By William Druet, Rachel Ardiff, and Toby Lockwood

The EU has enshrined in law that oil and gas producers must help build CO2 injection capacity to kick-start a well-functioning EU CO2 market. This legislation was not out of the blue; it was years in the making, negotiated and renegotiated before its final wording was agreed. On Apr. 25, 2024 the European Parliament approved it by 361-121 – it carries a strong democratic mandate. That level of support and scrutiny reflects a clear and broad political consensus that obligated entities must now face and fulfil through action, not delay.

By 2030, 50 million tonnes per year of injection capacity must be available to the market. Forty-four producers are each responsible for a pro-rata share of that, based on their share of 2020-23 oil and gas production. That’s not radical; it’s overdue. Even industry said so: in 2022, the International Association of Oil & Gas Producers urged Europe to aim for 0.5-1 billion tonnes per year by 2050, with an interim ambition by 2035. On those terms, the EU’s 2030 target is modest, about 5% by 2030 of what industry itself has called for by 2050.

TIME TO WALK THE TALK

Those were words. Now is the time for action. Will obligated oil and gas companies deliver the injection capacity volumes they were once calling to set targets for? This is where strong penalties come into play.

Under the Net Zero Industry Act (NZIA), member state governments must introduce by June next year penalties for companies that fail to deliver. Germany is already moving, signalling annual, capacity-linked penalties for any shortfall. Germany’s proposal offers a strong benchmark: a €100 per tonne annual penalty for unrealised injection capacity, anchored to the EU ETS excess-emissions penalty and indexed over time. It is straightforward, familiar to companies, and scalable.

A fine that’s heavy in one EU member state and light in another is not a penalty; it is an invitation to game the system. The CO2 market is cross-border: inconsistent enforcement could create regulatory complexity and distort competition, giving an advantage to entities registered in jurisdictions with lower penalties. To avoid this, member states must align around harmonised, capacity-linked penalties. This consistency will turn national enforcement into a coherent EU signal strong enough to keep the 2030 target on track.

STRONG PENALTIES – EFFECTIVE, PROPORTIONATE, AND DISSUASIVE

While consistency is key, for penalties to act as strong enforcement measures, they need to bite hard enough to make obligated entities do everything they can to comply. The NZIA regulation already addresses this by requiring penalties to be effective, proportionate, and dissuasive, or in other words, high enough to make building CO2 storage capacity the economically rational choice.

If member states fail to meet this requirement, the European Commission can and will step in to enforce the law. To avoid years of back-and-forth and delays in sending a clear economic signal, member states must set strong penalties from the start, making compliance the economically sensible path for obligated companies.

Given the obligation’s structure, we believe the simplest and clearest design is a per-tonne, per-year charge on the shortfall between a company’s obligation and what it has delivered up to that point, applied each year until the gap is closed for a period of at least five years.

DELIVERING TO STANDARD

Despite complaints about alleged uncertainty over what compliance entails, this “lack of clarity” is overstated. The legislation is clear: meeting the target means having CO2 injection capacity available to the market, permitted under the CO2 Storage Directive, with commercial contracts in place. The 2030 deadline is fast approaching, leaving obligated entities no excuse but to implement without delay. The time to focus on ways to circumvent or delay the obligation has passed; now is the time for implementation.

If capacity truly cannot be delivered because of objective value chain bottlenecks or conditions outside the developers’ control, the law allows for limited derogations. But if the necessary efforts are not undertaken even when appropriate conditions are in place, or if there is persistent inaction in meeting the legal obligation, obligated entities must face hefty fines.

PENALTIES ARE ONE TOOL, NOT THE WHOLE TOOLBOX

The aim is not to make the obligated entities pay a fine; it’s to make delivery of the injection capacity required under NZIA the economically sensible choice. Non-delivery should be met with accountability.

A well-functioning EU-wide CO2 market needs a full value-chain approach: capture at industrial sites, reliable transport links, and permitted, open-access storage. The Commission and member states should move in parallel: provide geological data, resource and streamline permitting, enable cross-border CO2 transport, and deploy targeted financing where it best unlocks capacity. While penalties make delay costly, parallel support reduces risk and accelerates projects, making capacity delivery possible.

Europe has set clear rules, deadlines, and obligations. Now it is time to implement strong penalties, high standards, and the necessary support mechanisms, with rigorous member state enforcement. The clock is ticking: 2030 is not far off, and every year of delay and inaction pushes Europe further from its climate goals. It is time to stop talking and start delivering, to apply the law rigorously, to ensure that CO2 injection capacity becomes not just a promise on paper, but a reality on the ground – or rather under it.

William Druet is Policy Advisor, CCS, at Bellona Europa; Rachel Ardiff is Policy and Research Associate at Carbon Balance Initiative; and Toby Lockwood is Technology and Markets Director, Carbon Capture, at Clean Air Task Force.

Any opinions expressed in this commentary reflect the views of the authors and not of Carbon Pulse.