CCUS Revenue Support Mechanism Legal Structure – Detailed Explanation With Case Laws

1. Meaning

CCUS Revenue Support Mechanisms are legal and financial arrangements designed to provide predictable income to projects involving Carbon Capture, Utilisation and Storage (CCUS). CCUS projects are often expensive because they require capture equipment, compression facilities, pipelines, storage wells, monitoring systems and long-term liability arrangements.

The central problem is that the market price of carbon may not be high or stable enough to cover these costs. A legal revenue-support system therefore attempts to reduce investment risk and create a predictable income stream.

A simplified structure is:

Industrial emitter → captures CO₂ → transport → geological storage → receives support/payment

The support may come from government, regulated markets, carbon pricing, contracts, tax incentives or a combination of these.

2. Main Types of Revenue Support

A. Carbon Contracts for Difference

A Carbon Contract for Difference (CCfD) guarantees a minimum carbon value.

For example, if a project needs an effective carbon price of ₹X or $X per tonne but the market price is lower, government or another contracting authority may pay the difference.

This gives the investor greater certainty over future revenue.

The legal contract should specify:

reference carbon price;

guaranteed price;

duration;

payment formula;

verification of captured CO₂;

maximum support;

adjustment mechanism; and

termination conditions.

B. Tax Credits

Governments can provide tax credits based on the quantity of CO₂ captured, utilised or permanently stored.

The legal framework must establish:

eligibility requirements;

measurement standards;

verification;

ownership of the credit;

anti-double-counting rules; and

consequences of inaccurate reporting.

Tax-based incentives are attractive because they can provide support without requiring a direct government payment for every tonne of CO₂.

C. Contracts for Difference Through Public Procurement

Government can enter long-term agreements guaranteeing a particular revenue level for CCUS services.

This may be useful for difficult-to-decarbonise sectors such as cement, steel and chemicals.

The agreement must balance investment certainty with public-interest safeguards. Long contracts should contain review, termination and performance provisions so that public authorities are not locked into inefficient arrangements.

3. Carbon Pricing as Revenue Support

An emissions-trading or carbon-tax system can indirectly support CCUS.

If emitting CO₂ becomes expensive, capturing and storing CO₂ becomes economically more attractive.

South Africa's Carbon Tax Act 15 of 2019 provides an important foundation for carbon pricing. A CCUS project may potentially reduce a company's taxable emissions where the statutory requirements for relevant allowances or deductions are satisfied.

However, the law must ensure that a tonne of CO₂ is not counted as permanently removed or stored unless appropriate measurement and verification requirements are satisfied.

4. Measurement, Reporting and Verification

A revenue-support mechanism requires reliable MRV—Measurement, Reporting and Verification.

The project should demonstrate:

how much CO₂ was captured;

where it came from;

how much was transported;

how much was injected;

whether storage is permanent; and

whether leakage occurred.

Without reliable MRV, public funds or tax benefits could be paid for carbon reductions that did not actually occur.

Therefore, revenue support should be linked to verified tonnes of CO₂, rather than simply the installed capacity of a CCUS project.

5. Environmental and Constitutional Requirements

CCUS revenue support cannot operate separately from environmental law.

Section 24 of the South African Constitution protects the right to an environment that is not harmful to health or well-being and requires reasonable legislative and other measures to protect the environment.

The Constitutional Court's judgment in Fuel Retailers Association of Southern Africa v Director-General: Environmental Management, Mpumalanga is important because it emphasised integrated environmental decision-making and the need to consider environmental sustainability together with socio-economic development.

This principle means that financial support for CCUS should not automatically be treated as sufficient justification for approving an environmentally risky project.

6. State Aid and Competition Issues

A government-supported CCUS revenue mechanism may give participating companies an economic advantage.

This creates questions concerning:

competition;

discriminatory subsidies;

access to support;

market concentration;

preferential treatment; and

public procurement.

If one company receives guaranteed revenue while competing projects receive nothing, the legal framework should explain why the distinction is justified.

Support should ideally be based on transparent eligibility criteria, such as emissions intensity, technological performance, verified storage and cost-effectiveness.

7. Regulatory Certainty and Legitimate Expectations

CCUS projects can require billions in long-term investment. Investors therefore need confidence that revenue-support rules will not suddenly disappear.

However, governments must retain the ability to change policy when circumstances change.

The principle of legality is relevant here. In Affordable Medicines Trust v Minister of Health, the Constitutional Court emphasised that public power must be exercised within lawful limits and that regulatory discretion must have an appropriate legal framework.

Therefore, a CCUS support scheme should be created through clear legislation or properly authorised regulations rather than relying entirely on informal administrative promises.

8. Long-Term Storage and Payment Conditions

Revenue should not necessarily be paid immediately after CO₂ injection.

A sophisticated system could use staged payments:

Capture verified → transport verified → injection verified → storage verified → long-term monitoring → final payment.

This reduces the risk that a project receives the entire subsidy and subsequently experiences leakage.

Financial-security requirements can also ensure that operators have resources available for remediation.

9. International Example

The European Union's climate framework provides an important example of linking carbon pricing with industrial decarbonisation. The EU Emissions Trading System (EU ETS) creates an economic value for reducing covered emissions, while EU policy increasingly supports carbon capture and permanent removals.

European legal principles also demonstrate the importance of maintaining the integrity of emissions markets. In CJEU Case C-519/24, Nitrogénművek, the Court considered the interaction between national taxation and the EU ETS framework. The case illustrates the broader principle that national measures affecting carbon pricing must be assessed against the objectives and structure of the EU emissions-trading system.

10. Recommended Legal Structure

A strong CCUS revenue-support statute could contain:

1. Eligibility

Define which capture, utilisation and storage projects qualify.

2. Revenue Formula

Establish the support price and calculation method.

3. MRV

Require independent verification of captured and stored CO₂.

4. Payment

Link payment to verified performance.

5. Environmental Conditions

Require environmental authorisation and storage integrity.

6. Financial Security

Require adequate resources for leakage and remediation.

7. Transparency

Publish eligibility rules, support levels and performance information.

8. Review

Permit periodic review of the support mechanism.

9. Anti-Double Counting

Prevent the same carbon reduction from generating multiple incompatible benefits.

10. Enforcement

Provide repayment, penalties or termination for fraud or non-compliance.

Conclusion

CCUS Revenue Support Mechanism Legal Structure is concerned with creating a legally reliable financial environment for carbon-capture and storage projects. Because CCUS involves high capital costs and long operational periods, investors may require more predictable revenue than ordinary carbon markets can provide.

The principal legal instruments include carbon contracts for difference, tax incentives, carbon-pricing benefits, government contracts and performance-based payments. These mechanisms should be supported by strict measurement, reporting and verification requirements.

South African constitutional and administrative law is important because financial support must operate within lawful regulatory structures. Fuel Retailers Association demonstrates the importance of integrating environmental protection with economic decision-making, while Affordable Medicines Trust illustrates the broader requirement that regulatory powers must have a lawful and sufficiently structured foundation.

A well-designed CCUS revenue system should therefore combine investment certainty + verified carbon reductions + environmental protection + transparent eligibility + financial accountability. This creates support for CCUS without turning public subsidies into uncontrolled or environmentally ineffective expenditure.