As the European Union accelerates its path toward climate neutrality by 2050, understanding its evolving carbon policy landscape is more important than ever. This FAQ provides clear, concise answers to common questions on the EU Emissions Trading System (EU ETS), carbon capture and storage (CCS), carbon dioxide removal (CDR), and the new EU Carbon Removal Certification Framework (CRCF). Whether you’re a business leader, policymaker, or sustainability expert, this guide helps unpack the mechanisms shaping Europe’s climate future – highlighting both opportunities and challenges for low-carbon innovation, including those we are working on at Metharc.
Carbon capture and storage (CCS) involves capturing carbon dioxide emissions from industrial sources or directly from the atmosphere and storing it permanently, often in underground geological formations or in products. Several pioneering CCS projects have been implemented, such as the Sleipner facility in Norway (operational since 1996, storing CO2 from gas development) and the Dakota Gasification plant in North Dakota (operational since 2000, supplying captured CO2 for enhanced oil recovery). The regulatory landscape for CCS is developing, with federal oversight in areas like pipeline safety and CO2 sequestration monitoring in the US, while states often handle pipeline siting and can seek authority over sequestration. Various incentives, like the 45Q tax credit in the US and carbon contracts for difference being explored in Europe (e.g., in the UK and Denmark), aim to encourage the deployment of CCS technologies.
Carbon removal (CDR) refers to processes that actively remove CO2 from the atmosphere. Policy approaches to CDR are evolving globally. Japan has integrated some CDR methods into its emissions trading system, while Canada offers investment tax credits for direct air capture with carbon storage (DACCS). The EU has established a Carbon Removal Certification Framework (CRCF) to create a voluntary system for certifying carbon removals. Incentive mechanisms for CDR include production tax credits (like the US 45Q), carbon contracts for difference (guaranteeing a price for removed carbon), mixed contracts for difference (for methods with co-benefits like BECCS), and government procurement programs. Denmark is an EU leader in providing operational deployment incentives for CDR through dedicated funds offering subsidies per tonne of CO2 removed and stored.
The EU ETS, launched in 2005, is a cornerstone of the EU’s climate policy and operates as a “cap and trade” system. It aims to reduce greenhouse gas emissions cost-effectively by placing a limit (cap) on the total amount of certain greenhouse gases that can be emitted by installations covered by the system. This cap is reduced over time. Within this cap, companies can buy and sell emission allowances (EUAs). One allowance gives the holder the right to emit one tonne of carbon dioxide equivalent. The main goals are to help the EU achieve its emission reduction targets, drive decarbonization in key sectors, and incentivize investment in low-carbon technologies. The system is currently in its fourth trading phase (2021-2030), with increasingly ambitious targets aligned with the European Green Deal and the European Climate Law.
The EU ETS Directive has undergone several revisions to align with evolving climate ambitions. The 2023 revision, in particular, introduced key changes to meet the EU’s goal of reducing net emissions by at least 55% by 2030 and achieving climate neutrality by 2050. These changes include a tightened cap to reduce emissions by 62% by 2030 compared to 2005 levels, the inclusion of maritime transport emissions from 2024, a gradual scaling down and conditionalization of free allowance allocation for industries (with complete removal for aviation by 2026), revisions to the Market Stability Reserve to better balance the carbon market, increased funding for the Innovation Fund and Modernisation Fund to support the green transition, and the creation of a new emissions trading system (ETS2) to cover emissions from buildings, road transport, and additional sectors, set to become operational in 2027.
Launched in December 2024, the EU CRCF establishes a voluntary framework for certifying carbon removals. It sets criteria for the certification of removals, rules for the certification process, and the recognition of certification systems. The framework aims to incentivize carbon removal activities by creating tradable certified removal units. The CRCF covers various types of carbon removal, including permanent carbon removals (like DACCS and BECCS with geological storage), carbon storage in products (temporary), and carbon farming practices for sequestration and soil emission reductions (often resulting in temporary units). Future extensions may include livestock emission reductions. The CRCF also addresses the certification of emission reductions from carbon farming activities.
Certified carbon removal units from the CRCF could potentially be used in several ways, including fulfilling carbon removal obligations under future EU, national, or sub-national policies (distinct from the EU ETS, ESR, or LULUCF Regulation), for voluntary purposes other than offsetting (such as making contribution claims or for corporate climate responsibility initiatives), and as a vehicle for disbursing subsidies or providing incentives for carbon removal activities. However, due to concerns about environmental integrity, particularly with temporary storage, it is generally recommended that removal units, especially those from temporary storage, should not be used for offsetting emission reduction obligations under the EU ETS, Effort Sharing Regulation (ESR), or Land Use, Land Use Change and Forestry (LULUCF) Regulation to avoid double counting and ensure that emission reductions and removals are accounted for separately and transparently.
Besides the EU ETS and the developing framework for carbon removal, the EU employs a range of other policies to reduce carbon emissions across various sectors. The Effort Sharing Regulation (ESR) sets binding annual greenhouse gas emission reduction targets for Member States in sectors not covered by the EU ETS, such as transport, buildings, agriculture, and waste. The Land Use, Land Use Change, and Forestry (LULUCF) Regulation governs how land use and forestry contribute to the EU’s climate objectives, aiming for a land-based net carbon removals target. Specific measures are also being implemented in sectors like transport, with requirements for sustainable aviation fuels and the inclusion of maritime transport in the EU ETS with specific emission reduction targets. The European Green Deal encompasses a broad set of initiatives across the economy to achieve climate neutrality by 2050, including strategies for energy efficiency, renewable energy deployment, and industrial decarbonization.
