CO2 injection capacity obligations under the Net-Zero Industry Act and oil and gas production in the EU

Tade Oyewunmi

University of Vaasa, Vaasa

oyetade.oyewunmi@uwasa.fi

Introduction

The European Commission (EC) approved the Net-Zero Industry Act (NZIA) in May 2024 to provide a framework for scaling up clean energy technologies and achieving the EU’s medium- to long-term carbon neutrality objectives, including decarbonising industrial and manufacturing sectors with hard-to-abate emissions.[1] Among other things, the aim is to enhance the regulatory environment for investment and simplify permitting processes for strategic technologies such as renewables, hydrogen, and carbon capture, use and storage (CCUS). Preamble 38 of the NZIA recognises CCS as essential for decarbonisation, involving capturing carbon dioxide (CO2) from industrial installations, transporting it to a predetermined underground storage site, and injecting it into the site as a suitable geological formation for permanent storage. At the same time, Preamble 41 identifies a coordination failure that has hindered CCS development in the EU.[2] It notes that industrial emitters capturing CO2 risk being unable to access permitted geological storage sites. In contrast, investors in CO2 storage sites face upfront costs to identify, develop, and appraise them, while the requisite CO2 transport networks are still being developed.

This article briefly considers the implications of the NZIA’s Articles 20–23, which set an objective to develop CO2 injection capacity (CIC) for the permanent storage of 50 million tonnes (Mt) of CO2 annually by 2030 and impose that obligation primarily on a category of firms authorised under the Hydrocarbons Directive with a licence to produce oil and gas in the EU (ie, E&P Licensees).[3] Given the importance of legal clarity and regulatory certainty in the application of EU Law, it is necessary to understand the implications of these CIC obligations, especially considering that: (1) the CCS value chain is distinct from oil and gas operations as a commercial and regulated enterprise;[4] (2) holding an exploration and production licence does not necessarily imply access to and control over suitable CO2 storage sites; and (3) there is a need to resolve uncertainties and questions arising from the regulation of CCS at the Member State level vis-à-vis EU-level CIC obligations as they currently stand. In future, the EU is likely to need to issue further delegated rules and clarifications, including provisions for the direct role and participation of relevant Member States and institutions in fulfilling their CIC obligations.

The NZIA and CO2 injection capacity obligations

Under the NZIA, technologies and projects such as CCUS are considered strategic to the EU’s industrial decarbonisation and climate policy objectives and therefore expected to receive priority status and streamlined permitting processes.[5] Member States must ensure that the permit-granting process for such projects does not exceed pre-set time limits: that is, 18 months for all necessary permits to operate a strategic CO2 storage site and to deploy related CO2 capture and CO2 transport projects.[6] This timeline excludes the period in which project promoters are expected to conduct preparatory activities such as an environmental impact assessment, as required under Directive 2011/92/EU.[7] Article 20 of the NZIA sets the EU’s CO2 injection capacity target of 50 Mt by 2030, while Article 21 requires Member States to submit annual reports on CO2 storage capacity data. To develop the needed CO2 storage capacity, Article 23 obliges a category of E&P Licensees in the EU to contribute to its CO2 injection capacity objective by 2030. The CIC obligation is determined based on the E&P licensees’ pro rata share or contribution to the EU’s oil and gas production between 1 January 2020 and 31 December 2023.

By virtue of Articles 1 and 2 of the CIC Decision adopted on 22 May 2025, E&P Licensees whose combined production amounts to 95 per cent of oil and gas produced in the EU between 2020 and 2023 are considered bound by the CIC obligation; while licensees whose production is less than five per cent of oil and gas production during the same period would be exempted.[8] Consequently, Annex 1 lists 44 entities and their individual contributions to the EU-wide target for available injection capacity, while Annex 2 lists the excluded entities in the CIC Decision. Article 3 of the CIC Delegated Regulation excludes E&P Licensees producing less than 610,000 tonnes of oil and gas equivalent or accounting for less than five per cent of total EU production between 2020 and 2023.[9] The Commission also required the required entities to submit a plan by 30 June 2025, detailing how they intend to meet their individual contribution to the EU’s CO2 injection capacity objective, including the expected dates for making a final investment decision and how much injection capacity will be made ‘operationally’ available by the end of 2030 or earlier.[10]

The specified entities were given three pathways to comply with the CIC obligations: (1) invest in or develop CO2 storage projects by themselves or in cooperation; (2) enter into agreements with other such entities; and (3) enter into agreements with third-party storage project developers or investors. An important point that underlines the complexities arising from the highlighted provisions and raises questions about how well they can be implemented in practice, given the timelines and the transaction costs involved, is that Member States can, subject to specific conditions, still request that the EC exempt certain entities until the end of 2027.[11] The 44 entities concerned are spread across 11 Member States: Austria, Croatia, Denmark, France, Germany, Hungary, Ireland, Italy, the Netherlands, Poland, and Romania.[12]

Member States are required to submit an annual report to the Commission. This report must detail ongoing CO2 capture, storage, and transport projects within their territories, along with the corresponding needs for injection and storage capacity. They must also communicate any national support measures, strategies, and targets adopted or to be adopted for CO2 capture. Apart from reporting to the EC and establishing an 18-month permitting process, the roles of Member States and other stakeholders in the wider, interdependent CCS value chain remain unclear. Meanwhile, the 18-month period would seemingly begin after a typical CIC project developer would have needed to conduct an environmental impact assessment, feasibility studies, and verify and confirm the suitability of the storage sites, etc. It is important to note that developing feasible CCS projects requires addressing different risks and structuring bankable arrangements, including active collaboration among emitters with sufficient CO2 volumes, government and institutional stakeholders, public stakeholders, available transport networks, and access to designated underground storage sites.

Oil and gas production in the EU and CO2 injection capacity obligations

The EU largely depends on imports to meet its oil and gas needs, as local production within its boundaries has declined over the past two decades. EU crude oil production peaked in 2004 and has declined every year since. In 2024, Italy, Denmark, and Romania accounted for most of production, while Norway, one of Europe’s key non-EU producers, saw output peak in 2001.[13] EU natural gas production slightly reversed its downward trend, rising 3.2 per cent in 2025 from 2024 levels.[14] A hydrocarbon licence or authorisation granted by the Member State confers an exclusive right to prospect, explore for, or produce hydrocarbons, separately or for several activities at a time. Unless the operations carried out under the respective hydrocarbon licence require CCS or carbon capture and utilisation schemes such as enhanced oil recovery, adding CCS obligations to typical licensees’ operations would be likely to alter their business model and commercial outlook, especially for small- and medium-scale operators.[15]

The CCS or CCUS value chain involves capturing emissions from industries such as cement and steel, which typically fall outside the scope of E&P licensee operations. These industries and potential CO2 sources operate under different regulatory and business environments that are administered by the respective Member State or across several Member States. Mandating CO2 storage development without accounting for firm commitments from industrial sources, and without providing the incentives and framework needed to develop the CO2 transport network, would, ceteris paribus, create bottlenecks and risks which could delay meeting obligations in practice. Therefore, a full value-chain approach in which all relevant stakeholders involved in capture, transport, and storage operations have clearly defined roles and obligations would be more pragmatic.[16]

Recently, some entities have initiated legal proceedings in the Court of Justice of the European Union (CJEU) to challenge the CIC obligations imposed under the NZIA. The cases mainly seek to: (1) obtain an exemption from the injection capacity obligation altogether by challenging the applicability of Article 23 or parts of the NZIA; (2) annul the CIC Delegated Regulation setting out the formula used to calculate each company’s share of the obligation; and/or (3) annul the CIC Decision identifying the obligated entities and specifying their respective contributions towards the 50 Mt target. Although these cases and contentions are worth noting, this article does not address or further consider their specific arguments and details. How such challenges might ultimately be resolved, however, depends in part on how the CJEU approaches the interpretation of EU law.

Generally, when interpreting EU laws, Directives, and Regulations, the CJEU pays particular attention to the aim and purpose of EU law. It takes a teleological approach, rather than focusing exclusively on the wording of the provisions, that is, the literal approach to interpretation.[17] The teleological approach reflects the open-ended, policy-oriented rules of the EU Treaties and the multilingual nature of EU law. Typically, the CJEU analyses legal rules and regulations in light of their purpose and context. It also considers fundamental legal principles such as promoting legal certainty, confidence in the stability of a legal situation, and proportionality.[18]

Taken literally, the NZIA provisions on CIC obligations, together with the CIC Decision and CIC Delegated Regulation, raise several issues and uncertainties, including plausible transaction costs for the entities involved, which could undermine effectiveness and hinder CCUS scaling-up in the EU as discussed above. First, concerns remain about which entities ought to be bound and which should be exempt, given the peculiarities of holding an E&P licence and producing oil and gas in the EU. Second, given the fixed and short timelines, there is an ex ante need for sufficient information and data on the accessibility and availability of suitable, predetermined CO2 storage locations in relevant Member States, and on committed suppliers of sufficient CO2 volumes from emitters in the relevant industries. In reality, existing law and policies on CCS in some Member States require updating or prohibit the development of commercial-scale storage sites.[19]

The adoption of a teleological approach in examining Preambles 38–50 and Articles 20–23 of the NZIA, in conjunction with the CIC Decision and CIC Delegated Regulation, may result in the clarification that the main objective is not to penalise identified E&P Licensees, but an initial attempt to develop a workable framework to address the coordination failure that has hindered investments and the scaling up of CCUS and CO2 storage projects in the EU for several years. This approach could inform more pragmatic, delegated regulations and clarifications that address gaps and bottlenecks in the existing framework.

Conclusion

Developing commercial-scale CCS projects is essential to realising the EU’s industrial carbon management strategy and long-term climate neutrality goals. However, identified risks and bottlenecks have limited its potential, including coordination gaps across the CCUS value chains, regulatory uncertainty, and the need for more effective permitting processes. Although the NZIA seeks to create a workable framework under Articles 20-23 for CO2 injection capacity obligations to store up to 50 Mt of CO2 by 2030, several concerns remain, as discussed above. To support the NZIA’s objectives, it is important not to impose a binding investment obligation on a set of companies before the enabling conditions and environment for successfully coordinating the interdependent CCS value chain are in place.