How Europe can use emissions trading to also manage carbon removals

How Europe can use emissions trading to also manage carbon removals

The European Union's emissions trading system, established in 2005, has the potential to be adapted for large-scale CO₂ capture initiatives. A recent model study quantifies this possibility, suggesting that a phased integration of carbon removal strategies into the trading system can mitigate unintended incentives while simultaneously offering industries a framework for managing hard-to-abate residual emissions.

This research, led by the Potsdam Institute for Climate Impact Research (PIK) and published in Joule, is aligned with ongoing regulatory discussions in Brussels.

The findings indicate that the current EU emissions trading framework for the energy sector and energy-intensive industries could motivate companies to eliminate between 68 and 86 million metric tons of CO₂ emissions annually by 2050, contingent on cost trajectory developments.

By employing the LIMES-EU calculation model, which aids in optimizing investment decisions with a particular focus on the EU, the UK, and Norway, the study highlights two pioneering carbon removal techniques: employing direct air capture systems and utilizing bioenergy combined with CO₂ sequestration.

Supports acceptance of climate policy

Darius Sultani, a researcher at PIK and the lead author of the study, remarked, "The removal potential we have calculated would make a significant contribution to the implementation of the EU climate targets." He underscored the importance of dedicated support initiatives for carbon removal efforts to attain climate neutrality by 2050.

Currently, companies express concern regarding the 2039 deadline when emission allowances in the energy sector will cease, designating CO₂ emissions as largely unacceptable. However, by incorporating removal entities into the emissions trading system, there could be incentives for negative emissions, enabling these companies to sell certificates to those not fully reducing their emissions.

The research posits that the carbon price within the emissions trading scheme could escalate to approximately 400 euros per metric ton by 2050, stabilizing in the latter part of the century due to the implementation of carbon removal mechanisms.

A step-by-step model for implementation

The research team has proposed a systematic approach for the incorporation of carbon removals within the context of emissions trading, emphasizing a gradual integration to facilitate ongoing rapid emissions reductions towards zero. This strategy involves the establishment of detailed standards for monitoring, reporting, and verification, as well as the incremental inclusion of removal initiatives into the trading framework.

"With this scientifically robust proposal, we aim to engage with the current political discussions in Brussels surrounding future regulations for carbon removals," stated Michael Pahle, a researcher at PIK and co-author. The decision regarding the integration of carbon removals into the EU's emissions trading system is forthcoming, with the European Commission anticipated to present a proposal by 2026.

For more detailed insights and the full study, refer to: Joule.