The European Council of June 2008 called on the Commission to bring forward as soon as possible a mechanism to incentivise Member State and private sector investments to ensure the construction and operation by 2015 of up to 12 carbon capture and storage (‘CCS’) demonstration plants.

Article 10a(8) of Directive 2003/87/EC establishes a mechanism for the financing of commercial demonstration projects that aim at the environmentally safe capture and geological storage of CO₂ (hereinafter ‘CCS demonstration projects’) and demonstration projects of innovative renewable energy technologies (hereinafter ‘RES demonstration projects’). With a view to ensuring a smooth functioning of this mechanism, it is necessary to lay down both the rules and criteria for the selection and implementation of those projects and the basic principles for the monetisation of allowances and for the management of revenues.

The Commission adopted the Communication entitled ‘Investing in the Development of Low Carbon Technologies’2 on 7 October 2009, which emphasises the role of funding under this Decision in implementing the European Strategic Energy Technology Plan (SET-Plan) in respect of the needed demonstration projects.

Funding under this Decision should be conditional on clearance by the Commission of any State aid component of the overall financial contribution from public sources pursuant to Articles 107 and 108 of the Treaty with a view to ensuring that funding is limited to the extent necessary for implementation and operation of the project, taking into account potential negative effects on competition. Member States should therefore notify the Commission of any financing involving State aid pursuant to Article 108(3) of the Treaty to allow coordination of the selection procedure under this Decision with the State aid assessment.

The financing provided under this Decision is not part of the general budget of the European Union. It can therefore be combined with financing from other instruments, including the Structural and Cohesion Funds and the European Energy Programme for Recovery (EEPR). It can also be combined with loan financing provided under the Risk-Sharing Finance Facility (RSFF) set up by the Union and the European Investment Bank (EIB).

In order to avoid a subsidy competition between Member States, financing under this Decision should be fixed at 50 % of the relevant costs, unless the total amount of funding under this Decision would exceed the limit of 15 % of the total available allowances as referred to in Directive 2003/87/EC, in which case funding should be limited to 15 % of the total available allowances. The funding should also be complementary to substantial co-financing by the operator. In order not to give preferential treatment to projects funded under the EEPR, financing under this Decision should be reduced by the amount of financing received from the EEPR.

The establishment of an EU demonstration programme comprising the best possible projects of a wide range of technologies in geographically balanced locations within the territory of Member States, their exclusive economic zones and their continental shelves, cannot be sufficiently achieved if projects are selected on a national level. The selection should therefore take place at Union level. With a view to ensuring coherence with national selection and funding procedures, Member States should be responsible for collecting funding applications from the sponsors and for the evaluation of the projects on the basis of the eligibility criteria laid down in this Decision. Since projects financed under this Decision will in most cases be co-financed by Member States, Member States should have the possibility to decide which of the projects they wish to support, and whose applications they wish to submit to the Union selection process. Submission of these applications is not intended to replace a State aid notification for cases in which the funding contains a State aid component. The role of Member States should be further strengthened by reconsulting the relevant Member States to confirm, where appropriate, the value and structure of the total public funding contribution and by submitting the draft list of selected projects to the Climate Change Committee, including on the quality of projects, before the award decisions are taken.

In light of its expertise in project selection and financing, the Commission has sought to involve the EIB in the implementation of this Decision. The EIB has agreed that, acting on request of, on behalf of and for the account of the Commission, it should perform certain tasks in respect of the project selection, the monetisation of allowances and the management of the revenues. The specific terms and conditions of the cooperation, including remuneration of the EIB, should be laid down in an agreement between the Commission and the EIB, subject to the approval of the decision-making bodies of the EIB. The EIB should be reimbursed for the performance of those tasks from income generated from its management of the revenues.

The available revenues from the 300 million allowances should be awarded through two rounds of calls for proposals to allow, on the one hand, for mature projects to receive financing already in the first round, and on the other hand, to provide for the possibility to adjust any technical or geographical imbalance in the second round. Where there is insufficient competition in a particular subcategory of projects in the first round, award decisions in that subcategory should be postponed to the second round with a view to maximising the use of funds under this Decision.

The financing under this Decision should be reserved for projects which make use of technologies which are innovative in relation to the state-of-the-art in the key substreams for each technology. Those technologies should not yet be commercially available, but sufficiently mature to be ready for demonstration at pre-commercial scale. They should have reasonable prospects of successful demonstration, taking into account that technological risks are inevitable, and the proposed scale of demonstration should be such that no significant additional problems are to be expected from further scaling up. They should also have a high replicability potential, and therefore offer significant prospects for cost-effective CO₂ reduction both in the Union and globally. Therefore, only projects which fall into specific categories of projects and which comply with specific requirements set out in this Decision should be eligible for funding.

With a view to ensuring technological diversity, eight CCS demonstration projects should be funded (with at least one and, at most, three projects in each project category, at least three with hydrocarbon reservoir storage, and at least three with saline aquifer storage) in the first round of calls for proposals, and one project should be funded in each of the RES project subcategories in the first round of calls for proposals. If there are sufficient resources, it should be possible to finance more projects while maintaining the balance between CCS and RES demonstration projects. Further, with a view to ensuring geographical balance, at least one and no more than three projects should be funded within any one Member State. The projects which are intended to take place on the territory of several Member States should not be, due to their nature, limited by that criteria.

In principle, projects which satisfy the requirements on project numbers per category in the most cost-effective way should be selected.

With a view to ensuring that the selected projects begin operation as planned and that funds are efficiently used, award decisions should be conditional on the issuing of all relevant national permits in accordance with relevant requirements under Union law and final investment decisions being reached by the sponsors, within a specified period of time upon adoption of the award decisions.

Member States should disburse the revenues to projects on the basis of legally binding instruments. As required by Directive 2003/87/EC, disbursement should take place annually, on the basis of the amount of CO₂ stored for CCS demonstration projects as reported, monitored and verified under Directive 2003/87/EC, and on the basis of the amount of energy produced for RES projects. However, where Member States guarantee that any excess funding will be returned, it should be possible to disburse part or all of the funding for a project prior to its entry into operation. In light of the particular importance of knowledge-sharing in the context of a demonstration programme, funds should only be disbursed if knowledge-sharing requirements are met.

The measures provided for in this Decision are in accordance with the opinion of the Climate Change Committee,