US oil giant ExxonMobil is challenging EU rules requiring fossil fuel producers to help fund carbon storage infrastructure, in a legal battle that could undermine Brussels’ efforts to make the industry pay for the energy transition.
Oil and gas giant ExxonMobil is suing the European Commission over EU rules requiring fossil fuel producers to contribute to carbon storage targets, according to an official Commission document seen by Euronews.
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Three companies belonging to the ExxonMobil group have filed a notice of arbitration under the Energy Charter Treaty (ECT), using rules established by the United Nations Commission on International Trade Law, the document reveals.
The ECT is a post-Cold War international agreement originally designed to protect investments in unstable, formerly communist states. It has since become controversial because it allows energy companies to sue governments over measures that could harm their expected profits.
The companies – ExxonMobil Petroleum & Chemical, incorporated in Belgium, ExxonMobil Luxembourg and ExxonMobil Netherlands – are challenging provisions of the EU's Net Zero Industry Act (NZIA) obligations on carbon storage.
"The companies challenge the carbon storage infrastructure element of the regulation, which sets a Union-level objective of reaching a CO₂ injection capacity of at least 50 million tonnes per annum by 2030 and requires contribution of authorised oil and gas producers," the letter says.
ExxonMobil argues that the EU's stringent climate requirements are impossible to meet because of lengthy permitting procedures and high costs. Although the document does not specify when the challenge was launched, previous reports suggest it was filed in July.
Under the NZIA, authorised oil and gas producers must contribute to the EU's target of achieving 50 million tonnes of annual CO₂ injection capacity by December 31, 2030. The rules reflect the principle that companies extracting fossil fuels should help build the infrastructure needed to manage carbon emissions.
A challenge to the polluter-pays logic?
The legal confrontation could test Brussels' ability to make fossil fuel companies pay for the energy transition, just as the Commission is already delaying its proposal for new rules on the CO₂ transport infrastructure and markets, which was slated for the third quarter of the year.
The NZIA obligations are further specified in two EU measures — one establishing the production threshold determining which companies are covered and another decision setting the required injection-capacity contributions.
Companies producing less than 610,000 tonnes of oil equivalent or accounting for less than 5% of total EU production are exempt. In all, 44 major oil and gas producers are subject to the rules.
ExxonMobil alleges that the EU has breached provisions of the ECT relating to fair and equitable treatment, non-discrimination and the protection of investments against expropriation.
The companies have announced that they intend to seek provisional measures to suspend the obligation to inject CO₂ underground as it applies to their affected subsidiaries, according to the letter.
The case raises questions about how far the EU can go in making established fossil fuel producers financially responsible for infrastructure needed for the energy transition.
Brussels has presented the 50-million-tonne target as a way to accelerate the development of carbon capture and storage, a technology considered important for cutting emissions in hard-to-abate industrial sectors, albeit criticised for its "expensive" and "unproven" technology by the Institute for Energy Economics and Financial Analysis and.
The EU rules place a direct responsibility on oil and gas producers instead of leaving the development of carbon storage capacity entirely to public funding or voluntary private investment.
As a result, the dispute could have implications beyond ExxonMobil's individual investments, especially if the companies succeed in challenging the legal basis or implementation of the contribution mechanism.
Brussels is still analysing the notice and preparing its response, according to the document.
Details of the compensation sought by ExxonMobil or the financial exposure facing the EU aren't provided.
The European Commission told Euronews it does not comment on ongoing legal cases.
Commission hails new carbon capture project
The legal challenge comes as the Commission continues to champion carbon capture and storage as a key part of Europe's climate strategy.
In September, Climate Action Commissioner Wopke Hoekstra hailed the launch of Europe's largest carbon capture facility in the Netherlands.
The new Yara facility in Sluiskil is meant to capture 800,000 tons of carbon dioxide every year, cutting the plant's emissions by 25%. The carbon will be turned into liquid, put on ships and buried deep under the seabed in Norway through the Northern Lights project.
Commissioner Hoekstra conceded that carbon capture and storage "isn’t a silver bullet solution to the climate crisis" but argues it could become a vital part of the solution mix, especially for energy-intensive sectors like steel, cement and aluminum.
"We simply cannot afford to leave any part of the solution space untapped. This is a practical climate solution that cuts emissions while keeping our industrial base strong," the Dutch Commissioner said from Yara's facility on 7 September.
Speaking from Sluiskil, Norwegian Prime Minister Jonas Gahr Støre said that a few years ago, storing carbon underground was nearly impossible for skeptics.
"Now it’s a reality. The project shows that carbon capture and storage works and can be carried out across national borders. Norwegian expertise and infrastructure are being used to reduce greenhouse gas emissions far beyond Norway’s own borders and are playing an important role in Europe's green transition," said Støre.
Model projections estimate the EU will need around 250 million tonnes of annual storage capacity to reach its 2040 climate target of a 90% reduction in net emissions.
Most prominent projects — such as Porthos and Aramis (Netherlands) and Greensand and Bifrost (Denmark) — are clustered around the North Sea.
Major hurdles remain
Bergur Rasmussen, a former Danish MEP who now heads the advocacy group CCS Europe, described the EU's 2030 target of 50 million tonnes as "ambitious" and "certainly not guaranteed".
"The Commission’s own data show that the EU currently has 3.54 million tonnes of CO₂ injection capacity online, while projected injection capacity is just 27.1 million tonnes, so there is clearly a significant gap to close in the remaining 4 years before the end of the decade," Rasmussen told Euronews.
He noted that the biggest hurdle ahead for carbon capture and storage in the EU is whether the technology will scale in alignment with industrial needs to deliver a viable sustainable solution — exactly what the Commission is set to propose, yet it remains unclear whether Exon's legal challenge is linked to its delay and how achievable the plan would be.
Environmental NGO Bellona warned that the lawsuit could undermine Brussels' efforts to establish a viable market for carbon capture and storage.
The group argued the case exposes how investment protections under the ECT can be used by fossil fuel companies to challenge climate legislation.
William Druet, policy advisor at Bellona Europa, said the EU rules on mandatory CO₂ injections for fossil fuel producers have an important role to play in bringing about investments.
"Meeting the EU’s climate-neutrality objectives means accelerating investments in infrastructure that will ultimately underpin a clean economy and create long-term commercial opportunities for the companies developing and operating it," Druet said.
"Investment arbitration should not become a mechanism through which companies seek compensation for being required to accelerate investments that will eventually form part of their own business models," he added, in reference to the ECT.
ExxonMobil did not respond to a Euronews request for comment.