EN

Brussels, 23.1.2008

SEC(2008) 54

COMMISSION STAFF WORKING DOCUMENT

Accompanying document to the

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on the geological storage of carbon dioxide

Impact Assessment

{COM(2008) 18 final}

{SEC(2008) 55}

Executive summary

Problem and objectives

(1) The central problem is to reconcile the need for urgent action to tackle climate change with the need to ensure security of energy supply. In the context of a global reduction of CO2 emissions of 50% by 2050 needed to meet the 2°C target, a reduction in emissions of 30 % in the developed world by 2020 is required, rising to 60-80% by 2050. This reduction is technically feasible and the benefits far outweigh the costs, but to achieve it all mitigation options must be harnessed, among them carbon capture and storage.

(2) To enable the use of carbon capture and storage, two problems must be solved. The first is to manage the environmental risks of the technology, in order to ensure that CO2 captured and stored remains isolated from the atmosphere and biosphere, and so is environmentally secure and effective as a climate change mitigation option.

(3) The second is to address commercial barriers to the deployment of CCS. If left to the market investments in CCS technology development may be insufficient for six reasons:

· First, currently the positive CO2 reductions from CCS are not rewarded since CCS is not enabled as part of the EU-ETS nor the Clean Development Mechanism. If included, the CO2 reduction through CCS would be valued at the carbon price.

· Second, the positive impacts from developing the technology on the costs and its efficiency (so called learning-by-doing effects based on adoption) are not captured by the market (positive externalities).

· Third, potential positive externalities relating to security of supply would not be captured by the market.

· Fourth, potential positive externalities relating to export potential would not be captured

· Fifth, potential positive impacts on achievement of global climate objectives from deployment in the EU would not be internalised.

· Sixth, any positive reductions in traditional air pollutants from deployment of CCS are not internalised.

Impact assessment of a framework to manage environmental risks

(4) The three components of CCS – capture, transport and storage – were considered separately. A conservative approach was taken, in the sense that the default option for regulating a CCS component was taken to be the existing legal framework that regulates activities of a similar risk (if one exists).

(5) Capture presents similar risks to those of the chemical/power generation sector, and so it was concluded that Directive 96/61/EC (the IPPC Directive) is also the appropriate regulatory framework for it. CO2 transport presents similar risks to natural gas transport and so will be regulated in the same way. Pipelines of diameter greater than 800mm and length greater than 40km will require environmental impact assessment under Directive 85/337/EC, and further regulation will be for Member States.

(6) For storage, existing legal frameworks were also examined (IPPC and the waste legislation) but were found not to be well adapted to regulating the risks. The kind of controls required differ from those under the IPPC Directive, which mainly deals with emission limit values for industrial installations. Many parts of the waste legislation potentially apply to CO2 storage, but they do so in a fragmented way and are not designed to cover the particular risks in question. Neither framework could be adapted to regulate CO2 storage without substantial and fairly complicated amendment. Thus it was decided to develop a free-standing legal framework for CO2 storage in the form of a draft Directive, and remove CCS as regulated above from the scope of the waste legislation.

(7) Some issues concerning the content of the draft Directive were subject to additional analysis. The first is the issue of how best to ensure sound implementation of the risk management framework in the early phase of storage, where it was decided to propose Commission review of draft permits, but with the final permitting decision remaining with the competent authority. The second is how to deal with liability, and in particular to assess the implications of requiring a financial security to cover obligations in case of operator insolvency, any corrective measures required, and liability for surrender of Emissions Trading Scheme allowances for any leakage. Based on previous experience and consultation with insurers, it was concluded that it is reasonable to require such a security. Other issues covered are composition of the CO2 stream, access to the transport and storage networks, and the administrative implications of the enabling legal framework for storage.

Impact assessment of options to internalise externalities

(8) Four options were considered:

· Option 0: No enabling policy for CCS at EU level, including no inclusion of CCS in the EU ETS (that is, achievement of climate objectives without CCS).

· Option 1: Enable CCS under the EU Emissions Trading Scheme.

· Option 2: In addition to enabling under the ETS, impose an obligation to apply CCS from 2020 onwards and assess the impact on the potential positive externalities not captured by the carbon market. Four principal sub-options were considered:

(a) Making CCS mandatory for new coal-fired power from 2020 onwards

(b) Making CCS mandatory for new coal- and gas-fired power from 2020 onwards

(c) Making CCS mandatory for new coal-fired power from 2020 onwards, together with retrofit of existing plants (built between 2015 and 2020) from 2020

(d) Making CCS mandatory for new coal- and gas-fired power from 2020 onwards, together with retrofit of existing plants (built between 2015 and 2020) from 2020.

· Option 3: In addition to enabling under the ETS, apply a subsidy so as to internalise the positive externalities not captured by the market.

(9) These were assessed using the PRIMES [1] model which simulates the European energy system and markets on a country-by-country basis and provides detailed results about energy balances, CO2 emissions, investment, energy technology penetration, prices and costs by 5-years intervals over a time period from 2000 to 2030. While the modelling provides useful quantitative indications of the scale of potential impacts, predictions of the behaviour of a complex system decades in advance are inevitably uncertain, and the main uncertainties and sensitivities are identified. The employment impacts were assessed by PRIMES and the air quality impacts by IIASA and a source-sink matching exercise was done by TNO to determine the transport and storage network that would result from the main deployment scenarios (market-based and mandatory). The non air quality environmental impacts of deployment were assessed by ECN and ERM.

(10) Analysis of Option 0 showed that without CCS the costs of meeting a reduction in the region of 30% GHG in 2030 in the EU could be up to 40% higher than with CCS [2]. Thus not enabling CCS would have substantial negative impacts on Europe’s capacity to meet the 2 degrees Celsius target and on competitiveness, and also for employment, and would have a slight negative impact on security of supply.

(11) On the understanding that the ETS is implemented so as to deliver the EU's climate objectives, Option 1 (enabling under the market) internalises positive climate externalities of CCS deployment. With the carbon price resulting from the efforts required to meet the 20% reduction in greenhouse gas emissions by 2020, CCS becomes a significant part of the energy mix, but not before 2030. Because this option leads to a significant reduction in fossil fuel use, all the environmental impacts associated with fossil fuel use decline relative to the baseline. There would be offsetting impacts from the transport and storage infrastructure but at these modest deployment levels the impacts are not significant. Similarly, the CO2 storage requirement is well within the capacity of projected EU storage capacity: the significant uncertainties in projected capacity do not even begin to have an impact at this storage level.

(12) The additional cost of Option 2 (making CCS mandatory) compared with Option 1 (around €6bn/year in 2030) must be justified by additional non-climate benefits. The additional impact on learning compared with Option 1 may lead to around 10% reduction in the additional resource costs of CCS. It is hard to quantify what difference this would make to export potential and the ability to meet global climate objectives, and thus hard to distinguish between Option 2 and Option 1 on these counts. The variant whereby CCS is made mandatory for coal and gas has a positive effect on security of supply, but the remaining options have a negative impact (by increasing gas use and hence imports).

(13) For the extreme mandatory Option (coal plus gas, new plus retrofit) the societal risk, from asphyxiation as a result of CO2 leakage, is around 5 people per year in 2030 assuming a fatal concentration of 10% CO2. Note in this context that the Thematic Strategy on Air Pollution estimated the annual premature fatalities from air pollution in 2005 at 390 000. [3] Because there is a further reduction in fossil fuel use over the baseline, there is a further reduction in the related environmental impacts. Against this must be set the correspondingly greater burden on the environment posed by the transport network, estimated at just over 30,000 km. (As a reference, this can be compared with the natural gas pipeline length of 110 000 km in 2001). While the land take associated with this deployment may be relatively small, the major impact on biodiversity would come from land fragmentation. This impact would be subject to assessment in the Environmental Impact Assessments that are proposed to be required for CO2 pipelines, and appropriate measures taken, for instance using existing pipeline rights of way where possible.

(14) The CO2 to be captured would put a greater strain on EU storage capacity, but there is some evidence that it can be accommodated. While the storage scenarios provided are purely indicative and do not provide a realistic estimate of what a practical CO2 transport and storage network would look like, they show that broadly speaking, there is enough storage capacity for each Member State to store its own emissions, provided that the optimistic estimates that have been made regarding aquifer storage potential are borne out. However, it is clear that even without aquifer storage potential, the emissions on an extreme deployment scenario can probably be accommodated in Europe in high-security sites. There would be substantial storage under the North Sea, and the transport infrastructure required would increase the transport and storage cost to between €5 and €10/t CO2 avoided. These costs are still reasonable (the assumptions made in assessing deployment assumed marginal costs rising to €20/t in some cases).

(15) The impact of mandatory CCS would fall mainly on a small number of Member States. For the extreme mandatory scenario (Option 2d above), three-quarters of the CO2 capture would happen in four Member States (in descending order, Germany, Poland, UK and Belgium) with 35% of the effort in Germany alone. Employment impacts are negative, an increase in employment in the coal industry being offset by negative effects resulting from the increased energy costs.

(16) The impacts of Option 3 (subsidy for post-demonstration CCS) showed that by 2030 a 10% investment subsidy leads to 50% higher deployment (and hence total investment) than would be the case under Option 1, at small resource cost (i.e. a subsidy of €5.5bn stimulates €27bn additional investment). However, the impact on learning of the additional deployment is small and impacts on achievement of global climate objectives and export potential would be correspondingly low. The impacts on air quality, employment and security of supply relative to the market-based option are also slight.

(17) On this basis, there is little evidence justifying going beyond the carbon market. For mandatory CCS, the additional learning resulting from the increased deployment does not compensate for the cost of the policy, and the impact on other externalities is also not significant. For subsidy, although substantial extra investment would be leveraged, the impact on positive externalities seems not to match the level of the subsidy. For this reason, the Commission recommends to enable CCS under the ETS, but not to make CCS mandatory or consider subsidy for the technology in the post-demonstration phase. Subsidy for the demonstration phase itself is a different matter, and that is dealt with separately under the Communication on Supporting Early Demonstration of Sustainable Power Generation from Fossil Fuels.

Consultation

(18) Consultation was conducted mainly via meetings with stakeholders. The European Climate Change Programme Working Group III on CCS met four times during the first half of 2006. An internet consultation "Capturing and storing CO2 underground - should we be concerned?" was conducted which received 787 responses. A large-scale stakeholder meeting was held on 8 May 2007 where the Commission presented an outline of its intended regulatory framework and gave the opportunity to comment. Further ad-hoc meetings with smaller groups were held on particular aspects of the proposal. Discussions with the Technology Platform on Zero Emissions Power from Fossil Fuels (TP-ZEP) were particularly useful.

INDEX

Executive summary (...)0

1 Procedural issues and consultation of interested Parties (...)9

1.1 Organisation and timing (...)9

1.2 Consultation and expertise (...)9

1.3 Response to the Opinion of the Impact Assessment Board (...)12

2 Context and problem definition (...)13

2.1 Context (...)13

2.2 Problem definition (...)17

2.3 Basis for Community level action to regulate and incentivise CCS (...)22

3 Objectives (...)23

3.1 To manage CCS environment, health and safety (EHS) risks (...)23

3.2 To internalise the positive externalities of CCS deployment (...)23

4 Analysis of options for regulating CO2 Capture and Transport (...)25

4.1 Principle of conservatism (...)25

4.2 CO2 capture (...)25

4.3 Transport (...)25

5 Analysis of options for the regulating framework for CO2 storage (...)29

5.1 Risks and regulatory needs (...)29

5.2 Options for treating CCS under the EU ETS (...)29

5.3 Options for the regulating framework (...)32

5.4 Analysis of the options (...)32

5.5 Summary of analysis, and comparison of options (...)36

6 Content of the regulatory framework for CO2 storage (...)38

6.1 Safety and security of CO2 storage (...)38

6.2 Liability (...)41

6.3 Composition of the CO2 stream (...)48

6.4 Access to the transport network and to storage sites (...)49

6.5 Capture-readiness (...)49

6.6 Administrative impacts (...)52

7 Analysis of Impacts of options for internalising the positive externalities of CCS (...)53

7.1 Options for internalising the positive externalities of CCS (...)53

7.2 Options considered but discarded at an early stage (...)54

7.3 Methodology (...)54

7.4 Deployment scenarios (...)56

7.5 Economic impacts of CCS deployment (...)60

7.6 Non-air quality environmental impacts of CCS deployment (...)75

7.7 Availability of sufficient storage capacity (...)88

8 Comparing the Options for promoting CCS deployment (...)93

8.1 Impacts of Option 0: CCS not enabled (...)96

8.2 Impacts of Option 1: EU ETS deployment based on 20% GHG reduction carbon value (...)96

8.3 Impacts of Option 2: Mandatory CCS (...)96

8.4 Impacts of Option 3: Investment subsidy (...)97

8.5 Conclusion (...)97

9 Monitoring and Evaluation (...)99

Annex I: List of respondents to Stakeholder Presentation of 8 May (...)100

Annex II: Potential hazards to the environment and human health from CCS deployment (...)101

Global risk (...)101

Upstream impacts (...)101

Local risks (...)102

Annex III: Role and logistics of the Scientific Panel (...)104

Annex IV: Financial security mechanisms (...)106

Annex V: Methodology for environmental impact assessment (...)107

Annex VI: Methodology for linking PRIMES/CASTOR models (...)108

Annex VII: Baseline deployment data (...)110

Annex VIII: Societal risk from CO2 leakage (...)113

Annex IX: Summary of environmental impacts (...)114

Annex X: Key assumptions and summary data for environmental impacts and societal risk estimates (...)119

Annex XI: Administrative costs imposed by legislation (...)128

1.

Procedural issues and consultation of interested Parties

1.1. Organisation and timing

(19) This document summarises the impact assessment for item 2007/ENV/004 of the Commission Legislative Work Programme on developing an enabling legal framework for carbon capture and storage (CCS). In conjunction, the impact assessment also assessed the impact of measures at EU level to promote deployment of CCS. These are the two main issues covered in this impact assessment.

(20) The Impact Assessment built on earlier work, including in particular the work of the 2nd European Climate Change Programme (ECCPII) – Working Group III (WG III) on CCS; the impact assessment prepared for Commission Communication 'Limiting Global Climate Change to 2 degrees Celsius' [4]; and the impact assessment prepared for Commission Communication 'Sustainable Power Generation from Fossil Fuels' [5].

(21) An interservice group was established on 17 November 2006 and met for the first time on 15 December 2006. It then met a further four times with the latest meeting on 6 September 2007. The DGs invited were SG, SJ, TREN, ECFIN, ENTR, JRC, RTD, COMP, FISH (including the Maritime Affairs Task Force), TAXUD, ELARG, SANCO, RELEX and DEV. The impact assessment began in December 2006 and was completed in September 2007.

1.2. Consultation and expertise

(22) The impact assessment was supported by three studies: "Technical support for an enabling policy framework for carbon capture and geological storage", with the Energy research Centre of the Netherlands (ECN) and ERM Ltd; "Impacts of options for CCS incentivisation" with ENTEC UK Limited; and "Scenarios for implementing CCS in the European Union" with TNO. ECN and ERM were responsible for assessment of the options for developing an enabling legal framework for carbon capture and storage. All three contractors were involved in assessing the options for promoting deployment of CCS, as follows. ENTEC UK was responsible for projecting CCS deployment under certain scenarios and assessing the resulting economic impacts. TNO was responsible for developing transport and storage networks based on the ENTEC deployment data. ECN and ERM were responsible for assessing the broad environmental and social impacts of CCS deployment, including transport and storage, based on the work of ENTEC and TNO. DG JRC of the Commission provided valuable assistance in assessing the capture-ready issue.

(23) Discussion with, and the responses of, the European Technology Platform for Zero-Emission Fossil Fuel Power Plants (TP-ZEP) an industry initiative supported by the Commission, provided a vital source of information and external expertise.

(24) Consultation was conducted mainly via meetings with stakeholders. The first set of stakeholder meetings, the European Climate Change Programme Working Group III on CCS [6], made a series of recommendations for the scope of the work on an enabling legal framework, inviting the Commission to address:

· Permitting of geological storage sites, including risk management, site selection, operation, monitoring, reporting, verification, closure and post-closure;

· Liability for leakage from storage sites during operation and post-closure;

· Clarification of the role of CCS under EU legislation, in particular concerning waste and water, and propose appropriate amendments;

· The recognition of CCS projects in the EU Emissions Trading Scheme;

· The need and possible options for promoting CCS deployment in a transitional period;

· The status of CCS projects under rules and guidelines for State Aid.

(25) This impact assessment covers the first four issues and part of the fifth. The remainder of the fifth, and the last, are covered in the accompanying Communication on CCS demonstration [forthcoming, DG TREN chef de file].

(26) An internet consultation ”Capturing and storing CO2 underground – should we be concerned?” was conducted which received 787 responses. The internet consultation showed broad support for the four main objectives set out in the Communication on Sustainable Power Generation from Fossil Fuels, namely that:

· The EC should support the development of up to 12 large-scale demonstration projects by 2015

· From 2020 onwards, all new coal-fired plants should be built with CCS

· Before 2020, all new fossil-fuel power plants should be "capture-ready", and

· All these "capture-ready" plants should be retrofitted soon after 2020.

(27) Stakeholders were most concerned about the potential diversion of effort away from energy efficiency and renewables, and about ensuring that stored CO2 remains underground. The targets for a 20% improvement in energy efficiency by 2020 and for a 20% share of renewables in final energy demand will ensure that those intiatives remain at the centre of climate and energy policy. The focus of the enabling legal framework is on the security of storage, which is the major stakeholder safety concern.

(28) A large-scale stakeholder meeting was held on 8 May 2007 where the Commission presented an outline of its intended regulatory framework and gave the opportunity to comment. Member State representatives, environmental NGOs and representatives of the main affected industrial sectors (equipment manufacturers, electricity generators and fuel producers) were invited and attended. Written contributions were received from the Member States and organisations listed in Annex 1. The following main issues were raised:

· Concerns were expressed on the proposal that contaminants in the CO2 stream should be limited to levels currently prescribed for emissions to atmosphere. Concern was based on the grounds that those requirements are based on atmospheric risk and not transport or storage risk. This has been addressed by using criteria that are linked to transport and storage risk (Section (...)6.3) and that have also been endorsed by the Contracting Parties to the OSPAR Convention [7].

· There was also concern, on subsidiarity and proportionality grounds, regarding proposed powers for the Commission to accept or reject draft permitting decisions made by national competent authorities. This has been addressed by providing for review at EU level but retaining the final say for the national competent authority (Section (...)6.1).

· The original suggestion that ETS allowances should be surrendered provisionally for a certain percentage of stored emissions, to cover potential leakage, was criticised on the grounds that it might be interpreted as an expectation of a certain level of leakage, while in fact the expectation should be for no leakage. This has been addressed by extending the proposed provision covering decommissioning costs to cover also future liabilities. (Section (...)6.2)

· It was proposed to treat CCS in Phase III of the emissions trading scheme by enhanced opt-in to ensure that appropriate monitoring and reporting was developed for each variant of CCS in turn. However, this was criticised on the grounds that it would provide insufficient certainty for future operators. Following an assessment verifying that each variant could be covered by the same monitoring and reporting guidelines, and so the environmental integrity of the ETS would not be put at risk, it was decided to include CO2 capture, transport and storage explicitly in Annex I of the revised ETD. (Covered in the Impact Assessment for the revision of Directive 2003/87/EC.)

· The requirement for mandatory CCS from a specific date was welcomed by some respondents (principally NGOs) and objected to by others. The objectors claimed that the technology was insufficiently mature to be mandated, and that the implications of doing so were unclear. The main technical risk of CCS concerns the availability of adequate storage capacity, and this was addressed in the TNO study. The economic, social and environmental implications of mandatory CCS were addressed in the PRIMES and other studies. The main results are presented below (Section (...)7).

· Some respondents expressed concern that equal access to transport and storage should be ensured. This issue is addressed below (Section (...)6.4)

(29) Further ad-hoc meetings with smaller groups of industry, NGOs and Member States were held on particular aspects of the proposal, and presentations were made to the Coal Working Party of the Commission's Fossil Fuels 'Berlin' Forum and the Forum itself [8].

1.3. Response to the Opinion of the Impact Assessment Board

(30) The Impact Assessment Board’s opinion requested that:

· Any market failure obstructing CCS deployment be better explained. This is covered in paragraph (...)(51) and Sections (...)2.2.2 and (...)3.2 below.

· The range of policy options be widened. The request was in particular to assess the impacts on the above-mentioned market failure of a subsidy rather than a mandatory requirement. These were assessed by introducing an additional Option 3 in Section 7 and analysing its impacts using the PRIMES model.

· The uncertainties of the analysis be described. This was principally addressed by further developing Section (...)7.5.5 below to outline the major assumptions, uncertainties and sensitivities.

· The relation to renewable energy sources be clarified. This is covered in Section (...)7.5.5.

· Social impacts in the regional context be assessed. A new section has been added on employment impacts (Section (...)7.5.4). While it is not possible to assess employment impacts on a regional scale, these are likely to be concentrated in the Member States where CCS effort is greatest, which are identified in Section. (...)7.4.1.

· Some legal aspects be clarified. This related in particular to Section (...)6.4 on access to transport and storage which has been expanded.

· A forecast for future global market demand be added. Export potential in the context of projected future global market demand is assessed under Section (...)7.5.3.3.

· Some elements of the impact analysis be clarified. Costs and environmental benefits are monetised as far as possible, and a substantial description of the PRIMES model has been added (Section (...)7.3) confirming that it includes transport and storage costs.

2. Context and problem definition

2.1. Context

2.1.1. The need for an economic and sustainable electricity supply for Europe

(31) The central problem is to reconcile the need for urgent action to tackle climate change with the need to ensure security of energy supply. This was analysed in detail in the Commission's Energy and Climate package of January 2007, and in particular in the Communications on Limiting climate change to 2 degrees Celsius ('the 2°C Communication'), and on Sustainable Power Generation from Fossil Fuels ('the SPGFF Communication').

(32) In its Spring 2007 Conclusions [9], the European Council recognised that urgent action is needed to limit climate change to a manageable level. In order to do this, it is committed to adopt the necessary domestic actions and take the lead internationally to ensure that global average temperatures do not exceed pre-industrial levels by 2ºC. It has proposed that the EU pursues in the context of international negotiations the objective of a 30% reduction in greenhouse gas (GHG) emissions by developed countries by 2020 (compared to 1990 levels) in order to stay within the 2ºC limit. In addition, the EU has taken on a firm independent commitment to achieve at least a 20% reduction in GHG emissions by 2020 using a range of policy instruments (the EU Emissions Trading Scheme (the EU ETS) and other measures including through energy policy) [10]. The Commission Communication on limiting climate change to 2°C (COM(2007)2) showed that significant further reductions are required in the longer term. In the context of the global reduction of 50% by 2050, a reduction in emissions of 60-80% by 2050 is required of the developed world. The impact assessment showed that this reduction is technically feasible and that the benefits far outweigh the costs. However, to achieve it, all mitigation options must be harnessed.

(33) The Communication and impact assessment on sustainable power generation from fossil fuels [11] further highlights that:

· Fossil fuels in general will continue to be an important source of energy for electricity generation in the future. Coal plays a role particularly for ensuring a diverse energy mix which can contribute towards supply reliability;

· The construction of new and upgraded coal-fired plant in the EU will only be acceptable if technologies that are able to significantly reduce emissions of CO2 are developed and widely deployed;

· Clean coal technologies (improvements in conversion efficiency) can help to reduce emissions, but are insufficient on their own to meet the CO2 reduction demands of climate change;

· Thus CCS will be a critical technology amongst the EU’s portfolio of measures in delivering on the joint objectives of secure and economic electricity supplies and facing up to the climate change challenge.

2.1.2. The need for CCS internationally

(34) In its Fourth Assessment Report, the Intergovernmental Panel on Climate Change (IPCC) concluded that the fastest rate of emissions growth over the next 20 years will be in the rapidly industrialising nations of the world – e.g. China, India, Brazil, Mexico ((...)Figure 1). For those countries, coal is likely to form the cornerstone of the energy system as in most cases it is the most abundant, cheap and secure form of primary energy available.

(35) Recent studies [12] indicate that the world is not simply consuming more energy, but it is also generating it in a less climate-compatible way. While in the 1990s worldwide emissions had been growing by 1.1% a year, between 2000 and 2004 global emissions grew by more than 3% a year – faster than the most pessimistic projections of the UN’s Intergovernmental Panel on Climate Change (IPCC) and also faster than economic growth, implying constant or slightly increasing trends in the carbon intensity of energy worldwide.

Figure 1. Projected Emissions of Greenhouse Gases in different Regions of the World

(...PICT...)

Source: Battling global climate change – the EU’s Perspective (Part I) Presentation to the Second Session of the Ad hoc working Group on Further Commitments for Annex I Parties under the Kyoto Protocol, Artur Runge-Metzger, 6-14 November, 2006. UN HQ, Nairobi.

(36) In this context, the Stern Report concluded that CCS is a key technology for contributing to the global effort to combat climate change:

'The forecast growth in emissions from coal, especially in China and India, means CCS technology has particular importance. Failure to develop viable CCS technology, while traditional fossil fuel generation is deployed across the globe, risks locking-in a high emissions trajectory. … Stabilising emissions below 550ppm CO2e will require reducing emissions from electricity generation by about 60%. Without CCS that would require a dramatic shift away from existing fossil-fuel technologies.' [13]

(37) Experience from previous technology deployment shows that costs reduce substantially with increased deployment. (...)Figure 2 shows the learning achieved for flue gas NOx removal in the period since first deployment. This learning is particularly relevant for a technology with a potential global role such as CCS.

Figure 2. Cost development versus deployment for flue gas DeNOx technology

(...PICT...)

Source: Rubin et al; Experience Curves for Power Plant Emission Control Technologies, 2004

2.1.3. The competitiveness dimension of CCS

(38) The recent endorsement by the Heads of State of an independent GHG target of 20%, a 20% target for renewables and the development of the Strategic Energy Technology Plan indicate a strategic preference that the EU should lead the development and deployment of new energy technologies, in line with the vision for a common European energy policy set out in the Commission Green Paper A European Strategy for Sustainable, Competitive and Secure Energy (COM(2006) 105 final). The competitive advantage on CCS resulting from large-scale deployment in Europe is a collateral benefit of the enabling policy framework. The inclusion of CCS as part of the package to reduce greenhouse gas emissions to stabilize concentrations typically reduce costs by more than 30% (IPPC report on CCS, Metz et al, 2007, p. 12 SPM).

(39) It would allow European industry to become leading players in a potentially burgeoning global market for CCS technology. Other developed nations, especially the USA and Australia, are vigorously pursuing clean coal and CCS technology development and deployment. Thus the enabling policy framework can contribute to the Lisbon Agenda objective of making Europe the most competitive and dynamic knowledge-driven economy in the world by 2010, and the further objective of strengthening European enterprise in the field of environmental technologies (e.g. via the Environmental Technologies Action Plan (ETAP) [14]).

2.2. Problem definition

(40) There is a trend of increasing coal use supported by two key factors. Firstly, coal is the most abundant fossil fuel in terms of known reserves (around 150-250 years at current production rates). Secondly, coal provides strong security of supply for countries with significant domestic reserves e.g. China, India and America (key coal suppliers such as Australia are a more diverse group than the key oil and gas producing nations). Coal produces roughly twice the amount of carbon as natural gas when used for power generation, and if greenhouse gas emissions are to be stabilised globally, carbon emissions need to be taken out of coal-fired power generation.

(41) The Spring Council underlined the importance of substantial improvements in generation efficiency and clean fossil fuel technologies, and urged Member States and the Commission to work towards strengthening R & D and developing the necessary technical, economic and regulatory framework to bring environmentally safe carbon capture and sequestration (CCS) to deployment with new fossil-fuel power plants, if possible by 2020.

(42) The costs of CCS are one of the principal barriers to uptake, both in Europe and internationally. However, as discussed above, these can be expected to decrease with increased uptake. Although there are differences in learning potential from technology to technology, a similar development to that of flue gas denox is likely to be experienced with CCS. [15]

(43) Assessments have been made that if widespread global deployment of CCS is required from a particular date (say 2025 onwards), two generations of learning are required prior to that in order to progress along the initially steep learning curve and reduce the costs of the global rollout. [16] This is shown in schematic terms in (...)Figure 3 below, which also shows the timeline for development of the projects and the timing of learning feedback from one tranche to the next:

Figure 3. Two tranches of deployment before rollout of CCS

(...PICT...)

Source: J Gibbins, Imperial College London

(44) The first tranche would comprise commercial scale plants for initial demonstration. Previous experience with other technologies has indicated that these early plants are crucial in understanding many aspects of technology performance that cannot be analysed at lab and pilot scale. For example, overall plant operability can depend on feedbacks that will not be identified by desk-based studies. In addition, CCS projects are likely to include a large number of construction and operating partners and public confidence must be established. Finally, it is important to note that real costs will not be established until real plants are built and that in the early stages of new technology deployment costs tend to decrease rapidly as engineers (and others) learn from their experience.

(45) Once these plants are established, best use must be made of lessons learned for further deployment projects. On the above scenario, if first-of-type plants are built from around 2012 onwards then some real operating experience should be available by around 2015 which could be used to shape priorities and targets for these ‘second tranche’ plants. Although it is theoretically possible for second generation plants to reach minimum cost values, it is highly unlikely for CCS deployment according to this model since there will not be adequate time to feed back lessons learned. Thus, second tranche plants should allow many of the problems identified by initial plants to be resolved, but are also likely to identify further areas where significant improvements can be made to standard plant designs to be used for full rollout. Meanwhile, continued operation of first tranche plants will gather additional information that can be added to lessons learned from second tranche plant when plans are made for full, commercial rollout.

(46) Although this scenario is set out in terms of separate tranches of deployment, in reality it can and should be expected that these would overlap. For any significant degree of learning from a particular project there must be time to observe results of earlier plants and feed experience into later designs. Build times are long and technology decisions have to be finalised well before commissioning, maybe 3-5 years for main features to be fixed with perhaps a year less for some details. Then a couple of years of operation are required to settle down and learn what the apparatus can really do. As discussed above, it is expected that many ‘tranche 2’ plants will not wait for all of the lessons learned from ‘tranche 1’ plants before they get off the drawing board. In fact, it is critical that continuity is maintained between tranches so that design and manufacturing teams can grow and develop.

(47) The essential role of CCS deployment in developing and developed countries to meet the 2°C Celsius target in a cost-effective way is illustrated in the 2°C Communication. Based on the cost-efficient reduction scenario to meet the greenhouse gas reductions outlined in the 2°C Communication [17], the projections shown in (...)Figure 4 below show the potential global importance of CCS. The projections suggest that CCS will first need to be deployed in developed countries. Soon after, from 2020 onwards, it will be rapidly deployed in developing countries that have ample coal reserves, such as China and countries in South Asia. In China, almost 40 % of total emissions from the power sector are projected to be captured by 2030, rising to two thirds in 2050. The IPCC report on CCS confirms that 50 to 90% of the global CO2 emission reductions needed over the period up to 2100 to stabilize concentration at 450 ppm (consistent with 2 degrees Celsius) come from CCS. [18]

(48) However, these scenarios for global uptake depend on international agreement on reducing GHG emissions in line with the 2˚C target. China and India have also been clear in negotiations on climate and CCS that CCS would have to be proved elsewhere and have moved down the cost curves before they would consider using it.

Figure 4. Share of Power Sector Emissions Captured (JRC-IPTS, POLES)

(...PICT...)

`

(49) The Commission in the Communication on Sustainable Power Generation from Fossil Fuels made the following two commitments:

· 'the Commission will determine the most suitable way to support the design, construction and operation by 2015 of up to 12 large-scale demonstrations of Sustainable Fossil Fuels technologies in commercial power generation' [19]

· '…the Commission considers that a clear and predictable long-term framework is necessary to facilitate a smooth and rapid transition to a CCS-equipped power generation from coal…On the basis of the information currently available, the Commission believes that by 2020 all new coal-fired power plants should be built with CCS. Existing plants should then progressively follow the same approach. In order to make a decision, in terms both of the timing of any CCS obligation and the most appropriate form and nature of the requirement, the Commission will undertake in 2007 an analysis including a wide-ranging public consultation on the issue. On the basis of this analysis, the Commission will evaluate what is the optimal retrofitting schedule for fossil fuel power plants for the period after the commercial viability of Sustainable Coal technologies is demonstrated.' [20]

(50) The 2020 date balanced a range of concerns. These included the need to plan now for the deep cuts in CO2 emissions needed for the mid-century (and in particular to promote the availability of a technology which will be important not only in Europe but also globally); and the need to allow the technology to mature before its widespread application. At this stage it is hard to say with any certainty what the impacts of delaying widespread European deployment to a later date would be. (Earlier deployment is probably not realistic.) Intuitively, later deployment in Europe will delay the commercial availability of the technology, which in turn may mean either that the mid-century climate goals are missed (with the attendant consequences, see e.g. the Stern Report) or that the required abatement has to be done at higher cost due to the more limited learning and hence limited cost reduction. But there are many uncertainties here: for instance, it is not clear to what extent CCS would be developed internationally if not in Europe (there are embryonic demonstration initiatives in the US and Australia).

(51) It is clear that if left to the market investments in CCS technology development may be insufficient for six reasons:

· First, currently the positive CO2 reductions from CCS are not rewarded since CCS is not enabled as part of the EU_ETS nor the Clean Development Mechanism. If included the CO2 reduction through CCS would be valued at the carbon price.

· Second, the positive impacts from developing the technology on the costs and its efficiency (so called learning-by-doing effects based on adoption) are not captured by the market (positive externalities). [21]

· Third, potential positive externalities relating to security of supply would not be captured by the market.

· Fourth, potential positive externalities relating to export potential would not be captured

· Fifth, potential positive impacts on achievement of global climate objectives from deployment in the EU would not be internalised.

· Sixth, any positive reductions in traditional air pollutants from deployment of CCS are not internalised.

(52) In the context of the analysis conducted for the 2°C Communication, the Sustainable Fossil Fuels Communication, and in the related Impact Assessments [22], this Impact Assessment focuses on the two major issues relevant to CCS deployment identified by the Sustainable Fossil Fuels Communication:

· The environment, health and safety (EHS) risks from CCS deployment. This involves both minimising risks from CCS deployment, and ensuring that it is effective as a climate change mitigation measure.

· Commercial barriers to CCS deployment as outlined in paragraph (...)(51).

2.2.1. Environment, health and safety (EHS) risks from CCS deployment

(53) The climate benefits of CCS must be assessed in the context of the potential risks it presents to the environment and human health as follows:

· The global risk – namely, that the transported and stored CO2 is re-emitted to the atmosphere, thus reducing the efficacy of the technology to mitigate climate change;

· Local environment, health and safety (EHS) risks, associated with the impacts and effects of CO2 capture, transport and storage, including impacts of construction, materials consumption, and the hazard posed by un-planned losses of containment, which may be augmented by the presence of certain toxic impurities in the captured CO2.

· Upstream risks related to the continued use of fossil fuels (landscape damage, discharges to water, emissions to air, solid waste generation etc.).

(54) More detailed specification of the risks is provided at Annex II. The first major problem to be addressed is to ensure that these risks are minimised in the course of CCS deployment.

(55) Note also that once the environmental integrity of CCS is ensured and legal protection provided at least equal to that governing similar activities, legal barriers to CCS deployment in current EU legislation can be removed. The principle barriers in EU legislation are in the Water Framework Directive 2000/60/EC, whose Article 11.3.j prohibits injection into saline aquifers except in certain cases, and in the Landfill Directive 1999/31/EC whose Article 5.3 prohibition on injection of liquid waste could be interpreted as prohibiting CO2 injection into geological formations (CO2 is injected as a supercritical liquid).

(56) Removing these barriers will complement similar work in the international context, in particular the Protocol to the London Convention (on dumping of wastes and other material in the marine area) and the OSPAR Convention on the protection of the North East Atlantic. The London Convention was amended in November 2006 to allow CO2 storage offshore, and the EC was actively involved in securing an amendment to the OSPAR Convention also to allow CO2 storage offshore, in conjunction with the adoption of a risk management framework which has been one of the key reference points for preparing the EU approach.

2.2.2. Commercial barriers to CCS deployment

(57) Application of CCS leads to increased cost of electricity generation due to the added capital and operating costs of the capture, transportation and storage installations compared to conventional power plants, as well as the additional cost of the extra fuel consumed by the process. The second major problem is to assess how to overcome these barriers by internalising the positive externalities of CCS deployment identified in paragraph (...)(51) above.

(58) The principal positive externality is the climate benefit from CO2 reduction, which is not internalised since emissions captured and safely stored are currently not recognised as not emitted under the EU Emissions Trading Scheme (ETS). The Emissions Trading Directive is in the process of revision and will revise the ETS as necessary in order to meet the climate change objectives of the Community (in particular the commitment for a reduction of 20% GHG by 2020 and any additional reductions). Thus the ETS as revised will internalise the climate change externality for all installations within its scope.

(59) There remain the five other potential positive externalities of CCS deployment, which would not be internalised by the ETS. These are: any positive impact from learning by doing, any benefits for security of supply, any benefits for technology export, any benefits for promoting achievement of global (as opposed to European) climate change objectives, and any positive reduction of traditional air pollution.

2.3. Basis for Community level action to regulate and incentivise CCS

(60) The EU has the right to act to regulate the environmental, health and safety risks represented by CCS deployment, under Article 175(1) of the Treaty. The question to be addressed in this impact assessment is to what extent safe, secure and reliable deployment of CCS on an equal basis across Europe requires action at Community level, and to what extent action can be left to Member States or the market.

(61) With regard to promoting deployment of CCS, public policy is essential to ensure CCS deployment because it is a technology that is almost exclusively driven by political concerns over climate change and diversification of energy supply (that is, it has no separate commercial rationale). As outlined in Section 2.3.2, the EU ETS forms the point of departure for promoting CCS deployment in the EU [23]. There is no presumption that further measures at EU level are appropriate, but the options should be considered.

3.

Objectives

3.1. To manage CCS environment, health and safety (EHS) risks

(62) The first objective is to ensure that a regulatory framework is in place that will ensure that the risks outlined in Section (...)2.2.1 are properly managed. The framework must be proportionate, and must be enacted at the appropriate level.

(63) All the components of CCS must be considered, namely capture, transport, injection and storage. However, it is likely that CO2 storage sites will present the greatest regulatory challenge because of the novel nature of the activity. On condition that a proper risk management framework is in place that secures at least equivalent levels of environmental protection as those applied to analogous activities, known barriers to CCS deployment in existing legislation should be identified and removed as described in section (...)2.2.1.

(64) The impact assessment for this issue is covered in sections (...)4 to (...)6 below.

3.2. To internalise the positive externalities of CCS deployment

(65) The Commission's proposals to achieve a first generation of CCS deployment are set out in the Commission communication [forthcoming] on establishing a Flagship Network of up to 10-12 CCS demonstration plants in Europe and internationally. The Communication assesses the logistics of the network and the incentives needed to overcome the commercial barriers to deployment. The decisive importance of CCS technologies is recognised in the new EU Strategic Energy Technology Plan (SET-Plan) which recognises the initiative of advancing CCS to enable its use in power generation from fossil fuels as one of the 'Major European Industrial Projects' within its European Mission 'Decarbonising the base-load power'.

(66) This assessment will analyse the effectiveness of options to integrate the positive externalities of CCS identified in paragraph (...)(51) and section (...)2.2.2 above, so that the future energy mix contains the socially optimal proportions of CCS.

(67) The main option is recognition of CCS under the Emissions Trading Scheme, which will internalise the major positive externality of CCS deployment, its reduction of CO2 emissions. There remain the five potential externalities that would not be internalised by inclusion in the Emissions Trading Scheme. The assessment also examines options additional to inclusion in the ETS (and thus probably imposing additional costs), and assesses whether they produce additional benefits that are commensurate with the costs (an indication that the externalities are effectively internalised). It must also be borne in mind that some mechanisms for internalising externalities may be more distorting than others.

(68) The 8th Commission action of the Communication on Sustainable Fossil Fuels mentions inclusion in the ETS, support for infrastructure development, and 'adopting legally binding measures to regulate maximum allowed CO2 emissions per kWh after 2020 and/or introduce a timed phase-out (for instance by 2050 of all high CO2 emitting (i.e. non-CCS) electricity generation' as possible options. The question of whether a transport infrastructure in particular would need to be supported at EU level will be addressed in a separate assessment [scheduled by DG TREN]. This assessment will encompass at least the other options identified: deployment on the basis of the EU ETS, and deployment on the basis of imposition of legally-binding measures at EU level. The impact assessment for this issue is covered in section (...)7 and (...)8 below.

4. Analysis of options for regulating CO2 Capture and Transport

4.1. Principle of conservatism

(69) In the interests of proportionate assessment, a principle of conservatism was applied in assessing the appropriate regulatory framework for capture and pipeline transport. The principle is that if the risk profile of a new activity (A) is comparable to that of an existing activity (B) already covered by a risk management framework, then that risk management framework is also adequate, effective and proportionate for managing the risks of activity A, and no consideration of further options is necessary.

(70) The risk profiles of two activities A and B are comparable if activity A does not present new risks that activity B does not, and it does not present significantly greater or lesser risks than does activity B.

4.2. CO2 capture

4.2.1. Risks

(71) There are many outlines of CO2 capture technology [24]. The main elements of a CO2 capture process (solvent stripping of CO2, air separation for oxyfuel combustion, and gasification for pre-combustion capture) are already conducted in industrial installations for which regulatory regimes exist (power plants or chemical plants).

(72) The risk profile presented by CO2 capture is comparable to those of existing power generation and chemical activities, with one possible exception. The outstanding issue is whether the activity of CO2 compression and the presence of compressed CO2 in quantity give rise to an accident hazard warranting application of the Seveso II Directive. [25]

4.2.2. Options

(73) These existing installations are mainly controlled by the Integrated Pollution Prevention and Control Directive 96/61/EC and the Environmental Impact Assessment Directive (85/337/EC). For installations that present an elevated accident hazard risk the Seveso II Directive is conferred in addition.

(74) Using the principle of conservatism outlined above, the assessment is that the IPPC and EIA Directives are adequate to regulate CO2 capture. However, the application of the Seveso II Directive to capture is an outstanding issue which is currently under examination.

4.3. Transport

(75) There are two main kinds of technology that are likely to be used in the EU for transport of CO2: pipeline transport and shipping.

4.3.1. Pipeline transport

4.3.1.1. Risks

(76) Pipeline transport of CO2 is analogous to natural gas transport by pipeline. Records maintained by the regulatory authorities in the USA of incidents involving CO2 pipelines in the USA indicate that whilst the frequency of incidents is similar to that of natural gas pipelines, the degree of incidental damage caused as a result of any incident is significantly lower than that for natural gas pipelines. In addition, there are no records of serious injuries or fatalities associated with incidents involving CO2 pipelines from records dating back to the mid-1970s. The principal causes of incidents involving CO2 pipelines, based on US experience, have been outside intervention and corrosion. Further information on CO2 pipeline accidents in the USA and the treatment of pipeline infrastructure by the US legal system can be found in Gale, J. and Davidson, J. “Transmission of CO2 - safety and economic considerations”, Energy 29(2004) 1319-1328.

(77) Reported rates of incidents of failure for natural gas pipelines are relatively small. Data suggest that between 1972 and 2002, incidents of failure fell from 0.0010 km-1 per year to 0.0002 km-1 per year [26]. For US CO2 pipelines, around 10 incidents have been reported between 1990 and 2002, with total property damages amounting to $469 000, zero injuries or fatalities, and giving an incident rate of 0.00032 km-1 per year. Incidents mainly related to technical component failures, whereas for gas pipelines the most common form of incident is damage by external factors (e.g. excavators).

4.3.1.2. Options

(78) Natural gas transport is covered under the EIA Directive for pipelines of diameter greater than 800mm and a length more than 40 km. There are also standards for the materials to be used to transport gas at various pressures under the Pressurised Vessels Directive, which controls the build quality of imported products to be used for containing pressurised fluids. Natural gas transport by pipeline is not further regulated at EU level, but regulation is rather left to the national level.

(79) Since potential hazards posed by CO2 transport are broadly comparable to those of natural gas transport (albeit without the added risk of explosion posed by natural gas), there is good reason to believe that the risk framework applied to natural gas transport by pipeline is adequate to regulate CO2 transport. Thus no other options have been considered.

4.3.2. Shipping transport

4.3.2.1. Logistics and risks of shipping transport

(80) A carbon dioxide (CO2) leak could have consequences on humans and the environment, as outlined in previous sections of this report. The effect on the climate caused by a CO2 leak from a ship is difficult to quantify. For any significant effect to take place it is likely that a large part of the ship inventory would have to be released over a short period of time.

(81) A release of CO2 from a ship during transport would impact on the surrounding ocean. The CO2 would dissolve in the water, forming carbonic acid (H2CO3). This would acidify the water, improving its ability to solubilise sources of calcium carbonate present in the form of coral and the carbonaceous shells of clams and other shellfish. However, impacts of an individual release are likely to be limited to the pelagic zone, and will disperse rapidly.

(82) During loading or unloading operations a leak of CO2 would pose a significant hazard to people in the immediate vicinity of any release. Populations further afield may also be at risk since it is possible the cloud may disperse inland due to the effects of weather. It has been shown in the DNV risk report [27] that a catastrophic failure of a tanker containing an inventory of around 18000 tonnes of CO2 (assuming it is stored just below its boiling point) can cause hazardous concentrations at large distances. For example, a release onto water can cause concentration levels of 15000 ppm at a distance of 925 metres. Such concentrations would not be lethal to healthy populations, although closer to the release, fatal concentrations would be expected.

4.3.2.2. Likelihood of accidents involving CO2 Tankers

(83) The closest analogy to ship transport of CO2 is the transport of liquefied gas by ship. This is an increasingly widespread practice with the rapid growth in the market for Liquefied Natural Gas (LNG). LNG transportation has been established for over forty years with almost fifty thousand cargoes delivered [28]. Additionally, Liquefied Petroleum Gas (LPG) is routinely transported throughout the world. For CO2 itself, a small amount is already transported by ship to service the food and drink industry. Large scale transport of CO2 is anticipated to employ similar technologies to LPG, operating at around -55°C and 6bar [29].

(84) Transportation of liquefied gases by sea has a very good safety record. Despite the number of cargoes carried, LNG carriers have not suffered any significant losses. Due to the nature of the cargo, LNG and possibly LPG tankers are afforded special consideration when approaching and departing their berth. Often, other movements in the vicinity will be suspended and a tug escort will be provided from or to open water. The nature and extent of such measures are dependent on the layout of the harbour and also the type and quantity of nearby shipping.

Table 1. Incidents involving gas carriers and other cargo ships

Ship type | Number of ships2000 | Serious incidents1978-2000 | Frequency(incidents/ship year) |

LPG tankers | 982 | 20 | 0.00091 |

LNG tankers | 121 | 1 | 0.00037 |

Oil tankers | 9678 | 314 | 0.00144 |

Cargo/bulk carriers | 21407 | 1203 | 0.00250 |

Source: IPCC 2005 op cit. Table 4.2 |

4.3.2.3. Options

(85) If CO2 were to be regulated in analogy with LNG and LPG transport, regulation of CO2 transportation by ship would be carried out at a number of levels.

(86) The EU Directive on Maritime Safety (95/21/EC) requires member states to put in place controls on various types of marine vessel (including gas and chemical tankers) over 500 tonnes. An obligation is placed on the Member States to ensure that any deficiencies revealed in the course of the inspection are rectified. Conditions warranting detention of the ship are laid down. For the most part EU shipping law (e.g. Council Directive 93/75/EEC) enforces obligations under the International Convention for the Prevention of Marine Pollution from Ships (MARPOL) and the International Maritime Dangerous Goods (IMDG) Code. Various other elements serve to enhance the protection of the environment and maintain safety in marine shipping, including the Committee on Safe Seas and the Prevention of Marine Pollution (COSS; established under Regulation 2099/2002).

(87) The International Maritime Organization (IMO) has adopted the International Gas Carrier Code for the design of hull and tank structure of liquid gas transport ships, such as LPG carriers and LNG carriers. CO2 tankers are currently designed and constructed under this code.

(88) International transport codes and agreements applying to CO2 adhere to the UN Recommendations on the Transport of Dangerous Goods: Model Regulations published by the United Nations in 2001. CO2 in gaseous and refrigerated liquid states is considered a non-flammable, non-toxic substance. Any transportation of CO2 adhering to the UN recommendations can be expected to meet all relevant agreements and conventions covering transportation by whatever means. Transportation of CO2 by ship is also governed by various international legal conventions [30]. Best practice in LNG & LPG operations is also promoted by the Society of International Gas Tanker and Terminal Operators (SIGTTO), a non-profit company that functions as the trade body for the industry.

(89) Although national codes and standards can vary, international bodies such as ISO and CEN are working towards the unification of these. It is possible that due to public concern over the transportation of CO2 that standards may be changed or new ones introduced to address these concerns.

(90) Further measures may be required at the local level. Depending on the local configuration of the harbour, it may be necessary to introduce specific arrangements for the handling of CO2 cargoes. Such measures might include special escort arrangements, suspension of other shipping activities, restriction on shipping lanes etc. These measures would normally be agreed between the harbour authorities, national Marine Agency and Shipping operator.

(91) Since potential hazards posed by CO2 transport by ship are broadly comparable to those of LNG and LPG transport (albeit without the added risk of explosion posed by natural gas), there is good reason to believe that the regulatory framework applied to LNG and LPG transport by ship is adequate to regulate also CO2 transport, as outlined above. Thus no other options were considered.

5.

Analysis of options for the regulating framework for CO2 storage

5.1. Risks and regulatory needs

(92) The risks associated with CO2 storage were identified briefly in section (...)2.2.1 and are specified in more detail at Annex II. On the basis of stakeholder consultation (see Section (...)1.2), the main issues to be addressed were identified and are outlined in Box 1 below:

(93) Main requirements of a free-standing regulatory framework for CO2 storage

· Requiring storage sites to be permitted, based on an assessment of the characteristics of the geological storage site, and its suitability for long-term storage of CO2 based on appropriate risk assessment procedures

· Imposing conditions on the safe use and selection of a site

· Ensuring that the assessment of whether the above conditions are met is robust. The main way of achieving this is via competent authority approval but other options may also be considered

· Imposing conditions on the composition of CO2 accepted for storage

· Imposing monitoring requirements

· Imposing verification/inspection requirements

· Requiring corrective measures in the case of CO2 leakage

· Establishing measures for dealing with liability, including possible insurance

· Establishing closure and after-care procedures for the storage site, including provisions on transfer to the state

· Ensuring equal access to the transport and storage network

5.2. Options for treating CCS under the EU ETS

(94) One particular issue which arises is the question of how to include (elements of) carbon capture and storage in the EU Emissions Trading Scheme. This should be dealt with first, since the approach decided on will have implications for the choices for regulating CO2 storage.

(95) CCS as a whole can be included in the EU ETS from Phase II (via Article 24 of the Emissions Trading Directive), although modifications for Phase III (2012) to allow each element of the CCS chain (source, transport, injection and storage) to be designated as separate installations in their own right have been assessed separately under the Impact Assessment for the revision of Directive 2003/87.

(96) 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. This approach allocates all the risk and liability for emissions on the one installation.

(97) For the post-2012 framework it is in principle possible to separate combustion+capture from transport and storage, and so the question arises how best to treat the various components under the ETS. The key issue is that the quantity of emissions safely isolated from the atmosphere is not necessarily equal to the quantity of emissions passed from the capture plant to the storage plant. This is because emissions may leak from the transport and storage network, and because power is used (and hence emissions caused) for the compression and injection of the transported CO2. There are four options for handling this:

· Option 1: Regulate CO2 emissions from transport and storage outside the ETS only

· Option 2: Include CO2 emissions from transport and storage within the ETS, but do not regulate otherwise

· Option 3: Combine (1) and (2)

· Option 4: Combine (1) with another means of compensating for CO2 emissions from capture and storage.

5.2.1. Consequences of Option 1

(98) Storage would be regulated as proposed in the draft Directive, including measures designed to minimise leakage, and requirements for rectification of any leakage that does occur. Transport would be regulated at Member State level to similar effect. Thus leaks would have to be rectified, but any emissions that occurred during leakage would not have to be accounted for under the ETS, resulting in effective overcompensation of the combustion installation.

(99) Also, neither emissions from injection facilities at the storage site, nor emissions from booster stations on the pipelines, would fall under the ETS unless the installations concerned had a power rating exceeding 20MW (i.e., fell under the combustion plants threshold of Annex I of the ETD). Even in that case, free allocation would be allowed for the installations concerned (in so far as consistent with the general ETS rules). Thus either the emissions would not fall under the ETS at all, and so the actual net abatement could be considerably less than the original 'source' installation had been given credit for; or a free allocation would be given for additional emissions resulting from CCS, again resulting in an unwarranted benefit.

5.2.2. Consequences of Option 2

(100) Allowances would have to be surrendered for any emissions from transport and storage, thus preventing any overcompensation of the combustion installation. The better the management of the pipeline and intermediate systems, the lower emissions should be, and thus inclusion in the ETS would act as an incentive to better management. The expected case is that the carbon price would be high enough to provide an incentive to minimise leakage, since CCS would in the normal situation only occur if the cost of capture, transport and storage was at or below the carbon price, and transport and storage currently represent a relatively small proportion of the overall cost (of the order of 25%).

(101) However, there would be no regulation of the selection and management of storage sites such as to minimise leakage, and no requirements to rectify leakage if it occurred. In the unlikely situation where the carbon price fell too low to incentivise the minimisation of leakage, unrestricted emissions could arise and would be entirely legitimate. Such emissions could cause significant other health or environmental damage, but their restriction on those grounds would not be required by ETS inclusion.

5.2.3. Consequences of Option 3

(102) Option 3 would combine the advantages of Options 1 and 2. It would provide regulation on the selection and management of storage sites so as to minimise leakage, and requirements to rectify leakage if it occurred. Inclusion under the ETS would ensure that ancillary emissions from transport and storage, including those from injection and from booster stations, were properly accounted for, and would provide an incentive to reduce them. Finally, any leakage that did occur would have to be accounted for under the ETS, thus avoiding any overcompensation for CCS installations.

(103) The application of both regulatory frameworks does not comprise double regulation, which is the case where two frameworks are applied to achieve the same end. Here, there is a range of policy desiderata that neither framework can achieve alone.

5.2.4. Consequences of Option 4

(104) There are two alternative possibilities under Option 4.

· Option 4a: To try to establish default values for the emissions from transport and storage, and reduce the amount of emissions from the combustion installation that are treated as non-emitted accordingly. The question of default values was considered by the IPCC [31]. There are default values available for natural gas transport from empirical data, and a rough-and-ready means of converting these into emission factors for CO2 (based on the difference in density of the gases). However, there are some technical questions on the applicability of these factors for CO2 (the natural gas data is based on throughput, which is reasonable for natural gas but might not be for CO2; and there are some questions on the conversion methodology). These factors are not currently at a state where they can be used to adjust the combustion installation surrender. The same is the case for CO2 storage: the IPCC states that no emission factors are available. Thus this alternative is not practicable.

· Option 4b: Tto attempt to reconcile actual emissions from transport and storage back to the combustion and capture installation, with only the latter being under the EU ETS.

(105) 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 probably need to be spread amongst operators through private contracts between exporting installations, pipeline operators and storage site operators. This would be an entirely commercial matter. In essence this is a less transparent and certain way of achieving the same thing as Option 3, relying on private contracts which could be open to dispute, litigation and lack of transparency.

5.2.5. Conclusion

(106) Option 3 remedies the defects of Options 1 and 2 and is more transparent and legally certain than Option 4b. As such, it was decided on as the preferred policy option for the EU beyond Phase II (beyond 2012).

5.3. Options for the regulating framework

(107) CO2 storage is the significant novel element of CCS. While there are activities with some similarities (in particular natural gas storage and enhanced oil recovery, but also to a certain extent landfill), there is no single system of regulation easily adaptable to CO2 storage in the way that there is for capture and transport. On the contrary, there is a complicated range of potentially applicable legislation (depending for instance on whether CO2 storage is characterised as a waste disposal activity) which was analysed in detail [32].

(108) Thus the task of identifying the regulatory options is significantly more complicated than for capture and transport. Simplifying assumptions were necessary, and following detailed analysis [33] the following main options were outlined:

Option 1: Use the EU Emissions Trading Directive for risk management. The EU ETD must be conferred on CCS for incentive reasons in any case (see Section (...)5.4.1 below) and will bring with it certain management requirements.

Option 2: Confer other elements of existing non-waste environmental legislation.

Option 3: Confer existing waste management legislation.

Option 4: Develop a free-standing framework in the form of a (draft) Directive.

(109) In line with the conclusion of Section (...)5.2, all options assume that CO2 storage would in any case be regulated under the ETS.

5.4. Analysis of the options

(110) The conservative approach is to use existing legislation to regulate CO2 storage, and thus a step-wise procedure was developed to ensure that the possibilities of existing legislation were fully exploited before a new stand-alone framework was considered. A detailed review of the process undertaken has been presented previously 13.

5.4.1. Option 1: Effect of inclusion of CCS in the EU ETS

(111) Under the current EU ETS system, appropriate monitoring and reporting guidelines (MRGs) would be established for each element (excluding the CO2 source which is already subject to MRG provisions). Inclusion in the EU ETS would have the following regulatory effect:

· Recognition of non-emitted CO2 in emissions trading.

· A requirement to design a monitoring scheme to calculate emissions of CO2 and monitoring and reporting obligations, including partial risk assessment.

· Monitoring CO2 purity (partial).

· Monitoring post-closure.

· Liability obligations (partial) in respect of emissions of CO2 to the atmosphere (global risks), in that allowances would have to be surrendered for any leakage.

Regulatory gaps

(112) Under such as scheme, a number of regulatory gaps and ambiguities would persist, in particular in relation to:

· Risk assessment and management – basic characterization, selection and risk management for the site are not covered (despite the requirement for determination and approval of a monitoring plan). There is no requirement for control on impurities in the CO2.

· Permitting requirements – no standards or permitting requirements are applicable to the above.

· Site closure – Enforced closure is not possible, and no conditions are specified on closure requirements.

· Liability – there is no coverage of liability for local environmental damage, no provisions on transfer of liability to the state, and no requirement for a financial provision to cover future liabilities.

5.4.2. Option 2: Effect of applying existing environmental legislation

(113) The EIA, IPPC, the Environmental Liability Directive, and potentially the Seveso II Directive requirements could serve to close these gaps as follows:

· Risk assessment and management – EIA, IPPC and Seveso II Directives all require prior demonstration of the environmental and human health risks posed by major development projects, which could include CCS activities through appropriate amendment of the legislation.

· Permitting requirements – EIA, IPPC and Seveso II Directives all require consideration to be made of the risks of a project by competent authorities in Member States. It is questionable whether the regime would provide a consistent regulatory approval approach, and may need to be complemented by either guidance documents or new legislation laying down more prescriptive approaches.

· Site closure – conferring IPPC Directive requirements onto CO2 storage sites would provide the basis for forced cessation of operations. These conditions would also apply for CO2 plants employed at IPPC qualifying installations. However, no detail on conditions of closure would be specified.

· Liability – conferring IPPC Directive requirements would trigger the Environmental Liability Directive requirements in respect of any damages arising for local environmental damage. However, it does not create obligations for upfront financial provisions to be made by the operator in the event of insolvency, and does not provide for transfer of responsibility and hence also of liability to the state.

(114) However, there are a number of further considerations bearing on the choice between EIA, IPPC and Seveso II, as discussed below.

(115) The EIA Directive would require a prior impact assessment of any CCS project, on the basis of general provisions laid down in the Directive. Requirements for public consultation are specified, and the assessment must be taken into account when permitting the project. The Directive stipulates a permitting procedure without, however, specifying any substantial permitting requirements, and so will not on its own provide sufficient regulatory certainty on site selection and characterisation, monitoring and closure. Also, it would not provide a suitable framework for regulating the outstanding liability issues. However, it would provide useful public consultation requirements, and thus conferring on CO2 storage would be useful in that regard.

(116) The IPPC Directive comprises a regulatory and permitting framework applied mainly to industrial installations, although it also covers landfill sites. Its permitting regime contains elements that could be applied to CO2 storage, but in the existing Directive 96/61/EC, these requirements are specified only in framework terms for all installations, and more detail for a particular category of installation can only be provided under the BAT Reference Documents (BREFs). Reliance on a BREF document under the IPPC Directive is unlikely to be a sufficiently robust regulatory instrument to lay down technical standards for CO2 storage site selection, characterisation, construction, operation, monitoring, closure and post-closure provisions. The BREF documents do not have any legal status under the current Directive, and even if this were given, certain of the requirements are such that they should be specified in primary legal obligations. This is true in particular for requirements on site selection and on closure and post-closure, as these are the crucial phases in which the future security of the site is ensured and (for closure) the conditions for transfer of responsibility to the state are determined (see section (...)6.2.2 below).

(117) A second issue is whether IPPC would provide a suitable framework for regulating liability issues. As stated above, conferring the Directive would trigger the Environmental Liability Directive requirements, but there is currently no provision in IPPC for legal obligations for operators to take out financial securities for operations to cover closure, decommissioning and stewardship costs in the event of insolvency.

(118) It was also examined whether the proposal for a revision to the IPPC Directive [forthcoming] could be used to remedy these defects. The revision will incorporate three existing Directives: the Large Combustion Plants Directive (2001/80/EC), the Waste Incineration Directive (2000/76/EC) and the Solvent Emissions Directive (1999/13/EC). Each will have a separate chapter within the revised IPPC specifying legal requirements applying to that activity in particular, and Annexes specifying emission limit values for the activities in question. One possibility would be to take a similar approach to regulating CO2 storage.

(119) However, the nature of the conditions to be imposed for storage differs substantially from those being set for IPPC installations, and so there is clear technical justification for proceeding with different instruments. It should also be noted in this respect that the Landfill Directive is not included in the draft revision, and that landfills are in fact deleted from its Annex. In addition, integrating the instruments would entail that, both in Commission and in Council and Parliament, nothing could be adopted until everything was agreed. In the stakeholder meeting of 8 May the Commission consulted on inclusion in IPPC, and for the last-mentioned reason, the majority of respondents supported a free-standing framework.

(120) The Seveso II Directive, as mentioned above, imposes safety management requirements on installations that present an elevated accident hazard risk. It was considered whether the accident hazard risk represented by injection and geological storage is such as to warrant application of Seveso II in addition to the general regulatory framework applied. If the storage site is properly regulated under a separate legal framework, it was not considered that Seveso would add any significant regulatory certainty. However, application of Seveso to CO2 injection is an outstanding issue to be further considered.

5.4.3. Option 3: Application of community waste management legislation

(121) A range of regulatory instruments would apply to CCS if CO2 is classified as a waste or CO2 storage is classified as a waste management activity. The principle instruments are the Waste Framework Directive (2006/12/EC), the Landfill Directive (1999/31/EC) and the Transfrontier Shipment of Waste Regulation (EEC/259/93).

(122) Based on analysis conducted within the Commission, it was concluded that the existing waste legislation was not well-adapted to regulating CCS. A number of instruments may apply, but the scope of application is not clear and would have to be clarified, and the obligations triggered by any application are not tailored to regulating the risks of CO2 capture, transport and storage, but would rather apply a risk management framework (such as the landfill rules) that was developed for a different purpose. Thus the following options were proposed:

· To amend the relevant parts of the waste legislation to adapt them to the requirements of CCS

· To regulate CCS risks in some other way (either by using existing legislation or by creating a free-standing framework) and to remove them, as regulated elsewhere, from the scope of the waste legislation.

(123) Clearly the key criteria are whether application of Community waste management legislation would provide additional regulatory certainty, and whether it can be easily adapted and would provide a transparent regulatory framework. It was concluded that application of the waste legislation would be unlikely to add much additional regulatory certainty, and would require significant amendments to the existing regime for it to be applicable. Notwithstanding this conclusion, the Landfill Directive was considered to provide a useful template for stand alone legislation for CO2 storage, in so far as it includes provisions for site selection, site design, waste acceptance criteria (including sampling obligations), provision of a financial security, closure procedures, technical standards for closure, after-care considerations, and technical committee review.

5.4.4. Option 4: Development of a free-standing legal framework

(124) A stand-alone legal framework provides the opportunity to tailor a risk management framework to the requirements of CO2 storage so as to cover all regulatory issues in an appropriate way. However, as stated above, the EIA Directive provides useful impact assessment and public consultation requirements, and for that reason it would be useful also to confer it on CO2 storage.

5.5. Summary of analysis, and comparison of options

(125) In addition to the above, the following criteria were used to check the above step-wise assessment of options:

· Effectiveness and comprehensiveness. This is a measure of how completely the option covered the identified regulatory requirements so as to achieve the policy objective of secure CO2 storage.

· Legal practicality, simplicity and consistency. This is a measure of how quickly and easily the regulatory option could be brought into the EU law, how easy to understand the proposed measures would be for interested parties, and whether they would be able to comply. Parameters for consideration included: how many modifications would be required to EU law to allow application; how many different instruments would be involved in regulating; and how far the regulatory approach would differ from legislation covering similar activities.

· Ease of application (regulators). Ease of application was an assessment of how easily it would be for competent authorities to transpose, and to understand and enforce the option under consideration. It takes into consideration issues such as whether it would span existing competencies, or whether they were being asked to make judgements on difficult to assess parameters beyond their typical duties.

· Ease of application (operators). This was an assessment of how difficult it would be for potential operators to adapt their existing systems and skills in negotiating regulatory approvals procedures to fit to the regulatory framework.

(126) The principles of subsidiarity (i.e. the need for Community level action) and proportionality have been addressed in previous sections, and based on the information presented therein, Community-level action is considered necessary. A summary of the assessment is provided below ((...)Table 2).

Table 2. Multi-criteria analysis of regulatory options

Option | Criteria | Overall score |

| Efficacy and comprehensiveness | Legal practicability, simplicity andConsistency | Ease of application (regulators) | Ease of application (operators) | |

(i) ETS alone | --- | + | + | + | -3 |

(ii) ETS+ existing non-waste environmental legislation | -- | 0 | 0 | 0 | -2 |

(iii) ETS+existing waste management legislation | + | - | - | - | -2 |

(iv) ETS+EIA +stand alone for storage site | ++ | + | + | 0 | 3 |

+ Positive result on criterion

- Negative result on criterion

0 Positive nor negative result on criterion (indifferent)

(127) Because the ETS requires no legislative change either at EU or at national level, it would be the simplest option for legislators, regulators and operators. However, these advantages are completely outweighed by its lack of effectiveness in managing the risks. Addition of existing environmental legislation would still leave gaps in effectiveness, and would complicate the legislative framework, thus increasing the difficulty of transposition and application for regulators and operators. Applying the waste legislation may in principle allow a framework that would comprehensively cover the risks, but only at the cost of significant complication of the applicable legal framework.

(128) A free-standing legal framework, together with application of the EIA Directive to ensure public consultation, provides complete regulatory coverage tailored to the needs of CCS. It is simpler to legislate than either options 2 or 3, and is simpler to transpose and more comprehensible for regulators and operators, since all the regulatory requirements are gathered in one place.

(129) Based on the analysis presented above, the most effective option for CCS regulation will be Option 4: application of the ETD combined with the EIA Directive to ensure environmental impact assessment and public consultation, and the use of a new stand-alone legal document to cover all other aspects of CCS regulatory needs. Other existing legislation may also need to be conferred, arising from examination of the content of the regulatory framework, which is addressed in the next section.

6. Content of the regulatory framework for CO2 storage

(130) Some issues regarding the content of the regulatory framework deserve specific consideration, namely how best to ensure the safety and security of CO2 storage; how to manage liability issues; requirements on the composition of the CO2 stream; and provisions for equal access to the transport and storage network.

6.1. Safety and security of CO2 storage

(131) The first of these issues is ensuring safety and security of the CO2 storage. This is the key objective of the regulatory regime, and is important both intrinsically and to ensure public confidence in CCS as a climate mitigation option.

(132) The provisions required are: provisions on characterisation of the site, including assessment of the expected permanence of storage; a condition that the site can only be used if, under the conditions of use, it is expected that the injected CO2 will be permanently contained; and appropriate requirements on operation, monitoring, site closure and post-closure obligations. There should also be comitology provisions allowing for updating of the Annexes on the basis of experience with implementation. These items are an essential component of any option to regulate the safety and security of storage, and are specified in the draft Directive as conditions on whether a storage permit can be issued. The Commission has always the option of adopting more detailed guidelines on the basis of the Annexes.

(133) The objective of the management regime is consistent application across the EU of the specified provisions so as to achieve in practice a high degree of safety and security of the storage site, and so increased confidence, both of regulators and of the public, in CCS as a sound climate mitigation option. However, CO2 storage is a relatively novel technology, and many requirements are highly site-specific. For this reason, it is, at least at the moment, only possible to specify fairly general ‘framework’ requirements in the Directive and its technical Annexes.

6.1.1. Description of options

(134) The question then arises how best to ensure uniform implementation of the framework requirements across the EU. The following options have been identified:

· Option 1: The competent authority would be responsible for the issuing of a permit. There would be a provision for further detailed guidance on the requirements of site assessment etc provided for in technical Annexes to the Directive.

· Option 2: As in Option 1, except that the competent authority would submit the draft permit decision to the Commission, which would refer it to a Scientific Panel which would assess whether the obligations of the Directive had been complied with. The Commission would then accept or reject the draft permit.

· Option 3: As in Option 2, except that following the Scientific Panel's opinion, the Commission would issue an opinion on the draft permit, which the draft Directive would require the competent authority to take into account when making the permitting decision.

(135) Under Option 1, implementation of the Directive's provisions would be the responsibility of a competent authority in the Member States. Where framework provisions are specified at EU level which leave a lot of discretion in implementation, as is the case here, consistent application can normally be ensured by developing detailed guidance on particular aspects of the framework, and the proposal allows for this. However, an initial learning period will be necessary in order to gain experience with CO2 storage, before detailed guidance appropriate to the range of potential sites can be developed. Thus in the interim before this guidance can be developed, it would be useful to have another mechanism available to ensure consistent application.

(136) These considerations underlie the concept of verification at EU level of which Option 2 and Option 3 are variants. While it is not possible to establish detailed general provisions applicable to the range of potential CO2 storage sites, it is possible for a group of experts to follow through the process of applying the Directive’s framework requirements to a particular case, and assess whether the application is sound. This will involve a range of assessments, such as that all relevant data have been collected, that the data concerned are robust, that all the available options have been properly considered and that the conclusions arrived at are reasonable on the basis of the available evidence.

6.1.1.1. The role and logistics of the Scientific Panel

(137) The Scientific Panel is an essential component of Options 2 and 3 and a detailed description of its logistics is provided at Annex III. This section considers the tasks, timing, role in harmonizing Member State evaluations, and financial implications of the SC.

(138) Tasks - The SP will review the permits for an initial period, after which the need for further SP review will be assessed. (For the purposes of this assessment, a total of 30 permit reviews are assumed.) It will meet whenever a draft decision on a permit is submitted to the Commission and a request for advice on a storage permit is submitted to it by the Commission. Its tasks would be:

· to assess whether the information on the basis of which the permit decision is to be taken is comprehensive and reliable. The request for advice should contain all the information collected by the operator, i.e. the results from the initial site characterisation, the result from the static and dynamic modelling, the risk assessment, and the risk management plan. The SP may commission assistance in any aspect of this verification

· to provide a reasoned opinion as to whether the information presented is sufficient to demonstrate that all permit requirements are met. The opinion shall be provided within three months of submission of the request for advice.

(139) In conducting the verification outlined under point 1 above, the SP will assess whether comprehensiveness and reliability of the information is sufficient to form an opinion, and will commission any additional assessment required to evaluate the information provided. If results have already been verified at national level (for instance in the course of application for a site investigation license, a drilling license or the permit itself) the SP shall take this into account. The SP would perform a proportionate check on all studies, simulations, assessments and data collected. It will not redo all the work involved in the permitting decision. It would review the documentation and check relevance of assumptions, calculations and results. Where doubts exist, additional documentation and/or runs may be asked for. This would be a reasonably robust approach, particularly once verification becomes more standardized. It would require man-months of work [34].

(140) Timing - Requiring a SP assessment of Member State draft decisions on storage applications will put an additional time pressure on the permit application procedure ((...)Figure 5). However, by using external assistance or otherwise, elements of the evaluation may run in parallel, and should take no more than three months. The Commission would examine the Scientific Panel's opinion, and when confident of the basis on which it was reached, would issue an opinion on the draft permit.

(...PICT...)

(...PICT...)

Figure 5. Timeline CO2 storage permit application

(141) Harmonization of Member State evaluations beyond 2020 - The review of the Commission will very probably result in a more uniform evaluation of storage permit applications in the EU in the initial period of deployment. Ideally, the work would contribute to building up a sizeable body of expertise with respect to the safety of underground storage of CO2, and will provide the basis for any amendment of the Annexes of the Directive, and for any guidance produced under Article 19. Nevertheless, the member state will remain the competent authority for granting the storage permit and a mechanism should be adopted to disseminate the experience gained during the Commission review. The Commission will establish annual meetings involving SP members and competent Member State authorities, using existing structures where appropriate.

(142) Financial implications – The financial implications of the Scientific Panel for the evaluation of permit applications will depend on its annual activity and on the need for external assistance in carrying out the SP’s tasks. Estimating the total number of applications to be reviewed per year as on the order of 4 to 5, the annual costs of the Scientific Panel are projected to be in the region of €600 000, as outlined in (...)Table 3.

Table 3. Annual cost projections of a Scientific Panel (assuming 2 assessments per year)

| Meetings on permit applications | Annual harmonization meetings | External assistance contracts | Total cost |

Number p.a. | 3 | 1 | 2 | |

Unit cost (k€) | 3 | 20 | 300 | |

Total cost | 9 | 20 | 600 | 629 |

6.1.2. Analysis of options

(143) Both Option 2 and Option 3 would provide additional confidence, in particular to the public, that the early phase of implementation of CCS will be sound. This is of benefit also to the operators themselves, as any negative experience in the early phase of deployment will severely damage confidence in the technology, to the detriment of all projects. Both options also provide an excellent mechanism for accumulating experience with implementation of the Directive, which can be used to develop guidance and where necessary to revise the Annexes of the Directive. Thus Option 1 is rejected.

(144) However, during the course of consultation, many respondents commented that Option 2 has a substantial subsidiarity disadvantage, in that it arrogates to the Commission the responsibility for permitting an installation. This is indeed an unnecessary encroachment on national sovereignty, in that the advantages of centralised verification can be ensured equally well without the Commission adopting the role of permitting authority.

(145) Option 3 comprises review by the Commission with the help of a Scientific Panel, a Commission opinion on the draft permit decision and permitting by the Member States, and would provide very substantial advantages in terms of confidence in the robustness of the initial set of assessments. It would also provide an excellent mechanism for exchange of information and best practice on the key elements of the permitting process. This comes at a cost of around €600 000 a year, the vast majority of which will be costs for external assistance in processing the material submitted. The delay induced in the permitting process would be of the order of 6 months. On this basis, the implications are reasonable and this option is preferred. Thus Option 2 is rejected in favour of Option 3.

6.2. Liability

(146) The main types of risk presented by CCS operations were outlined previously (Section (...)2.2.1). In order to manage the p