New policy brief advocates integration of carbon removals into EU Emissions Trading System

The European Commission intends to evaluate the integration of carbon removals into the EU Emissions Trading System (EU ETS) by July 2026. This policy brief presents CLC's view on what should be the key considerations in the integration to ensure that the necessary investment conditions are met.

As detailed in the paper, the main reasons for integrating CDR into the EU ETS are, firstly, that this integration provides a secondary solution for actors in the emissions trading sector who have not had the opportunity to make the necessary investments before the inflow of new emission allowances into the system ends in 2039. Secondly, the integration of CDR into the compliance market through the EU ETS helps establish a more predictable investment environment. This predictability enables the much-needed scale-up of investments in various carbon removal technologies to achieve net-zero targets and maintain net negativity.

CLC's recommendations to create an investment-friendly and predictable operating environment are:

1. Incorporate CDR into the compliance market through ETS integration:
   • To create the functioning market and support demand for CDR needs that is essential in investment planning.
   • Including only reliable and permanent CDR methods like BECCS, BCR and DACCS to secure ’like-for-like’ principle.
   • Preventing emission abatement deterrence by implementing a one-to-one removal of emission allowances for each CDR certificate introduced into the system.
   • Support creation of a market structure that encourages and potentially incentivizes front-loaded procurement of CDR units to provide stability and visibility for investments and project development
2. Set separate targets for carbon removals on the EU level and in the Member states:
   • To clarify the specific needs for CDR much better than “net emission” targets.
   • Introducing gradually increasing separate targets for permanent and non-permanent removals starting from 2035.
   • Taking into account the carbon removal needs beyond the year 2050 when planning the target pathway.
3. Support the early market creation by providing incentives for investments and facilitating demand:
   • Encouraging the development and scale-up of different permanent CDR methods through targeted policy instruments and financial support to bring costs down and increase technological readiness.
   • Facilitating early market demand by national and EU level mechanisms like reverse auctioning.