany

According to current findings and the overwhelming scientific and political consensus, climate neutrality cannot be achieved without CCS. For Germany, this means that its national goals of CO₂ neutrality from 2045 onwards and net negative CO₂ emissions from 2050 onwards must include the development of a CCS-economy. Following previous long political discussions, the German federal government has recently come out in favour of CCS as a “building block for a climate-neutral and competitive industry”. Publication of the draft amendment act on carbon dioxide storage law (“KSpG”), as well as the announcement of a corresponding and comprehensive national carbon-management-strategy, show the positive steps being taken but also the many unanswered questions and need for further consultation.

The current version of the KSpG sets out only a legal framework for the “demonstration” of permanent CO₂ storage in Germany, resulting in a few carbon capture sites on a pilot scale. The amendment act meanwhile, is intended to enable the construction of a CO₂ transport infrastructure. In addition to capturing CO₂, which primarily takes place at large point sources, and its storage which requires the provision of suitable and sufficiently large storage capacities, the transportation of CO₂ is another crucial step in the CCS process.

In Germany, the transportation of CO₂ is currently subject to considerable legal uncertainty, which the reform is intended to eliminate. The draft amendment act provides for a planning approval procedure based closely on the Energy Industry Act; an acceleration of the approval process; the possibility of reallocating natural gas pipelines; and a largely common legal framework for CCS and CCU.

Furthermore, the establishment of CO₂ storage facilities for commercial use on an industrial scale, (considering existing uses and binding ecological criteria) is also made possible. Future projects will be restricted to the the continental shelf area and the exclusive economic zone; far-reaching provisions in favour of marine environmental protection are provided for in the law; and the injection of CO₂ in marine protected areas as well as in a buffer zone of 8km around such areas is prohibited. At the same time, the law will create an opt-in opportunity for the federal states to also allow permanent storage of CO₂ within their own territory. The storage potential in Germany is estimated to be large, both offshore and onshore, so that a considerable economic impact can be expected.

Funding opportunities and taxonomy-conformity

It is important to note that the primary political focus remains the prevention and mitigation of CO₂ emissions. Therefore, the coal phase-out remains in place and coal-fired power plants cannot access CO₂ pipelines or storage facilities. The federal government has agreed to work with companies in the energy sector to find legally secure solutions for issuing operating licenses for energy infrastructure using fossil fuels so that operations can continue beyond 2045without the use of fossil fuels. However, this still needs to be finalised.

Furthermore, state funding will be focussed on emissions that are difficult or impossible to avoid. There are essentially two options available for such funding: “carbon contracts for difference” and the “Federal funding for industry and climate protection” programme, which has not yet taken effect. On a private level, CCS (as well as CCU) qualifies as an environmentally sustainable economic activity under the EU-taxonomy (Art. 10 (1) lit. e) which will allow access to extensive private financing opportunities.

International perspective and outlook

Germany is not in alone in its attempt to build up a large-scale CCS economy. In Europe, Denmark, Norway, the Netherlands, Iceland, Italy, France, Croatia, Poland, Romania and the United Kingdom are operating or planning geological storage facilities, while the USA is promoting the use of CCS through the Inflation Reduction Act. The European Commission is also driving the pan-European application of this technology, among other things, through the Net Zero Industry Act.

As the next step in updating the German legal framework on CCS, the draft law will be sent to the Bundestag and Bundesrat for parliamentary discussion, which may result in further amendments. The regulatory and economic impacts of a growing CCS sector will undoubtedly remain high.

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