ExxonMobil seeks arbitration against EU’s CO2 storage targets amid struggling sector

ExxonMobil is seeking arbitration against the EU over mandated carbon storage targets, highlighting a mismatch between carbon capture ambitions and reality as the sector struggles to take off in Europe against the backdrop of regulatory and economic challenges.

The EU Commission confirmed it received a notice of dispute under the Energy Charter Treaty (ECT).

The notice, which indicates a company’s intention to initiate arbitration, was sent “on behalf of a group of companies active in the energy and petrochemical sectors, incorporated in Belgium, Luxembourg and the UK” and relates to obligations under the Net Zero Industry Act (NZIA), it said.

The companies are understood as being subsidiaries of ExxonMobil, although the notice of dispute is not public.

The news was also reported in specialised media outlets.

Contacted by Gas Outlook, ExxonMobil did not want to comment on the topic.

“We are confident that the measures adopted by the EU comply with the Energy Charter Treaty and any other applicable rules of international law,” an EU Commission spokesperson told Gas Outlook, adding the Commission is “currently analysing the notice.”

The ECT is a controversial international agreement that allows energy corporations to challenge national energy policies and seek compensation under investor-state dispute settlement (SDS) mechanisms.

Countries including the UK, the Netherlands, Italy, France and the European Union have left the Treaty in recent years citing its incompatibility with climate change legalisation, although ‘sunset’ clauses still allow some disputes to be initiated.

And while intra-EU litigation has been deemed unlawful by the European Court of Justice, the involvement of a UK-based subsidiary might allow the case to go ahead, experts say.

In this latest case, ExxonMobil is challenging Article 23 of the NZIA, which places a legal obligation on oil and gas producers to develop CO2 storage capacity towards the goal of 50 million tonnes of CO2 injection capacity per year by 2030.

Exxon and a number of other companies are already challenging Article 23 before the EU General Court, with this new ECT notice threatening “to open a second legal front, through a fundamentally different mechanism, at exactly the point when companies should be moving from legal obligations to delivery,” William Druet, CCS policy advisor at NGO Bellona Europa told Gas Outlook.

While the General Court cases challenge Article 23’s compliance with EU law and could potentially result in its annulment or inapplicability, the EC case would likely focus on compensation, he said.

But the case risks having a negative impact on the wider carbon capture and storage (CCS) sector, he warned.

Article 23 is “a market-building measure” designed to provide certainty to stakeholders on available capacity and “prolonged litigation can undermine that certainty even before any court or tribunal reaches a decision,” Druet said.

“Europe still needs the injection capacity” and “the obligated entities challenging Article 23 have yet to put forward a credible alternative that would deliver the same storage capacity on the same timeline.”

CCS controversy

CCS is already at the centre of growing controversy: oil and gas companies see it as a key tool to meet climate goals while also continuing to produce fossil fuels, while environmentalists warn the technology fails to deliver the promised results and is not economically viable.

This last wave of litigation highlights a “clear contradiction…What is striking is the shift from championing CCS and the sector’s role in delivering it to challenging the first binding EU measure that turns that claimed capability into a concrete delivery obligation,” Druet said.

“The Exxon case exposes that CCS has been nothing but a greenwashing scheme by the fossil fuel industry,” Bart-Jaap Verbeek, senior researcher at Dutch-based NGO SOMO told Gas Outlook.

“ExxonMobil positions itself as a global leader in CCS, but its legal action against the EU’s CO2 storage requirements seriously undermines the sincerity of its commitments,” he said.

While it’s unlikely the EU will amend the NZIA as a result of the litigation, it might temporarily choose not to enforce it, he added.

The legal cases are “difficult to reconcile with previous statements the company has made about the vital role of CCS,” Rachel Ardiff, policy advisor at UK NGO Carbon Balance Initiative told Gas Outlook.

They also highlight “the gap between voluntary commitments and the action required to meet our binding climate targets on time.”

The EU is on course to fall short of its legally mandated carbon capture and storage target by at least 17.5 million tonnes per annum, according to a recent study by Wood Mackenzie commissioned by ExxonMobil, OMV Petrom, Shell and TotalEnergies.

“The obligated parties are not necessarily failing to deliver,” Lisa Gillespie, director of energy consulting at Wood Mackenzie told Gas Outlook.

“We expect several global-scale projects to be active in the EU prior to 2030, including Porthos and Aramis in the Netherlands, Greensand in Denmark, and Ravenna in Italy, among others.”

At the same time, the EU’s 50 Mtpa target will face a significant shortfall by 2030 on the back of “long development timelines, challenged economics, and misalignment across the value chain between capture, transport, and storage,” she said.

“The EU’s current policy legally mandates storage, but storage projects are unable to advance in isolation,” she continued.

“In order to move forward, developers must demonstrate project safety and efficacy and obtain necessary permits, they must gain access to dependable and advanced transport infrastructure, and they must obtain credible off-take commitments from associated capture projects, which themselves often face separate logistical and economic hurdles,” she said.

“Until these challenges are addressed, individual operators may be able to meet their NZIA storage obligations, but the broader target is likely to remain out of reach.”