As the EU prepares to publish a proposed review of its Emissions Trading System (ETS), Carbon Gap underlines that this is a landmark opportunity for catalyzing carbon dioxide removal (CDR) in the European Union.
Expected to be published on Friday, 17 July, the reformed EU ETS would integrate CDR into the EU’s flagship carbon market, creating an incentive to permanently remove CO2 from the atmosphere.
Carbon removals will play a vital role in the EU’s climate strategy, as these solutions tackle the residual CO2 emissions of hard- or impossible-to-decarbonize sectors. The Climate Law and EU modeling, as well as independent analysis, show that the Union will need between 75 and 280 million tonnes of CO2 equivalent (MtCO2e) per year by 2040 in order to meet its climate goals on time.
While acknowledged as important, CDR in the EU is still deployed at a small scale, and the widespread use needed for achieving climate targets would not be possible without a compliance market that would channel finance from emitters towards CDR providers, creating certainty for investment.
Carbon Gap highlights that Under Article 30 of the ETS Directive, the EU Commission must review by the end of July whether the EU ETS could be that market.
“The ETS review is a critical moment for carbon removals in Europe, and we must implement it in a way that drives concrete action,” said Louis Uzor, Policy Director at Carbon Gap. In that regard, Carbon Gap lays out a few design recommendations that can optimize the inclusion of CDR in the EU ETS.
Integrating CDR in the EU ETS
The EU Commission has set out three options for CDR integration: a public authority that buys and retires CDR credits, ETS-obligated companies buying credits directly, and a “one-in, one-out” model, in which each CDR credit surrendered removes an EU allowance from the system.
Carbon Gap favors a public authority model, which would give better CDR quality and quantity control for the Commission and provide certainty for CDR suppliers, investors, and policymakers.
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According to Carbon Gap, the public authority should be combined with a one-in, one-out cap to ensure CDR integration does not increase gross emissions from EU industry.
The ETS could be made more fit for CDR through other design fixes, such as addressing the price gap between CDR and current EUA prices; setting target volumes to specify how much CDR will be delivered; and robust criteria to establish which CDR methods are ETS-appropriate.
Francesca Battersby, Associate Policy Lead at Carbon Gap, stated, “This is the moment the CDR sector has been waiting for. Getting the ETS design right will decide whether it becomes a genuine engine for scale-up or a missed opportunity.”
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