NER300: The European Commission Adopts Criteria for the Financing of CCS and Innnovative RES Commercial Demonstration Projects

Commission Decision 2010/670/EU of 3 November 2010 has been published in the OJ of 6 November, L 290, p.39. The decision lays down the criteria and measures for the financing of commercial demonstration projects for carbon capture and storage (CCS) and innovative renewable energy technologies (RES).

The adoption of such criteria was a requirement under Article 10a(8) of Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading with the Community (EU ETS Directive), as amended. It also answers the demand made by the European Council of June 2008 to establish a mechanism for the public and private investments in the construction and operation by 2015 of up to 12 CCS demonstration plants. In particular, Commission Decision answers the requirement of Article 10a(8) of Directive 2003/87/EC to adopt rules and criteria for the selection and implementation of the above mentionned projects, based on the revenues of the sale of 300 million allowances from the New Entrants Reserve (NER 300). The Decision also provides the basic principles for the monetisation of alowances and for the management of revenues.

A selection process driven by the Commission, with the cooperation of the Member States - The Commission makes clear the leading role it intends to play in the selection of the projects, while it is assisted by the Member States:

"The establishment of an EU demonstration programme ... cannot be sufficiently achieved if projects are selected on a national level. The selection should therefore take place at Union level. ... Member States should be responsible for collecting funding applications from the sponsors and for the evaluation of the projects ... "

Pursuant to the Decision, Member States, that will co-finance in practice, do have a word to say on the national projects they want to co-support. After pre-selection at national level, they submit the applications to the EU selection process. The draft list of selected projects is then submitted to the Climate Change Committee for final decision (Article 5). Member States play a central role in the annual disbursement of revenues for the sale of allowances to project sponsors on the basis of legally binding instruments (Article 11).

Role of the European Investment Bank (EIB) - The EIB is already involved at the stage of the decision making process. Beyond project selection, the EIB will intervene in monetisation of allowances and the management of revenues (Article 10). The 300 million allowances will be transferred to the EIB for monetisation and management of the revenues. The EIB is indeed responsible for selling the allowances on the carbon market, managing them and transferring them to Member States (see procedure in Article 11). Revenues that are not disbursed to projects sponsors by Member States are returned to the EIB. Such intervention is justified, according to the Commission, by the EIB expertise in project selection and financing.

Award procedure - The NER300 revenues will be awarded to the selected projects in two rounds of calls for proposals: first round dedicated to mature projects (200 million allowances); second round, dedicated to corrections as regard financing and balance between different technologies (remaining allowances, 100 million or more). The calls will be published in the Official Journal of the EU.

Eligible technologies - The Decision adopts criteria as the technologies eligible to financing. The latter should be "innovative in relation to the state-of-the-art in the key substreams for each technology," not yet commercially available, but sufficiently mature for demonstration at pre-commercial scale, they should also have a high replicability potential. The Decision also requires that a balance is kept between CCS and RES projects: 8 CCS (with at least three in CCS with hydrocarbon reservoir storage and CCS with saline aquifer storage) and innovative RES projects. Eligible projects must:

• fall into one of the categories set out in Part A of Anne I (CCS or innovative RES);
• comply with the requirements set out in Part B of Annex I (Project requirments: I common requirements; II CCS demonstration projects);
• projects listed in Annex A.II of Annex I (innovative RES) must be innovative in nature. Existing, proven technologies are ineligible.

Eligible costs - The rules applicable to the calculation of eligible costs are defined in Article 3 of the Decision, with particular emphasis on the nature of investment costs.