EU urged to do more to build carbon removals market

Businesses remain sceptical that a new EU certification framework for carbon removals is sufficient to generate a self-sustaining market, arguing Brussels must do more to make removing carbon from the atmosphere financially attractive.

EU lawmakers are currently negotiating a regulation aimed at ending greenwashing in the voluntary carbon offsetting sector, which they hope will also stimulate industry investment into the emerging market by giving qualifying carbon removals an EU stamp of approval.

On 24 October, the European Parliament’s environment committee agreed its stance on certifications for carbon removals, a law aimed at ensuring efforts to remove CO2 from the atmosphere are quantifiable and verifiable.

Carbon removals and offset schemes have been plagued by allegations of fraud and double-counting, tainting them as a reputable means of reaching the EU’s goal to slash emissions down to net zero by 2050.

The certification regulation covers natural methods to absorb carbon from the atmosphere, such as restoring forests and the use of carbon-dense materials, such as wood-based construction. It also includes technological means such as bioenergy with carbon capture and storage (BECCS) and Direct Air Capture (DAC) where giant fans suck CO2 directly from the atmosphere.

A vote will take place during the European Parliament’s next plenary sitting, scheduled for 20-23 November, after which the text will become the Parliament’s official negotiating position in discussions with member states to finalise the law.

Business case

The Parliament’s lead lawmaker on the proposal, Portuguese MEP Lídia Pereira from the centre-right European People’s Party (EPP), said the regulation will ensure that carbon removals are “trustworthy” and “transparent”.

In building this trust, the framework provides “the conditions for a proper business case for the different operators to participate in the market”, she told journalists.

These views were backed by German MEP Peter Liese, the EPP coordinator for the Parliament’s environment committee, who called the regulation “an important first step” in boosting the business case for a carbon removals market.

Having an EU-approved certification will allow companies to “create a positive image” around their carbon removal actions, according to Liese.

“I’m sure that many companies, in particular those that are linked to agriculture, will do it and that will create a business case,” he added.

However, industry sources say a certification framework is not enough to encourage businesses to invest in the expensive solution.

“Certifications frameworks are good, but without a business case for carbon removals they’ll have no job, and right now there is no business case for carbon removals in Europe, and no line of sight on one emerging,” said James Cogan, a policy advisor to Ethanol Europe, an Irish biofuels company.

“For investors, it’s still a case of nothing to see”, while “the USA is galloping ahead” with its Inflation Reduction Act, he warned.

In the United States, the industry for carbon capture and storage (CCS), a main component of many technological carbon removals, is growing thanks largely to the Biden administration offering businesses a tax credit of up to $180 per tonne of CO2 removed.

The US will “have tens of millions of tonnes of carbon removals in operation before Europe’s certification framework even enters its planned start-up phase in 2025”, said Cogan.

This view was echoed by Florian Hildebrand, the CEO of Greenlyte Carbon Technologies, a start-up that aims to combine technology that sucks CO2 from the atmosphere with hydrogen production. 

Hildebrand argued that with the Inflation Reduction Act, a federal fund promoting clean technology, the US already surpassed Europe in carbon removals.

“You can see that there is a very, very serious approach to this topic [in the US] and that we in Europe are still very hesitant,” he said, adding that European companies may be lured to the US.

“I believe that there is simply a great risk that the research we have will migrate more and more because the incentives are more exciting elsewhere,” he stated.

Emission Trading System

In discussions on making carbon removals financially viable in Europe, the EU’s carbon market, the Emission Trading System (ETS), is seen as a leading option. 

The ETS places a price on carbon emissions, forcing businesses covered by the system to surrender an allowance for every tonne of CO2 they emit. The number of carbon allowances is reduced over time, incentivising industry to speed up the decarbonisation process.

However, if carbon removals became cheaper than ETS allowances, businesses would be likely to invest in the option.

Prices for ETS allowances are expected to increase substantially over time, with analysts saying that a 90% emissions reduction target for 2040 – as supported by EU climate chief Wopke Hoekstra – would translate into a price of €400 per tonne of CO2 in the ETS by that date.

Negative carbon emissions are so far not included in the ETS, but its inclusion is backed by MEP Liese, who stated that doing so would make the business case for carbon removals considerably stronger.

The German lawmaker pushed for carbon removals to be immediately included in the ETS during discussions on the scheme’s revision last year, but his proposal failed to find cross-Parliamentary support.

However, while there is no legal mechanism for counting carbon removals towards the ETS at present, a review clause in the recently updated ETS directive requires the European Commission to explore a framework for doing so.

[Edited by Frédéric Simon/Nathalie Weatherald. Additional reporting by Jonathan Packroff]

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