The concept of ‘net zero’ greenhouse gas emissions enshrined as the EU target in the European Climate Law implies that there will continue to be ‘unavoidable’ emissions in 2050 which will need to be offset by carbon removals from the atmosphere. For example, it is not possible for primary agriculture to reduce its gross emissions to zero and in a net zero world these will have to be offset by carbon removals. Furthermore, the Law sets the aim of negative emissions after 2050. While the IPCC recognises that carbon removals will be necessary to meet the Paris Agreement targets, there is still debate around how to define ‘unavoidable’ emissions and how large carbon removals will need to be by mid-century. The Commission has estimated that carbon removal levels between 300 and 500 MtCO2 will be needed by 2050 depending on the emission reduction pathway to net zero.
Sustainable carbon cycles
The Commission in its Communication on Sustainable Carbon Cycles in December 2021 recognised the need to significantly scale up carbon removal solutions in the coming decade. These solutions include industrial processes to capture CO2 from the atmosphere and durably store it in geological reservoirs, promoting long-life storage such as in wood products, as well as carbon uptake in natural ecosystems (where sequestration related to land management in agricultural soils, forests and vegetation is referred to as carbon farming).
The Commission noted that both natural ecosystems and industrial solutions should contribute to removing several hundred million tonnes of CO2 from the atmosphere by 2050, but that the EU is currently not on track to deliver these quantities. Carbon removals in natural ecosystems have been decreasing in recent years and no significant industrial carbon removals are currently taking place in the EU. In particular, it will be a challenge to sequester approximately 310 million tonnes of CO2 in soils, forests, and wood production by 2030, as outlined in the LULUCF Regulation (see figure below).
The Commission Communication identified the lack of a common transparent EU standard for identifying carbon removals as a major barrier to their uptake. It noted that a myriad of approaches are used in voluntary carbon markets which gives rise to confusion and the risk of greenwashing. It therefore saw the need to establish a voluntary framework for the certification of carbon removals to improve transparency and environmental integrity, and to harmonise carbon removal market conditions. Its motivation also included a desire to upscale carbon farming as a business model incentivising practices on ecosystems that increase carbon sequestration, as well as to foster new industrial value chains for the sustainable capture, recycling, transport and storage of carbon. The certification framework is intended to facilitate more funding from private and public sources (e.g. voluntary carbon markets, private purchasing or investment initiatives, or public funding programmes) for carbon removal activities.
Commission proposal for a certification framework for carbon removals
The Commission put forward its legislative proposal for a Certification Framework for Carbon Removals (CFCR) in November 2022. The Regulation has two broad objectives:
- To define quality criteria for carbon removal activities to ensure only high-quality removals are certified. Certification methodologies to be approved by the Commission must comply with these requirements.
- To define rules for the verification and certification of carbon removals, including rules for the functioning and recognition by the Commission of certification schemes.
Definition of carbon removals. It is important at the outset to define what is meant by carbon removals and thus what can be certified under the Regulation. Article 2 of the draft Regulation defines ‘carbon removal’ to mean either the storage of atmospheric or biogenic carbon within geological carbon pools, biogenic carbon pools, long-lasting products and materials, and the marine environment, or the reduction of carbon release from a biogenic carbon pool to the atmosphere. In principle, this covers three main carbon removal activities: permanent storage such as in geological formations, storage in long-lasting products, or carbon farming that sequesters carbon in natural ecosystems (see next figure).
Certification criteria. The certification framework should be based on four quality criteria (hereafter called QU.A.L.ITY), indicating how to ensure QUantification, Additionality and baselines, Long-term storage and sustainabilITY. The draft Regulation sets out the QU.A.L.ITY criteria only in broad terms (see next figure). Carbon removal activities are very heterogeneous in terms of their maturity, cost-effectiveness and related monitoring costs, and pose different challenges for certification. The Regulation proposes instead to guarantee the quality of all carbon removals certified in the EU through certification methodologies that are tailored to the specific circumstances of different carbon removal activities. It grants the Commission the power to adopt delegated acts setting out detailed certification methodologies for the different carbon removal activities. Annex I of the Regulation lists the minimum elements that should be included in those methodologies, such as rules for identifying all carbon removal sinks and greenhouse gas emission sources, rules on the minimum sustainability requirements and rules to address uncertainties in the quantification of carbon removals.
The draft Regulation proposes that the Commission will develop these methodologies in close consultation with an Expert Group on Carbon Removals. This expert group kicked off its work in March 2023. Among other tasks, the group will provide technical advice to the Commission on the development of the methodologies under the CRCF.
Certification process. To apply for a certificate of compliance, an operator submits an application to a certification scheme. Certification schemes may be managed by a private or public organisation that will oversee the certification of compliance. The operator then submits a comprehensive description of the carbon removal activity to a certification body, including the certification methodology applied. Certification bodies will be independent assessment bodies appointed by a certification scheme and accredited by a national accreditation body. The certification body will perform a certification audit and, if satisfactory, will issue a certificate confirming that the activity complies with the Regulation and the number of carbon removal units (CRUs) certified. These carbon removal units are an innovation in this Regulation and are defined as one tonne of certified net carbon removal benefit generated by a carbon removal activity and registered by a certification scheme. Certification schemes will be required to maintain a public registry to make publicly accessible the information related to the certification process and the quantity of carbon removal units certified (see next figure).
Criticisms of the Commission’s draft proposal
The Commission’s proposal has been generally welcomed but with severe reservations by NGOs and other stakeholders. For detailed critiques, I particularly recommend the paper by the Ecologic Institute and Öko-Institut in Berlin for the German Environment Agency, and the report by the Institute for Agricultural Trade and Policy entitled ’12 Problems with the European Commission’s proposal for a Carbon Removal Certification Framework’, although I do not necessarily endorse all of their criticisms.
The co-legislative process is now well underway. The COMENVI rapporteur for the file Lidia Perreira (EPP) presented her draft report in May 2023, various amendments to that report have been tabled including the Opinion of the AGRI Committee, and the Parliament is likely to vote on these amendments in October. At the same time, the Presidency tabled a Council compromise position in August (as this version has not yet been declassified at the time of writing, I rely on the slightly earlier version published in June for this post).
In the subsequent sections I look at how the legislators are addressing some of the more controversial issues particularly around what carbon removals should qualify for certification and the criteria they should fulfil. In this post, I leave the more administrative issues to do with the governance of the certification process to one side. When I refer to the Parliament and Council’s positions in the rest of this post, I am referring to the COMENVI rapporteur’s draft report and the latest declassified Presidency compromise position, fully recognising that these are not yet the final positions of the two bodies when they will enter the trilogue process.
Voluntary framework. It is first important to recognise that what the Commission proposes is a voluntary certification framework. This means that existing and new public and private certification schemes can apply for recognition by the Commission under this Regulation but are not obliged to do so to continue to operate in the Union. This would seem to put at risk the Commission’s ambition to create a transparent and level playing field for carbon removals.
One can envisage two scenarios. One is based on a version of Gresham’s Law where bad money drives out good. In other words, those seeking to purchase carbon credits might prefer to purchase non-certified credits with lower quality standards presumably because they will be cheaper than the certified ones. The other scenario is that the certified CRUs will become the standard currency and certification bodies without a stamp of approval will simply disappear from the market. This second scenario will be more likely if only certified removals will be eligible, for example, for public financial support under the CAP or for use in corporate reporting under the Corporate Sustainability Reporting Directive.
Even in this scenario, there will still be competition among certification schemes because the certificates issued will not be uniform. All will have to meet the minimum certification requirements set down in the Commission delegated acts, but the Regulation leaves plenty of scope for differentiation in the requirements expected for individual schemes, including the extent of co-benefits that will need to be demonstrated. Thus, unlike emissions allowances (EUAs) traded in the EU’s Emissions Trading Scheme which trade at a uniform price, we can expect to see CRUs trading for different prices because they will be of different quality.
The draft Regulation does not set up a trading scheme, although the exchange of verified carbon removal units through voluntary carbon offsetting markets is foreseen as one of the potential end uses of carbon removal certificates. The way in which any trading scheme might address the heterogeneity of CRUs remains to be seen.
Coverage of carbon removals. One issue raised by critics is that the definition of carbon removals set out in Article 2 is not consistent with the international definition proposed by the IPCC. Both the Council and Parliament look likely to amend this definition to bring it more into line with the international definition. But there is an important qualification.
Article 2.1(a) includes ‘the reduction of carbon release from a biogenic carbon pool’ in its definition of ‘carbon removal’. Critics argue that conflating emissions with removals puts the EU’s climate architecture at risk. The Parliament rapporteur’s report is confused on this. It would eliminate this activity from the definition of carbon removals, but later on proposes to confirm the definition of carbon farming to include activities ‘that can also reduce carbon release, for example in the case of peatland rewetting’.
The Council’s position finesses this by defining carbon removals simply as the storage of carbon (but not necessarily capturing it) and then proposes to add the following qualification.
In the case of carbon farming, carbon removal activities also include activities that, instead of a carbon removal, might result in the reduction of carbon release from a soil carbon pool, as set out in points (e) and (f) in Section B of Annex I to Regulation (EU) 2018/841 [the LULUCF Regulation], to the atmosphere. On the contrary, activities whose only goal is the avoidance of emissions, be it carbon release from an existing carbon sink (such as avoided deforestation) or non-CO2 emissions which are not linked to a carbon pool, such as renewable energy projects or technologies to reduce agricultural non-CO2 emissions, should not be considered as carbon removal activities.
The Council goes further to argue that the exception for carbon farming should not only include net greenhouse gas emission reductions included in the scope of the LULUCF Regulation but also N2O emissions from drained organic croplands (which would normally be reported under the Agriculture category in the UNFCCC inventories). Whatever about consistency with the IPCC definition, the Council’s proposed amendment has the merit of building on existing practice in the LULUCF Regulation which already accounts for net additions and losses of carbon. The main practical effect is likely to allow the rewetting of peatlands and organic soils to be certified as a carbon removal activity, even though the rewetting in the first instance will mainly have the effect of reducing emissions, with any removals that might occur happening only after many years.
COPA-COGECA’s attempt to have all emissions reduction activities in agriculture counted as carbon removals appears to have been rebuffed. According to that lobby organization, ‘Practices, such as the addition of feed additives, the development of low emission buildings or the use of precision fertilisers, have a real impact on limiting emissions. It is difficult to understand why these practices, which have a real cost for farmers, could not be considered in the final scope of the certification.’ This lobby group position is reflected in the AGRI Committee’s proposed amendments to the draft Regulation. The AGRI Committee would retitle the Regulation as one addressing the certification of carbon removals and carbon farming, where carbon farming is defined to include GHG emissions reductions as well as removals. Such activities are specifically ruled out from certification in the Council’s proposed amendment.
Question marks also remain over the eligibility of specific land management practices as carbon removal activities. For example, IATP makes the case that soil carbon sequestration, at least in mineral soils, has not been sufficiently scientifically validated to warrant inclusion as a carbon removal method. The limited scope for sustainable biomass production has also been highlighted. It should be expected that the certification methodologies to be approved by the Commission will clearly address these issues.
Permanent vs. temporary carbon removals. A key point raised by critics is the failure to make a clear enough distinction between permanent and temporary carbon removals (WWF, 2023). While ‘permanent carbon storage’ is defined in the Regulation, temporary carbon removals are only implicitly recognised by noting that ‘Carbon farming or carbon storage in products are more exposed to the risk of voluntary or involuntary release of carbon into the atmosphere’ (Recital 13). To account for this risk, it is proposed that ‘the validity of the certified carbon removals generated by carbon farming and carbon storage in products should be subject to an expiry date matching with the end of the relevant monitoring period. Thereafter, the carbon should be assumed to be released into the atmosphere, unless the economic operator proves the maintenance of the carbon storage through uninterrupted monitoring activities’.
The main concern of critics is not so much with the registration of temporary removals as with their potential use as an equivalent currency to fossil fuel or non-CO2 emissions, for example, as offsets in the ETS. How the use of CRUs is dealt with in the Regulation is addressed in the following section. The COMENVI rapporteur’s report explicitly introduces the concept of temporary removals, recognises that they can contribute to meeting climate goals (see Matthews et al, 2022) but under different conditions. Those conditions should be more strict for temporary carbon removals, in terms of monitoring, expiry and liability requirements.
I already noted that, unlike EUAs in the ETS, certified reductions and CRUs under this CFCR Regulation will not be uniform and will not have the same value. Clearly, the period for which the CO2 will be removed from the atmosphere will be a main determining factor of their value. If the going rate for permanent removal is similar to the price of EUAs in the ETS (say, €100/tonne CO2e), then how much would a demander be willing to pay for a temporary removal certificate delaying the release of CO2 for, say, 20 years arising from a carbon farming activity?
While there is some evidence from the voluntary carbon market that firms are willing to pay a sufficient price that makes the removal activity interesting for farmers, if permanent removals using industrial techniques become more widely available interest in these temporary certificates will likely fall dramatically. This gives some support to the arguments of critics who say that the main reasons for incentivising farmers to improve their soils relates to the biodiversity, water retention and other ecosystem services provided by healthy soils rather than focusing narrowly on carbon sequestration alone.
How will certificates be used? A huge concern of critics of the Commission’s draft proposal is that CRUs generated under the certification framework will be used as offsets in the compliance market or used to allow firms to make carbon-neutral claims without making serious efforts to reduce emissions. In other words, that they will contribute to greenwashing. The European Environment Bureau argues: ‘Carbon removals must always be additional to emissions reductions. This means removal certificates must not be used for offsetting emissions by private or public entities. The EU needs to rapidly and drastically cut greenhouse gas emissions as a first priority and prevent the likely ‘deterrence effect’ from investing in removals.’ NGOs have therefore argued that this CFCR Regulation should specifically forbid the use of CRUs in either compliance or voluntary markets.
Recital 21 states ‘it is appropriate that carbon removal certificates underpin different end-uses, such as the compilation of national and corporate greenhouse gas inventories, including with regard to [the LULUCF] Regulation .,,, the proof of climate-related and other environmental corporate claims (including on biodiversity), or the exchange of verified carbon removal units through voluntary carbon offsetting markets.’
The draft Regulation does not envisage the use of CRUs as offsets within the ETS. However, the recent revision of the ETS Directive (Article 30) requires the Commission to report in 2026 on ‘how negative emissions resulting from greenhouse gases that are removed from the atmosphere and safely and permanently stored could be accounted for and how those negative emissions could be covered by emissions trading, if appropriate, including a clear scope and strict criteria for such coverage, and safeguards to ensure that such removals do not offset necessary emission reductions in accordance with Union climate targets laid down in Regulation (EU) 2021/1119’ [the European Climate Law}.
The COMENVI rapporteur argues that the place for deciding on how CRUs might be used is in the relevant regulations requiring the monitoring and reduction of emissions and not in this CFCR Regulation. ‘The CRCF establishes a monitoring, reporting and verification mechanism, while several other acts have already established (ETS, LULUCF) or are establishing (CSRD, Green Claims) review clauses or specific provisions on the different types of end-use of carbon removals in their appropriate context. These should not be mixed up.’ She goes on to argue that‘This approach ensures consistency, avoids regulatory duplication, and most importantly allows in-depth, dedicated assessments on the use of carbon removals in different contexts before taking the regulatory decisions on the use, notably through the upcoming reviews in the context of the EU ETS and LULUCF agreed in the recent reviews of those acts, in the Green Claims proposal recently presented, or in the upcoming 2040 climate target proposals’ and proposes to include an amendment to the draft Regulation to this effect.
Quantifying the net CO2 removed. In quantifying the net removals from a carbon removal activity, the draft Regulation sets down two principles: (a) only net removals are counted, meaning that any emissions associated with the removal activity itself, whether direct or indirect (such as through land use change) must be subtracted, and (b) a reduction in greenhouse gas emissions resulting from the implementation of the carbon removal activity should not be taken into account to quantify the net carbon removal benefit, but should be considered as a co-benefit towards the sustainability objective of climate change mitigation; by being reported on the certificates, decreases in greenhouse gas emissions (like the other sustainability co-benefits) can increase the value of the certified carbon removals (Recital 8).
In the case of carbon farming, the carbon captured by an afforestation activity or the carbon kept in the ground by a peatland re-wetting activity should outweigh the emissions from the machinery used to carry out the carbon removal activity or the indirect land use change emissions that can be caused by carbon leakage (Recital 9).
The draft Regulation specifies that the quantification of net removals should be calculated according to the following formula:
A carbon removal activity shall provide a net carbon removal benefit, which shall be quantified using the following formula:
Net carbon removal benefit = CRbaseline – CRtotal – GHGincrease > 0
(a) CRbaseline is the carbon removals under the baseline;
(b) CRtotal is the total carbon removals of the carbon removal activity;
(c) GHGincrease is the increase in direct and indirect greenhouse gas emissions, other than those from biogenic carbon pools in the case of carbon farming, which are due to the implementation of the carbon removal activity.
(Note: carbon removals CR have a negative sign).
The draft Regulation goes on to state that ‘In the case of carbon farming, CRbaseline and CRtotal shall be understood as net greenhouse gas removals or emissions in accordance with the accounting rules laid down in [the LULUCF] Regulation (EU) 2018/841’. In other words, there is no need to account for the GHGincrease variable because LUUCF emissions are already accounted in the first two variables. For example, soil emissions due to soil disturbance in the first years of an afforestation project are LULUCF emissions in the scope of carbon farming.
The Council has proposed an alternative formula that reflects its revised coverage of carbon removals in the case of carbon farming to include also avoided emissions. It proposes the following formula:
Net carbon removal benefit = CRbaseline – CRtotal + RCbaseline – RCtotal – GHGincrease > 0
(a) CRbaseline is the carbon removals under the baseline;
(b) CRtotal is the total carbon removals of the carbon removal activity;
(c) RCbaseline is the release of carbon under the baseline;
(d) RCtotal is the release of carbon under the carbon removal activity;
(e) GHGincrease is the increase in direct and indirect greenhouse gas emissions, which are due to the implementation of the carbon removal activity.
It goes on to specify that the scope of the quantities including avoided emissions referred to in this calculation corresponds to the net greenhouse gas removals or emissions included in the scope of the LULUCF Regulation, but with the addition of N2O emissions from drained organic croplands.
It is possible that the Parliament will agree to accept this amendment as it is consistent with the view in the rapporteur’s report that avoided emissions in the LULUCF sector should be treated as carbon removals, even if it moves the definition of carbon removals further away from the internationally accepted definition. This, however, will be a matter for the trilogues.
Defining the baseline. A key issue for carbon farming removals is how the term CRbaseline will be defined in the above calculation formula. For tree planting this is relatively straightforward if there were no trees in place before, but it will be particularly tricky in the case of measuring changes in soil organic carbon. What will be the starting point against which any increase in soil organic carbon will be measured? Taking the actual situation on an individual’s farm would penalize the early adopters, those who have already taken steps to improve their soil health and carbon content, while unfairly preferring those farmers who have degraded their soils and for whom reversing this degradation will be relatively easy.
The draft Regulation’s answer to this is to use a standardised baseline, defined as ‘The baseline shall correspond to the standard carbon removal performance of comparable activities in similar social, economic, environmental and technological circumstances and take into account the geographical context’.
One could argue that the baseline should be defined as the ‘best practice’ removal performance of comparable activities rather than just the standard. However we define the theoretical level, what this might mean in practice for an individual farm will depend on how the standardised baselines will be set in the certification methodologies set out in the delegated acts. Further, the baseline has to be established for the period up to the expiry date of the certificate. There will be a temptation to underestimate future removals in the baseline, in order to maximise the calculated level of removals over the period. We saw how this effect operated when Member States were asked to define Forest Management Reference Levels for calculating forest management removals for the purposes of the Kyoto Protocol. Because these issues will become clearer when the delegated acts are published, it is not possible to conclude whether and to what extent this baseline effect might be a loophole for claiming larger carbon removals than might otherwise be justified.
Assigning liability. Particularly in the case of temporary storage solutions where there is a high risk of voluntary or unintended reversals, the question of liability for fulfilling the contract arises. Here the draft Regulation is quite vague. Article 6(b) states operators ‘shall be subject to appropriate liability mechanisms in order to address any release of the stored carbon occurring during the monitoring period’. It further stipulates in Annex 1 covering the minimum elements in the certification methodologies that the rules on appropriate liability mechanisms shall be specified in certification methodologies that are laid down in delegated acts. Recital 14 gives some examples of liability mechanisms such as discounting of carbon removal units, collective buffers or accounts of carbon removal units, and up-front insurance mechanisms. The COMENVI rapporteur proposes to strengthen these liability provisions by providing that there should always be a liable party responsible to remediate intentional or unintentional reversals. Nowhere is it suggested that a person who intentionally nullifies a carbon removals contract (for example, by ploughing a field on which CRUs have been claimed) should be required to purchase an equivalent number of units or otherwise reimburse the purchaser of the CRUs.
Impact on food production. The COMENVI rapporteur proposes to amend the Regulation by requiring that carbon removal activities should not have a negative impact on or displace food production and food supply in the Union or in third countries. While the motivation is understandable, such an amendment would appear to rule out many of the proposed carbon farming practices, such as rewetting of peatlands or afforestation, both of which would reduce food production.
The Council’s proposed formulation on this issue seems more sensible. It notes that ‘carbon farming activities generally improve soil quality, which has a positive impact on soil resilience and productivity, but in some circumstances they might also generate a decrease in food production and therefore lead to a carbon leakage effect from indirect land-use change, and the related indirect emissions should be taken into account’. In other words, instead of an absolute requirement that food production is inviolate, the Council’s position is more nuanced and would require that indirect emissions arising from a reduction in food production should be included in the quantification methodology, thus penalising adverse effects on food production in this way.
Role and composition of the Expert Group. The Regulation provides that the Commission should determine the certification methodologies after consultation with the Expert Group on Carbon Removals and set out these methodologies in the form of delegated acts. Some have questioned whether the Commission’s use of delegated acts for this purpose, which are supposed to be reserved for non-essential aspects of legislation, is a valid procedure, given the range of important issues (including storage duration, liability mechanisms, sustainability requirements, and treatment of uncertainties) that will need to be covered in these delegated acts (see this German Environment Agency Fact Sheet).
The IATP report raises a different issue regarding potential conflicts of interest between the membership of the Expert Group and those who stand to benefit from its advice to the Commission. It highlights the dominant role of corporate interest groups in the membership of the Expert Group. The Expert Group was formed by the Commission following a call for experts in September 2022 with around 70 members. That call made clear how the Commission proposed to constitute the Group with five different categories of membership:
- Approximately 10 individual experts possessing specialist knowledge in the field of carbon removals appointed in a personal capacity (‘Type A members’);
- Individual experts appointed to represent a common interest shared by stakeholders in the field of nature-based and industrial carbon removals and certification methodologies (‘Type B members’);
- Approximately 30 from relevant organisations, including among others companies and business associations, non-governmental organisations, organisations related to certification, monitoring and reporting of emissions and removals, research organisations, applied research institutes and other stakeholders (‘Type C members’);
- Member States’ competent authorities (‘Type D members’);
- Other public entities, including national competent authorities of Norway and Iceland (‘Type E members’).
It is clearly an important decision whether an expert group is composed solely of independent experts or whether it has a broader representation including stakeholders who can bring additional practical experiences to the table but at the risk that they will use the opportunity to try to guide the outcomes in their interests. This risk of stakeholder bias is reduced by the fact that the Commission publishes recordings of meetings, presentations made, and detailed minutes so there is a high degree of transparency around the process. And, ultimately, it is the Commission that must write and approve the delegated acts. It will be for later analysts to decide whether these safeguards are sufficient to prevent capture of the certification methodology process by particular interest groups.
Europe faces two twin and inter-related challenges when it comes to carbon removals from the atmosphere. Despite controversies about the future role and possible extent of carbon removals in getting to net zero emissions by 2050 and negative emissions thereafter, all are agreed that there is an urgent need to increase the current scale of carbon removals and particularly to develop technological methods of permanent storage for carbon removed from the atmosphere. However, currently, nature-based solutions are the only game in town but their removal potential is diminishing. There is thus a particular need to incentivise additional removals in the LULUCF sector to meet the already agreed 2030 removals target.
The Commission’s proposed Certification Framework for Carbon Removals (CFCR) Regulation is designed to encourage additional action by developing criteria and a governance framework for high-quality carbon removals. The working hypothesis is that guaranteeing the quality of carbon removals will help to restore trust in negative emissions which has been badly hit by journalistic exposures of greenwashing and fake credits in connection with REDD+ and other offsetting schemes. In turn, this should increase the willingness to purchase and thus finance carbon removal activities. A secondary objective is to help to try to bring some order to the ‘wild west’ that is the voluntary carbon market by offering a quality mark to schemes that live up to the QU.A.L.ITY criteria set out in the Regulation.
The Regulation is just one part of a broader package intended to encourage both faster emissions reduction and greater negative emissions, including revisions in the LULUCF Regulation and the ETS Regulation, standards being developed under the Corporate Sustainability Reporting Directive, the Green Claims Directive, the Taxonomy Regulation and others. Thus, it should be assessed in the light of these other initiatives.
The main question ultimately revolves around why anyone would want to pay for carbon removals. Governments clearly have an incentive because they have legal climate targets to meet. Corporates may find it gives a marketing advantage if they can claim to be more climate-friendly and certified removals can give greater credibility in their mandatory emissions reporting.
The big unknown is whether CRUs will be allowed to offset emissions in the Emissions Trading Scheme (various options are explored in this paper by Nils Meyer-Ohlendorf for Ecologic). The Commission is mandated to report in 2026 on how negative emissions resulting from greenhouse gases that are removed from the atmosphere and safely and permanently stored could be accounted for and how those negative emissions could be covered by emissions trading, This sets alarm bells ringing as it is clear from the previous discussion that not all CRUs will be created equal. In particular, there is a concern that temporary CRUs created from carbon farming and long-lived products will be exchanged on a one-for-one basis with emissions from fossil fuels that are going to remain in the atmosphere for centuries if not millenia.
Indeed, such ‘trading’ already exists as governments can use a limited volume of LULUCF credits to offset fossil fuel emissions in the Effort Sharing sector. However, in this case the inventory accounting methods ensure that if temporary removals are reversed this is reflected directly in the inventories. In the ETS trades take place between individual operators. The fear is that one tonne of emissions from burning fossil fuels can be cancelled or offset by a temporary CRU from carbon farming that may be reversed after 20 years.
The reference in the revised ETS Regulation may give some assurance that this is not intended as it specifically refers to negative emissions that are permanently stored, which would seem to rule out carbon farming CRUs. But if technological solutions are successfully scaled up and purchasers can use these CRUs to reduce their liabilities in the ETS but not temporary carbon farming CRUs, one might well ask why would anyone then want to purchase temporary carbon farming CRUs? Farmers and other landowners are setting great store by the potential for carbon farming to contribute a significant revenue stream in future. It is possible they will be very disappointed.
This post was written by Alan Matthews.