EU think tank recommends phased approach to carbon removals integration into EU ETS

The European Roundtable on Climate Change and Sustainable Transition recommended June 26 the integration of carbon removal credits into the EU Emissions Trading System through a phased approach, as well as implementing scope limitation.

The Brussels-based ERCST, in a report, outlined nine recommendations to guide policy on removals ahead of the European Commission's own report expected by July 2026 on the integration of removal credits into an emissions trading scheme.

The commission launched a consultation in April seeking input(opens in a new tab) on potential reforms to the ETS, which will include an impact assessment of integrating carbon removals in the EU ETS. The current policy pathways include the potential integration of industrial carbon removals in the EU ETS or creating a separate compliance mechanism for such removals, connected directly or indirectly to the ETS.

The commission is assessing carbon removals in the EU ETS, said Marina Garcia Alonso, legal officer in the EC's department for DG Climate Action and ETS Policy development.

"We have not taken decisions on anything and will not for a bit," Garcia Alonso said. "With this topic, the more we delve into it, the more we delve into details and further questions."

During the paper launch event, Alonso said the commission was considering all aspects mentioned by the report and highlighted further potential considerations around scope limitations for operators.

The ERCST recommends that carbon dioxide removals be introduced in both the EU ETS and the EU's upcoming ETS for buildings, road transport and additional sectors, known as ETS2. However, the think tank suggests a phased approach, with the initial integration in the current ETS only.

"Having such a unified integration of carbon removal allowances maximizes liquidity by expanding the market participant pool and creates more robust price discovery," the institute said.

The ERCST further recommends that removals units be used in addition to EUAs issued in order to allow better market efficiency by maintaining the EUA cap to ensure future availability of allowances, without being based on the feasibility of CDRs.

Permanent removals

"Only permanent CDRs should be integrated until the system is well tested," the ERCST said. Only methods qualified as permanent by the Intergovernmental Panel on Climate Change or the Carbon Removals and Carbon Farming framework should be allowed, it added.

"It seems that currently only DACCS, BECCS, and Biochar satisfy these requirements," it said.

The ERCST is also calling for a central regulatory body to oversee the integration of removals in the EU ETS, as well as quantitative and qualitative limitations on the volume of credits permitted into the system.

"This entails establishing explicit quantitative caps on the total volume of CDRs permitted into the system annually and enforcing qualitative thresholds governing the types of removal technologies eligible for inclusion," the European roundtable said.

Ex-ante crediting, the issuing of carbon credits based on projected emission removals, rather than actual verified removals, is also recommended by the ERCST, as this is seen as potentially supporting early investing and accelerating funding flows during early project stages.

"The ex-ante issuance approach does bring with it some under-delivery risk concerns; however, we believe that an institution with regulatory authority would address this by backing the guarantee, ensuring that credits are honored even if the project under-delivers," said the institute.

The report further calls for carbon removals not to be limited to specific economic sectors, as allowing credits to offset any emissions would enable the market to identify the lowest-cost compliance pathways across the economy.

Article 6.4 credits

The ERCST also says these Article 6.4 carbon units should be allowed into the EU ETS as soon as they become available. Article 6.4 of the Paris Agreement establishes a mechanism for countries to cooperate on achieving their climate goals through a market-based approach for trading carbon credits generated from emissions reduction or removal projects.

"This approach leverages comparative advantages in CDR deployment, potentially reducing overall system costs while accelerating global removal capacity development. International integration requires robust governance frameworks to ensure environmental integrity across jurisdictions with varying regulatory capabilities," the think tank said.

Finally, it recommends that carbon removal credits should be exchanged for EUAs to ensure to prevent unnecessary market segmentation.

Robert Jezke, chief executive of the Centre for Climate and Energy Analyses, highlighted during the launch event that the inclusion of removal units into the EU ETS would also help preserve market liquidity in the long term.

"We need these changes for the liquidity of the market," Jezke said. "It's not only the case that we need to reduce emissions, which are only in hard-to-abate sectors, but we also need to maintain the ETS as an instrument. We need the carbon pricing instrument to deliver the reduction in Europe."

Removals in the UK ETS

The UK is also seeking to integrate greenhouse gas removals in its emissions trading system, having already conducted a market consultation on this last year. The UK's strategy is to scale up technologies such as bioenergy with carbon capture and storage and direct air capture in order to meet its net-zero goals.

"The UK is thinking about GGRs in our UK ETS," said Felix Grey, policy team leader at the UK Department for Energy Security and Net Zero. "We're committed to doing it for engineered removals. We consulted last year. We hope to publish our government response shortly."

Platts, part of S&P Global Commodity Insights, assesses the prices of credits generated by tech-based carbon removal projects. Platts assessed biochar credits sourced from the US at $149/mtCO2e on June 25 and biochar sourced from India at $140/mtCO2e on June 26.