CO2 storage: Draft clarifies oil and gas producers’ contribution and reporting obligations

The preliminary draft of a Delegated Regulation supplementing Regulation (EU) 2024/1735 on the net-zero industry (“Net-Zero Industry Act”) was published on 17 March 2025. Currently in the public feedback phase, the draft aims to clarify the contribution and reporting obligations of oil and gas producers in developing injection capacity at underground geological storage sites for carbon capture and storage. It includes provisions on identifying entities subject to a contribution obligation, calculating their pro rata contribution payments, and defining thresholds for the exemption of small and medium-sized enterprises. The draft also defines the minimum content to be provided in the annual reports required.

I. Background

1. What does the Net-Zero Industry Act govern?

Regulation (EU) 2024/1735, known as the Net-Zero Industry Act, entered into force on 29 June 2024. It aims to strengthen European manufacturing capacity in clean energy technologies to help EU industries reach their climate neutrality targets.

The Net-Zero Industry Act sets the objective of reaching 50 million tons of CO₂ injection capacity per year by 2030. This figure is the amount of captured CO₂ that can be injected into underground geological storage sites for safe and permanent storage. The injection capacity is crucial in combating climate change as it allows the permanent storage of CO₂ emissions from industrial processes, especially from hard-to-abate sectors, instead of releasing them into the atmosphere. To achieve this objective, the Act obligates oil and gas producers (“obligated entities” or “entities subject to a contribution obligation”) operating in the EU to contribute to the development of this injection capacity. The Act’s provisions are thus intended to promote the development of carbon capture and storage (“CCS”) in the EU as well as the infrastructure it requires. The binding target also assures industrial investors that their captured emissions can be stored in the EU.

2. What is the role of the delegated regulation’s preliminary draft?

Various sections of the Net-Zero Industry Act empower the European Commission (“Commission”) to supplement and specify its requirements through delegated acts. Under Article 23(1) and (12) in conjunction with Article 44 Net-Zero Industry Act, the Commission is authorised to issue additional rules on the identification of entities subject to a contribution obligation, setting a threshold below which entities are exempt from contribution. The Commission must also determine how individual contributions are calculated and define the minimum content of the annual reports required from the entities subject to a contribution obligation.

The preliminary draft of a Delegated Regulation dated 17 March 2025 (“Preliminary Draft”) represents a first step towards regulating these details. However, this Preliminary Draft has been neither adopted nor endorsed by the Commission. The views expressed there are merely the preliminary views of the Commission services and should not be regarded as stating an official position of the Commission.

Because the public feedback phase on the Preliminary Draft began on 19 March, affected oil and gas producers are best advised to take a close look at the Preliminary Draft at this early stage. The feedback phase offers citizens and stakeholders the chance to comment on and respond to the Preliminary Draft. For affected companies, it is a valuable opportunity to give their perspective and express their concerns, thereby actively influencing the final form the provisions take. By engaging with the Preliminary Draft, oil and gas producers will also be able to prepare for possible supplements and specifications at an early stage.

II. Who does the Preliminary Draft of the new delegated regulation affect?

The draft’s provisions on identifying obligated entities and calculating their contributions are primarily directed at Member States, but directly impact the individual contributions of oil and gas producers. The same applies to the provisions on the threshold for exemption of entities from contribution and reporting obligations.

By contrast, the minimum content of the required annual reports is directed at entities themselves. The same applies to the provision on the role of exempted entities under agreements with obligated entities to meet the latter’s targets for available injection capacity.

III. What is the regulatory content?

1. Additional rules for the identification of obligated entities (Article 2 Preliminary Draft) 

Oil and gas producers holding an authorisation for the exploration and production of hydrocarbons pursuant to Directive 94/22/EC are obligated to make an individual contribution to the Union-wide target for CO₂ injection capacity pursuant to Article 23(1) Net-Zero Industry Act (for how contributions are calculated, see A.III.2).¹ These entities were identified by the Member States and reported to the European Commission.

The Preliminary Draft sets out additional rules on identification and covers special circumstances. Although these provisions primarily pertain to the Member States, oil and gas producers should be aware of the impact of these rules on their individual contribution to the Union target for CO₂ injection capacity:

• If an authorisation is held jointly by more than one entity, the relevant Member State will now, pursuant to Article 2 Preliminary Draft, be obligated to additionally inform the Commission of the production volumes of the individual authorisation holders. 
• If an authorisation is transferred during the relevant production period, the production volumes and the contribution obligation will be divided based on the date of the transfer. 
• If an authorisation holder has ceased to legally exist on 30 June 2024, the contribution obligation for the crude oil and natural gas production between 2020 and 2023 will additionally be transferred to the subsequent authorisation holder.

2. Determining how the obligated entities’ pro rata contributions are calculated (Article 4 Preliminary Draft)

The individual contribution of the obligated  entities is calculated pro rata based on each entity’s share in the Union’s crude oil and natural gas production from 1 January 2020 to 31 December 2023 (Article 23(1), sentence 2 Net-Zero Industry Act).

The Preliminary Draft translates this determination of the individual pro rata contribution into the following formula:

(Cumulative production of the entity 1 January 2020 - 31 December 2023) / (non-exempted total EU production 1 January 2020 - 31 December 2023) x 100 = % of 50 million tonnes of annual CO₂ injection capacity

It also stipulates that the production of crude oil and natural gas is to be normalised in kilo-tonne oil equivalent (ktoe).

3. Identification of exempted entities (Article 3 Preliminary Draft)

3.1 Threshold (Article 3(1) Preliminary Draft)

The Preliminary Draft additionally stipulates a threshold below which companies are exempt from the contribution obligation. However, the exact threshold applicable for this exemption has yet to be determined.

The Preliminary Draft does specify that an exemption is to apply if a company has produced less than a yet-to-be-determined volume of natural gas and crude oil from 1 January 2020 to 31 December 2023 and represents a total production of natural gas and crude oil accounting for a yet-to-be-determined percentage of total Union natural gas and crude oil production over the period concerned.

The exemption is intended to protect small and medium-sized enterprises (“SMEs”) in particular and ensure that CO₂ injection capacity exemptions are distributed fairly. Moreover, the administrative effort is to be concentrated on those entities which are of the greatest importance for reaching the Net-Zero Industry Act’s objectives.

3.2 Role of exempted entities (Article 3(2) Preliminary Draft)

However, exempted entities continue to play an important role in the context of Article 23(5) Net-Zero Industry Act, since for its purposes they are deemed to be third-party CO₂ storage project developers or investors within the meaning of letter (c). Accordingly, obligated entities can conclude agreements not only with other obligated entities (Article 23(5), letter (b) Net-Zero Industry Act), but also with these exempted entities (Article 23(5), letter (c) Net-Zero Industry Act) in order to meet their targeted volumes of available injection capacity. This enables a flexible and cooperative approach that promotes cooperation with exempted and non-exempted entities alike in order to reach the common objectives of the Net-Zero Industry Act.

4. Specification of annual progress reports by obligated entities (Article 5 Preliminary Draft)

Pursuant to Article 23(6) Net-Zero Industry Act, obligated entities must submit a report to the Commission detailing their progress towards meeting their contribution (“progress report”) by 30 June 2026 and then every year thereafter. Article 5(1) Preliminary Draft now specifies the minimum content of this report. This non-exhaustive list includes specific information on the CO₂ storage projects under development by the company, such as:

• the location of the relevant CO₂ storage project,
• the identity of the responsible deployment manager and contact information,
• the expected total storage capacity (in million tonnes of CO₂) per storage site,
• the expected annual injection capacity (in million tonnes of CO₂ per year) per storage site, and
• the expected Final Investment Decision (FID) dates, and the expected injection capacity that will be made operationally available by the end of 2030 or earlier.

Additionally, the report must include a detailed description of the storage project and the timelines and conditions under which the injection capacity of the storage project will be placed on the market to comply with the contribution obligation. That information must also include a detailed roadmap of the key technical and commercial decision points that potential commercial customers would need to know to advance their own investment decisions (Article 5(2) of the Preliminary Draft).

The Preliminary Draft additionally stipulates that the information provided in the progress report must be updated consistently between the reports (Article 5(2) of the Preliminary Draft). 

IV. What are the next steps?

Companies should begin to familiarise themselves with the provisions of the Preliminary Draft right away and conduct an internal review of their 2020 to 2023 production data to evaluate the extent of their contribution and reporting obligations. This is advisable so that they can examine existing data management systems to ascertain their suitability for providing the necessary information, such as production data and the minimum content of the progress report or instigate the establishment of suitable systems. It will also enable companies to take the opportunity to submit their comments and concerns about the Preliminary Draft during the public feedback phase, which runs from 19 March to 16 April 2025. In this context, it would make sense to coordinate with other affected companies and industry associations to provide coherent and strong feedback.

Obligated entities must additionally bear in mind that they will have to submit a plan to the Commission by no later than 30 June 2025 specifying in detail how they intend to meet their contribution to Union CO₂ injection capacity objectives by 2030 (Article 23(4) Net-Zero Industry Act). The plans must confirm the targeted volume of new CO₂ storage and injection capacity commissioned by 2030 and specify both the means and the milestones for reaching the targeted volume. In this context, obligated entities should already start to think about potential partnerships, for example with exempted entities within the meaning of Article 23(5)(c) Net-Zero Industry Act, in order to reach the targeted volume of available injection capacity.

However, it should still be noted that these provisions are contained in what is only a preliminary draft by the Commission services that still needs to be approved by the Commission. The legislative process is then expected to commence. It is therefore essential to monitor the developments and any possible amendments of the Preliminary Draft on a regular basis. In particular, the threshold for exemption from the obligations set out in Regulation (EU) 2024/1735 still needs to be specified by the European Commission.

Companies should continuously adapt their strategies and measures based on new information and feedback. By implementing these steps they can ensure that they will be well prepared for the final regulations and able to fulfil their obligations efficiently and effectively.

V. Conclusion

The publication of the Preliminary Draft of the delegated regulation supplementing the Net-Zero Industry Act represents a significant advance in delivering the Union’s climate targets. The Preliminary Draft aims to specify the contribution and reporting obligations of the obligated oil and gas producers and provide clear rules for identifying the entities subject to a contribution obligation, calculating the pro rata contribution payments and defining thresholds for exempting SMEs. Moreover, it specifies the minimum content that is to be provided in annual reports.

Specifying the obligations in this way provides the obligated entities, as well as third-party project developers and investors in storage technologies, with legal clarity and security, putting them in a better position to plan and implement their business strategies and investments. This promotes innovation and ensures that the requirements of the Net-Zero Industry Act can be implemented efficiently and effectively.

However, it remains to be seen what the final provisions will look like once the Regulation has been adopted by the Commission. Companies should monitor the developments and possible amendments of the preliminary draft on a regular basis and continuously adapt their strategies and measures. Implementing these steps will ensure that companies will be able to meet the requirements of the Net-Zero Industry Act, thus making an important contribution to achieving the EU’s climate targets.

¹ The obligation relates to CO₂ injection capacity in authorised storage sites available to the market by 2030.