SDE++ in the European CCfD landscape for CCS: why the Netherlands leads the way

SDE++: The most established CCfD-type scheme for CCS in Europe

The Dutch SDE++ has evolved into the core national mechanism for supporting renewable energy and CO₂-reducing technologies, including CCS. Introduced in 2020, it transitioned from a renewable energy subsidy (MEP, since 2003) into a technology neutral, economywide scheme aimed at achieving cost-effective CO₂ reduction. Annual budgets ranging between EUR 5–13 billion demonstrate strong and consistent political commitment, while predefined budget ceilings ensure fiscal discipline.

As a one-sided CCfD, SDE++ payments only flow from the Government to the project promoter, compensating it when the ETS price falls below the project’s abatement cost. By defining a fixed strike price (base amount) and using the real EU ETS price as reference, it ensures that support remains market consistent. When ETS prices rise above the strike price, no payback is required if the net project revenue still remain between market accepted profit margins — an important advantage for project developers.

With 12–15year support durations, a well-established application cycle, and clear technology specific ceilings, SDE++ is viewed as the most predictable largescale CCfD type framework among European peers.

How SDE++ compares to other CCfD schemes for CCS in Europe

Germany: Klimaschutzverträge – ambitious, but complex

Germany’s CCfD scheme is going for the second round, which now includes the eligibility of CCU and CCS project. It adopts a two-sided structure, requiring project promoters to return funds when the ETS price exceeds the contracted strike price—offering fiscal discipline but sharing financial risk with the project developers. It features dynamic strike price adjustments that reflect real variations in energy carrier prices, which is a better predicament of promoters’ costs. While this enhances accuracy, it also increases the administrative burden and budget uncertainty.

The scheme is powerful but administratively heavy, requiring extensive monitoring, reporting and verification (MRV) and stringent minimum performance thresholds (60% of GHG emissions reduction within three years; 90% by year 15).

Denmark: CCS Funds –via negotiated procedures

Denmark’s CCS Fund (2024) builds on its two predecessors, NECCS and CCUS Fund. It provides 15-year, one-sided CCfDs to support permanent geological storage of CO₂. It focuses on large point carbon sources and regional CCS hubs and offers funding across the entire CCS value chain: capture, transport, and storage.

A defining feature of the Danish CCS Fund is its negotiated procedure. Unlike rule-based schemes such as SDE++, the CCS Fund allows the Danish Energy Agency to negotiate contract terms, baseline assumptions (e.g., ETS exposure), and project configurations during multiple negotiation rounds. The final award is based on an evaluation amount combining the offered rate (DKK/t CO₂) with tax and ETS related adjustments.

United Kingdom: ICC Business Model – bilateral, cluster-based CCfDs

The UK Industrial Carbon Capture (ICC) business model provides long-term CCfD support but is not awarded via competitive auctions. Instead, contracts are bilaterally negotiated under published business model frameworks with emitters selected in predefined industrial clusters.

This cluster-centric approach facilitates T&S infrastructure availability but reduces market competition and transparency. Strike prices are agreed individually, and a hybrid payment mechanism applies: a fixed linear increasing reference price in the first ten years, moving to the UK ETS if (optional) the parts agree to extend the contract for extra five years. Compliance obligations (e.g., minimum avoidance objectives) are stricter than those in SDE++.

France: GPID – Industrial Decarbonization with linear CO₂ reference prices

France’s GPID is a one-way CCfD with a fixed linear increasing reference price path, which offers fiscal predictability but risks divergence from real ETS prices. Higher certainty comes at the risk of over or under compensation. The scheme focuses on ETS industrial sectors and requires advanced engagement with T&S operators at the application stage.

Performance obligations—including penalties for under delivery—are stringent, increasing operational risk for applicants compared to the Dutch framework.

Comprehensive study now available

PNO Innovation has performed a comparative analysis on Carbon Contracts for Difference (CCfDs) and auction schemes for CCS in Europe, now published by Heidelberg Materials.

This study provides a structured analysis of competitive bidding mechanisms across multiple European countries, identifying key design features, success factors, and barriers to scaling carbon capture and storage (CCS) in industry. It highlights key design features, success factors and barriers across major European schemes, including:

• the Dutch SDE++
• the German KSVs
• the Danish NECCS and CCS Funds
• the UK ICC model
• the French GPID
• and the Swedish Bio-CCS reverse auction.

As CCfDs continue to gain traction as a critical policy tool to bridge the cost gap between low-carbon and conventional production, the findings of the study provide actionable guidance for designing effective CCfD schemes and accelerating large-scale industrial decarbonization across Europe. The full study is available here.

What makes SDE++ particularly competitive?

Strong alignment with the EU ETS

Among all schemes, SDE++ has the clearest and most consistent linkage to the EU ETS. The ETS indexed reference price ensures:

• No structural under or over compensation
• Automatic reduction in subsidy needs when ETS prices rise
• Compatibility with EU State aid frameworks.

This market-based mechanism is a central reason SDE++ is considered a benchmark for CCfD design across Europe.

Technology neutrality and broad eligibility

SDE++ allows competition across a wide range of CO₂ reducing technologies—from CCS and BECCS to low carbon heat and renewable energy. This technology neutral design maximizes cost efficiency and positions the Netherlands as a frontrunner in cross-sector decarbonization policy.

Predictability and operational stability

Unlike more complex or negotiated schemes:

• SDE++ follows clear annual cycles
• Eligibility and cost parameters are updated publicly by the national authorities.
• Competitive pressure is structured via competitive bidding “phases” with no bilateral negotiations.

This stability is a major differentiator compared to Germany’s dynamic mechanism, Denmark’s negotiations, and the UK’s customized contracts.

Limitations of SDE++ compared to other CCfD models

While SDE++ is highly effective, certain structural features may limit its suitability for some CCS projects:

• Exposure to cost inflation and risk allocation: the Netherlands, like other schemes, requires developers to manage construction and operational risks, without additional inflation indexation mechanisms.
• Fixed ceiling prices may limit high-cost CCS projects: some CCS configurations—especially in cement, chemicals, or where process emissions dominate—may face abatement costs above SDE++’s ceiling prices (capping the applicants’ strike price) in certain phases.
• First-come, first-served dynamics: because applications are assessed in predefined phases, timing strategy becomes crucial. If budgets deplete quickly, late applicants risk exclusion even if cost competitive. This is where PNO’s SDE++ Intelligence report comes in handy.
• No consideration of the carbon origin: biogenic CO2 emitters e.g. biomass-fired power plants are eligible for the scheme, but SDE++ does not differentiate between fossil or biogenic carbon origins in its application process nor in its operation. This results in a lack of structural incentives to shift from fossil-based to bio-based carbon sources, e.g. for CCS industrial emitters which usually have mixed carbon origins.

Conclusion: SDE++ sets the benchmark for European CCfDs

As the European Union accelerates its decarbonization trajectory, CCfDs will increasingly shape investment decisions in hard-to-abate sectors. Among the current landscape, SDE++ stands out as the most mature, market aligned, and predictable CCfD type mechanism, offering a strong foundation for industrial CCS deployment.

It is shaped on cost-effectiveness, transparency, competition, and market integration, making it a reference point for both industrial investors and policymakers across Europe.

PNO Innovation: Your expert on competitive bidding schemes, like SDE++

Being involved in the first CCfD scheme for CCS (since 2020) in Europe from the very beginning, we hold the strongest application history of any consultancy active in the SDE(++) domain. PNO has filed over 335 SDE applications between 2008–2023, and in some years claimed more than 50% of the total SDE budget available. Our key expertise is enriched by its own intelligence models and databases to forecast expected SDE++ budget depletion, winning bid ranges, category specific cost benchmarks and tender competition intensity.

Finally, PNO has built a solid and stable relation with RVO, the European Commission, and the Dutch Ministry of Economic Affairs and Climate. This privileged positioning enables PNO to anticipate regulatory changes, understand administrative interpretation before publication, provide clients with early strategic warning signals, and align applications with the latest policy priorities.

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