Defossilizing Industry Scaling-up CCU 2025

1% of all fuels used in transport by 2030 should be RFNBO (renewable fuels of non-biological origin), which includes e-fuels. The RED regulation currently allows for industrial point source CO2 to be utilized, but specifies post-2040 that all CO2 feedstock for e-fuels must come from atmospheric or biogenic sources to be considered as avoided.46 Given the relatively small volumes of biogenic and atmospheric CO2 expected to be available by 2040 in comparison to point source capture, concerns have been raised about the feasibility of this clause. The EU has also introduced the FuelEU Maritime and ReFuelEU Aviation regulations, which draw on the RED sustainability criteria. The ReFuelEU Aviation regulation sets out PtL SAF (e-SAF) quotas from 2030, which rise to 35% by 2050. Penalties for non-compliance are levied on fuel suppliers per tonne of fuel below quota, at a rate of twice the difference between references prices for conventional aviation fuel and e-SAF. Reference prices for 2024 are equivalent to $8,348/tonne of e-SAF (10x conventional) and $796/tonne of conventional aviation fuel (see Figure 7). Analysis shows that the regulation will lead to competitive CO2-derived SAF from 2040 onwards, but it will be high cost and will remain largely driven by the cost of green hydrogen production.47 For the shipping sector, the FuelEU Maritime regulation specifies that should RFNBOs remain lower than 1% in the shipping sector by 2031, a sub-quota of 2% will apply from 2034.48 The EU’s framework for innovation provides support from early-stage innovation to commercial scale. This includes the Horizon Europe research fund, the Innovation Fund for near-commercial scale, first-of-a-kind climate innovation projects and the European Innovation Council (EIC), which provides broad financial and advisory support across a range of subject areas and technology readiness levels (TRL).49,50 Asia Policy frameworks for CCU across Asia are in early stage, with China, Japan and the Republic of Korea as frontrunners. Japan’s CCU strategy is set out in its 2025 Strategic Energy Plan. The focus areas are e-chemicals, e-fuels and minerals, with commercialization targets starting from 2040 onwards. Japan’s Green Innovation Fund has been established to support these early projects, with a budget of $3.9 billion over 10 years.51 The fund is currently supporting a range of demonstration projects at a base in Hiroshima, utilizing CO2 from a coal gasification facility. In addition, Japan has started early cross-border collaborative work on CO2 accounting, as well as other international initiatives. Longer-term policy frameworks are in development and the country is preparing to implement a Green Transformation Emissions Trading System GX-ETS from 2026.52 The GX-ETS is expected to include CO2 mineralization, creating an incentive for CO2-treated building materials, although the specific methodology remains under discussion. In 2025, the Republic of Korea launched its CCU action plan, aimed at accelerating R&D in chemical and biological CO2 conversion, as well as mineral carbonation. Initially, this will involve designating and operating CCU “strategic research labs” and launching a flagship CCU project. In the longer term, more detailed regulations specifying standards and certification of CCU technologies, products and enterprises will be developed.53 Regulation will lead to competitive CO2-derived SAF from 2040 onwards, but it will be high cost and will remain largely driven by the cost of green hydrogen production. How policy could support CCU 2.2 Financial incentives for adoption To date, the CCU sectors that have seen the most scale are those most able to generate revenue in isolation. The core challenge for emerging pathways, particularly for fuels and chemicals, remains the substantial cost hurdles. Direct subsidies, carbon prices and consumption mandates could all play a role in offsetting cost and driving demand for CO2-derived products. Incentives that are technology-agnostic have been particularly effective in driving investment. Specifically, the broad applicability of the US’s 45Q tax credit to capture carbon for the purpose of reuse has enabled access to financing where technology risk is a barrier to traditional debt financing. The increase in utilization credit price in 2025 could result in a further boost to CCU investment. However, continued investment would require certainty of mechanisms post-2033. In contrast, the EU’s prioritization of storage, while critical for emissions mitigation, has created a disincentive for CCU – because the EU ETS levies costs on CCU in all cases except when it results in permanent sequestration. Consequently, the large upfront capex for the equipment to capture and convert CO2 – plus the requirement to pay a carbon price (by surrendering EU ETS emissions allowances or by covering the cost for the CO2 provider) – create a major disincentive for CCU, compared to emitting. Direct subsidies, carbon prices and consumption mandates could all play a role in offsetting cost and driving demand for CO2-derived products. Defossilizing Industry: Considerations for Scaling-up Carbon Capture and Utilization Pathways 16