European Union: The European Commission Approves Danish State Aid Promoting Carbon Capture And Storage Technologies

The aid scheme

Denmark has received Commission approval for an aid scheme promoting carbon capture and storage (CCS) technologies to reduce direct carbon emissions into the atmosphere.

The aid will be granted via a competitive tender, which is expected to be completed over the course of 2023 and will be open to undertakings in all industries. The successful tenderer will be awarded a 20-year contract requiring the capture and storage of at least 0.4 million tonnes of carbon annually from 2026 onwards. The scheme is thus expected to provide for the storage and capture of a minimum of 8 million tonnes of carbon over its full 20-year term.

The aid is to cover the difference between the estimated total costs of capturing and storing one tonne of carbon over the term of the contract and the expected return for the beneficiary. With a total budget of around EUR 1.1 billion (DKK 8.1 billion), the maximum annual amount of the aid will equal EUR 54.9 million (DKK 408.4 million) (adjusted for inflation).

The scheme is expected to contribute to greater decarbonisation of industrial processes and to promote CCS as a sustainable and effective means of mitigating climate change. Also, it is expected that the scheme will serve to increase investors' trust in CCS technology and to reduce the costs of future uses of those technologies, thus helping to drive the development towards a commercial CCS market.

The scheme is intended to support Denmark's efforts to reduce carbon emissions by 70 per cent by 2030 compared to 1990. In addition, the scheme will help Denmark and the EU reach the target of climate neutrality by 2050 as prescribed in the EU's strategic goals under the European Green Deal.

Approval by the European Commission

The European Commission has considered the aid scheme under EU State aid rules (Article 107(3)(c) TFEU) and the European Commission's 2022 Guidelines on State aid for climate, environmental protection and energy. The Guidelines allow Member States to support measures to reduce or eliminate carbon emissions.

On this basis, the European Commission found that the scheme is necessary and appropriate to support the reduction of carbon emissions and therefore will be a positive contribution to EU and national climate objectives as required under the Guidelines. In addition, the scheme is found to have an incentive effect, as the European Commission considered that potential beneficiaries would not implement a CCS project without government assistance. Lastly, the European Commission was satisfied that the scheme will have limited effects on competition and trade within the EU and that the aid is proportional.

On that basis, the European Commission approved the scheme.

Perspective

In May 2021, the European Commission also approved a Danish State aid scheme with reference to the European Green Deal. The scheme offers support for the production of electricity from renewable energy sources and is expected to help Denmark meet its renewable energy targets and to contribute to achieving the European goal of climate neutrality by 2050.

The aid follows a previous Danish scheme approved by the European Commission in August 2018, which expired in December 2019. Read more about the original aid scheme in our previous article.