EU ETS reform could bring carbon removal into European emissions market
EU Commission set to propose changes to the EU ETS this Friday that may integrate carbon removal into the bloc’s emissions trading framework.
The European Commission will on Friday present a proposal to reform the EU Emissions Trading System (EU ETS), opening the possibility of formally including carbon removal — known as negative emissions — in the bloc’s flagship climate market. The move would mark a significant shift in how the EU plans to meet net-zero commitments by allowing verified removal of CO₂ from the atmosphere to count alongside traditional emissions reductions. Industry groups in Germany, where a number of removal technologies are being developed, have urged Brussels to adopt a technology-neutral approach that supports a portfolio of permanent removal methods.
Commission to present ETS revision this week
The EU’s ETS has driven emissions reductions since 2005 by steadily cutting the number of allowances allocated to companies and letting the market determine where cuts come cheapest. The Commission’s revision aims to strengthen that mechanism and explore new tools to accelerate decarbonization across member states. Officials are expected to outline how removals could be verified, certified and integrated without undermining the ETS’s core principle of ensuring genuine, additional emissions cuts.
The proposal follows months of consultation and technical work in Brussels and comes against a backdrop of rising interest from corporates and investors in removal credits. Advocates argue that a clear regulatory path inside the ETS would provide the market certainty needed to scale nascent technologies while maintaining environmental integrity.
Scope of removals and technology-neutral approach
Carbon removal methods under discussion include biochar (purchased as “potted” carbon in soils), enhanced weathering, and Direct Air Capture (DAC) systems that extract CO₂ directly from the atmosphere. Proponents in Germany and elsewhere say no single technology will scale fast enough to meet demand, so policy should back multiple durable pathways. The German Association for Negative Emissions has called for rules that treat different methods equitably while ensuring permanence and measurability.
Regulators face the technical task of defining what counts as a permanent removal and how to monitor it. That will involve standards for baseline calculations, verification intervals, and long-term storage guarantees, particularly for approaches that rely on geological sequestration or stable carbon incorporation into soils and materials.
Quality concerns rooted in voluntary carbon markets
Skepticism about carbon offsets on voluntary markets has shaped the debate about integrating removals into the ETS. Past voluntary projects — for example, some tree-planting initiatives — were criticized for weak additionality, double counting, or uncertain long-term survival. Policymakers want to avoid replicating those failures inside a compliance market where allowances affect legal emissions obligations.
Industry voices emphasize that only high-quality, verifiable removal certificates should be eligible for ETS compliance, warning that low-standard projects would dilute the market and risk undermining climate targets. The EU’s Carbon Removal Certification Framework introduced in 2024 is widely regarded as a starting point for minimum criteria, though implementation details remain central to the Commission’s forthcoming text.
Price gap between ETS allowances and removal costs
A major practical hurdle is the current price differential between ETS permits and the cost of permanent removals. Some removal techniques, like biochar, are estimated to cost on the order of a few hundred euros per tonne, while DAC remains substantially more expensive under present conditions. Technology-cost studies indicate potential declines for many methods as deployment scales, but bridging the initial gap likely requires public support or market instruments.
German authorities have earmarked funds at the federal level to support market ramp-up, and consulting firms have proposed multi-billion-euro programs to mobilize a substantial removal industry. Policymakers must decide whether support takes the form of direct subsidies, purchase commitments, or temporary price-top-up mechanisms that allow removal certificates to trade alongside allowances.
Industrial reliance on removals for net-zero targets
Some sectors with hard-to-abate emissions — notably cement and lime production, and waste incineration — argue they will not be able to eliminate all emissions through efficiency or fuel switching alone. For these industries, verified removals are seen as essential to achieving net-zero targets without disproportionate economic disruption. Corporate buyers, including several major listed companies, have already started contracting removal capacity in seven-figure sums to hedge transition risks.
The integration debate therefore has both environmental and industrial policy dimensions: lawmakers must protect climate integrity while providing predictable market signals that enable investment in removal infrastructure.
Market design choices and next steps in Brussels
Key design decisions for the Commission include whether removal certificates should be directly exchangeable for ETS allowances, whether caps or quotas will limit their use, and what governance structures will oversee certification and monitoring. Brussels must also decide how to prevent double counting between national inventories, voluntary purchases, and compliance claims under the ETS.
The coming proposal will likely set out a roadmap rather than final binding rules, leaving technical specifics to follow-up legislation and delegated acts. Stakeholders expect intense scrutiny in the European Parliament and among member states, where opinions differ on the role and scale of removals in the climate transition.
As the Commission publishes its plan, the central questions will be how to maintain the ETS’s credibility while unlocking investment in reliable carbon removal technologies, and what mix of regulatory and financial tools will be used to align removal costs with the market price for emissions.
