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RR RUEHAG RUEHAST RUEHDF RUEHHM RUEHIK RUEHKW RUEHLN RUEHLZ RUEHMA
RUEHPB RUEHPOD RUEHROV RUEHSR RUEHTM
DE RUEHBS #1771/01 3261732
ZNR UUUUU ZZH
R 211732Z NOV 08
FM USEU BRUSSELS
TO RUEHC/SECSTATE WASHDC
INFO RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUCNMUC/EU CANDIDATE STATES COLLECTIVE
RUCNMEU/EU INTEREST COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHINGTON DC

UNCLAS SECTION 01 OF 02 BRUSSELS 001771 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAIR ECON EIND ENRG EUN EWWT KGHG SENV TPHY
TRGY, TSPL 
SUBJECT: LINES DRAWN WITHIN EU OVER CCS 
 
REF: A. BRUSSELS 1689 
     ¶B. BRUSSELS 1770 
 
¶1. One component of the EU's Climate and Energy Package of 
legislative proposals is to promote the development and 
deployment of clean coal technologies through the principle 
of carbon capture and storage (CCS).  The proposal calls for 
the construction of 10-12 pilot projects by 2015, to 
facilitate deployment of CCS-enabled industries by 2020. 
Given the reliance on coal for EU power generation (30.3% in 
2005), and the plans by many member states to shut down 
nuclear power plants and open over 50 new coal plants across 
the EU by 2015, there is widespread support for the use of 
CCS to reduce greenhouse gas (GHG) emissions.  However, the 
EU is currently at an impasse as to how these pilot projects 
will be funded. 
 
¶2. On November 18, the European Parliament declared that 
"direct financial commitment is necessary in order to ensure 
that 12 demonstration facilities are constructed."  It has 
proposed that 500 million credits (about 11 billion Euros) be 
allotted under the EU's emissions trading scheme (ETS) to 
finance the CCS pilot projects.  These credits would be taken 
from a pool of emissions allowances established by the EU for 
new power plants and factories that would enter the ETS 
scheme between 2013-2020.  (Note: The EU is also grappling 
with how to distribute these allowances among member states. 
End note.) 
 
¶3. Parliament's proposal has generated opposition from 
several member states, notably Poland.  Poland, which 
currently uses coal for over 90% of its power generation, has 
been one of the most vocal.  Poland claims that as its 
industries grow, they will stand to benefit from the pool of 
ETS allowances for new entrants.  Thus, it does not want the 
pool to be reduced for CCS projects.  Instead, Polish 
official has said that funding should instead come from the 
EU's research and development fund.  Other opponents contend 
that too much is being allocated for unproven technologies or 
that member states should control allocation of ETS revenues. 
 The two member states most supportive of using the 
allowances for new entrants are the UK and the Netherlands, 
both service-based rather than manufacturing economies, which 
would be unlikely to benefit from the new entrants allowance 
pool. 
 
¶4. In an attempt to reach a compromise, the French Presidency 
has proposed the allocation of 100-200 million allowances 
(approximately 2.2 - 4.35 billion Euros) be available for CCS 
pilot projects until the end of 2015.  Under the French 
proposal, support would be provided to projects that have 
"verified avoidance of CO2 emissions," and no project would 
be eligible to receive more than 10% of the total allowances 
available. 
 
¶5. In response, EP CCS Rapporteur Chris Davies (UK-ALDE) 
wrote the French Deputy Permanent Representative that the 
proposal seems "designed more with a view to securing support 
in the Council than of delivering a mechanism that will (lead 
to construction of projects)."  Davies cited an IEA report 
that estimated construction of 20 CCS projects would require 
20 billion Euros in subsidies and an internal EU estimate 
that 7-12 billion Euros would be need to bridge the funding 
gap for the EU's 10-12 projects: "It must be clear that the 
use of 100-200 million allowances proposed will be hopelessly 
inadequate."  Davies also criticized the 2015 deadline.  He 
said most projects would not be operational until 2015 and 
thus would only have a few months benefit from the scheme. 
In order to be effective, he wrote the allowances must be 
available until 2015.  On the 10% limit, Davies said some CCS 
technologies are more capital intensive than others.  He 
wrote if "the objective is to test a wide range of 
technologies . . . the upper limit should () be raised to 
20%. 
 
¶6. Comment: Both the French and the Commission have committed 
to finalizing the Climate and Energy Package this year (see 
reftels for details on the Package), and recent press reports 
indicate that an extraordinary Council may be called on 
December 27, if it is not passed by then.  Davies has been 
one of the EU's biggest proponents for CCS, and as 
Parliament's rapporteur, holds significant power.  The French 
will likely be working hard to strike a balance between 
Davies and the member states over the next month.  Even if a 
deal is struck, industries have stated that they need 
incentives up front, not just after the technology is 
perfected. 
 
 
BRUSSELS 00001771  002 OF 002 
 
 
SILVERBERG 
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