In a Nutshell

The European Commission’s strategy on Industrial Carbon Management (ICMS) lays out what role industrial carbon management technologies, including certain carbon dioxide removal methods referred to as ‘industrial carbon removal’ (BECCS, DACCS and biogenic carbon), can play in decarbonising the EU’s economy. It also introduces measures needed to develop and scale up these technologies. As a Commission communication, the content of the ICMS is not legally binding but introduces an outline and a guide for future EU policy initiatives.

Given the current lack of a comprehensive policy framework around industrial carbon management, the ICMS is a crucial first step in creating the right conditions for the development and deployment of industrial CDR and CCS technologies. The ICMS is closely linked with the European Commission’s 2040 climate target communication, which sets out a 90% net greenhouse gas (GHG) emission reduction target by 2040, as well as twin targets for emission reductions and carbon removal.

The ICMS contains separate sections covering which measures are needed to scale CCS, CCU, industrial CDR, and CO2 transport and storage infrastructure. The measures relevant to CDR include considerations on developing a separate carbon removal trading scheme, introducing Important Projects of Common European Interest (ICPEIs) for CO2 transport and storage infrastructure, and boosting research, innovation and early-of-a-kind demonstration for novel industrial technologies for carbon removal.

The strategy also provides a dedicated section on public awareness, which appears to signal that the Commission recognises the importance of involving and engaging stakeholders and the public in the scale-up of industrial carbon management technologies.

However, the strategy does not clearly distinguish between CDR, CCS, and CCU, and fails to set dedicated targets for each of these. It narrowly focuses on types of CDR considered ‘industrial CDR’, namely direct air carbon capture and storage (DACCS), bioenergy with carbon capture and storage (BECCS) and biogenic carbon.

What's on the Horizon?

In the ICMS, the Commission foresees several actions, laid out over an indicative timeline.

While no clear timeline is provided for industrial CDR (iCDR), the Commission needs to assess by 2026 if and how CDR could be accounted for in the EU Emission Trading System (ETS), or a potential removal trading system. In parallel, it also raises the need to boost dedicated funding under the EU RD&I under Horizon Europe and the Innovation Fund.

For CO2 transport and storage infrastructure, the strategy mentions that, as of 2024, the Commission:

  • should initiate preparatory work in view of a proposal for a possible future CO2 transport regulatory package, as well as working towards proposing an EU-wide CO2 transport infrastructure planning mechanism;
  • will work with member states on exploring a possible Important Project of Common European Interest (IPCEI) for CO2 transport and storage infrastructure.

Carbon Gap will unveil its CDR Strategy for Europe in March 2024, and present key recommendations that are intended to complement the actions foreseen in the ICM strategy to scale CDR.

Deep Dive

The origins of the ICM strategy

The EU Green Deal and the latest version of the EU Climate Law, in which the ambition of the Union’s climate targets for 2030 has been raised, both stress the importance of carbon dioxide removal and carbon capture and storage technologies in EU climate action. The Commission’s communication on Sustainable Carbon Cycles published in 2021 further underscored the importance of industrial carbon management. The communication included an aspirational target of 5MtCO2 of industrial carbon removal per year by 2030. To deliver on this target, it set out key actions to support industrial carbon management and CDR more broadly, foreseeing the need for a certification framework for carbon removal, and calling for the creation of an annually recurring CCUS Forum. Since its establishment in 2021, the CCUS Forum has informed the work on the ICMS, including through several reports from working groups focusing on CO2 infrastructure and standards, industrial partnership for CCUS, and public perception.

 

Scaling up industrial CDR

The ICM strategy acknowledges the key role CDR will play in reaching climate neutrality by indicating that it will be needed to compensate for approximately 400MtCO2e of residual emissions by 2050. This figure comprises both land-based and industrial CDR (iCDR). The ICM also states that around 280MtCO2 and 450MtCO2 would need to be captured by 2040 and 2050, respectively, without clearly specifying which share would be stored and used, and which share would be CDR.

The strategy identifies key policy gaps holding back the scaling up of iCDR, including a lack of incentives, the lack of recognition of iCDR in the current EU legislative framework and the high costs associated with various iCDR methods. The Commission presents three main actions to address these gaps:

  • Assess overall objectives for CDR in line with the 2040 targets and the goal of climate neutrality by 2050, and negative emissions thereafter.
  • Develop policy options and support mechanisms for industrial carbon removals, including if and how to account for them in the EU ETS.
  • In parallel, boost EU RD&I and early-of-a-kind demonstration for novel iCDR under Horizon Europe and the Innovation Fund.

 

Role of CCS and CCU

The ICMS lacks concrete targets for CCS and CCU beyond the 50MtCO2 yearly injection capacity target by 2030 set in the Net-Zero Industry Act (NZIA). Some projections are included, but these do not clearly show how much CO2 would be used for storage, and how much would come from CCS as distinct from CDR. Furthermore, these projections are not presented as actual targets for CO2 storage.

Regarding CCS, the ICM strategy presents an extensive package of policy actions it plans to undertake, including the development of a platform for demand assessment and aggregation for CO2 transport and storage services. The strategy also calls on member states to take several measures, such as the inclusion in their national energy and climate plans (NECPs) of an assessment of their CCS needs and identified actions to support the deployment of a CCS value chain.

Regarding CCU, the ICM mentions that over time, biogenic and atmospheric CO2 will be increasingly used for CCU. It also lays out broad policy actions, such as the creation of a knowledge-sharing platform for industrial CCUS projects.

 

CO2 infrastructure as a key enabler

The Commission highlights the need to develop non-discriminatory, open-access, cross-border CO2 transport and storage infrastructure. The strategy proposes a comprehensive plan, with the ambition to develop a single market for CO2 in Europe.

From 2024, the Commission will initiate preparatory work in view of a proposal for a possible future CO2 transport regulatory package. It will also work towards proposing an EU-wide CO2 transport infrastructure planning mechanism.

Finally, the possibility of creating an Important Project of Common European Interest around CO2 transport and storage infrastructure will be explored with member states throughout 2024.

 

Room for improvement of the Industrial Carbon Management strategy

The definition of industrial CDR should be open to all safe and effective high-durability CDR methods. Currently, the ICMS unnecessarily restricts iCDR to solely DACCS, BECCS and biogenic carbon, failing to consider other promising methods, such as enhanced rock weathering.

Clear and quantifiable targets for the role industrial carbon removal should play to reach the EU 2040 target are necessary for at least two reasons. Firstly, to ensure the EU reaches durable net zero by 2050, namely a state where the remaining hard-to-abate fossil emissions are only compensated by high-durability carbon dioxide removal (CDR). Secondly, to provide visibility and predictability to the industry, considering that CDR must be scaled considerably across Europe. Furthermore, the fluidity and ambiguity between CCS, CCU and CDR should be addressed across the board and in future policy texts, clearly distinguishing each different role and climate benefits.

Clear and targeted support measures for scaling up CDR should be introduced. The current measures outlined for iCDR are a good first step, but they are not enough. Deployment incentives are essential in the scaling up of iCDR, bridging the gap between R&D funding and a potential integration into EU compliance markets.

 

To address these points, the European Commission should produce a strategy solely dedicated to CDR.

Timeline

11 Oct 2021
15 December 2021
27-28 October 2022
30 November 2022
16 March 2023
27-28 November 2023
6 February 2024
11 Oct 2021

First CCUS Forum in Brussels

15 December 2021
27-28 October 2022
30 November 2022

Commission adoption of the CRCF proposal

16 March 2023

Commission adoption of the NZIA proposal

27-28 November 2023

Third CCUS Forum in Aalborg

6 February 2024

Commission adoption of the ICMS and 2040 climate target communications

Further reading

Carbon Gap’s comments on the ICMS public consultation

Carbon Gap’s response to the 2040 target and ICM communications

Official Document

Year

2024

Unofficial Title

ICMS

In a Nutshell

The Just Transition Mechanism is the European Union’s main tool to ensure that the transition to a climate-neutral economy happens in a fair and just way. Through its three pillars, it aims to mobilise an estimated EUR 55 billion over 2021-2027 to support the European regions, sectors and workers most affected by the transition.

The EU regions identified as most at risk or overburdened by the transition, and thus most in need of justice-oriented policies, are those whose economies rely heavily on fossil fuel extraction and production, particularly coal. Poland, Germany, Romania, Bulgaria, the Czech Republic and Spain face the greatest potential job losses in this sector.

The policy establishes three financial mechanisms to work towards a Europe-wide just transition: the Just Transition Fund (JTF), a dedicated transition scheme under InvestEU, and a loan facility provided by the European Investment Bank. Respectively, they offer grants, mobilise private investments and leverage public finance. Whereas the eligibility criteria for the JTF promote the diversification and modernisation of economies and the reskilling of workers, the other mechanisms are broader in scope and include a wide range of sectors.

As a nascent sector set to grow in scale and importance in the coming decades, carbon dioxide removal falls under the scope of the Just Transition Mechanism. To function, the EU CDR industry will need a large workforce, making it a natural candidate for reskilling programmes across multiple sectors, including academic research, engineering and technical jobs.

What's on the Horizon?

The eighth edition of the Just Transition Platform Conference will take place between 23 and 25 October in Brussels.

By June 2025, the Commission will need to review the implementation of the Joint Transition Fund.

Each member state has a national share reserved under the Public Sector Loan Facility until 31 December 2025. There are regular deadlines to apply for grants under the facility, with the next one on 17 January 2024.

The territorial Just Transition plans cover the period up to 2030.

Deep Dive

The Just Transition Fund

The JTF is the first pillar of the Just Transition Mechanism. The fund primarily supports the economic diversification and reconversion of the most affected regions through grants. EUR 17.5 billion was attributed to the fund through a regulation, with EUR 7.5 billion coming from the Multiannual Financial Framework for the period 2021-2027 (MFF) and EUR 10 billion from the NextGenerationEU for the period 2021-2023.

To access allocated funds, member states must prepare territorial just transition plans covering territories “most negatively affected based on the economic and social impacts resulting from the transition”. Special consideration should be given to islands and outermost regions.

The InvestEU “Just Transition” scheme

The second pillar of the JTM provides budgetary guarantees to ‘implementing partners’ that the EU Commission will provide direct or indirect financing. It can support investments detailed in national territorial just transition plans spanning a wide range of projects, including energy and transport infrastructure decarbonisation, economic diversification and social infrastructure. This scheme is expected to mobilise EUR 10-15 billion, coming mostly from the private sector, with some support from InvestEU implementing partners such as the European Investment Bank.

The public sector loan facility with the European Investment Bank

The third pillar of the JTM and its accompanying regulation provides a mix of EUR 1.5 billion in grants from the EU budget and approximately EUR 10 billion of loans from the European Investment Bank. A further EUR 18-25 billion of public investments is expected to be mobilised. The loan facility mainly targets energy and transport infrastructure, district heating networks, energy efficiency measures and social infrastructure. Applications must be linked to the relevant territorial just transition plan to demonstrate how the project supports specific national ‘green transitions’. Each member state is reserved a part of the budget under the facility until 2025, after which any unused amount will be made available to projects across the entire EU.

While the two other pillars of the JTM provide rather broad requirements, the Just Transition Fund outlines a specific list of actions and sectors that can be supported. CDR in its broadest sense could directly or indirectly fall under multiple categories. For example, it could help funnel productive investments in SMEs and investments in the creation of new firms. On the research side, CDR can be a destination for investments in research and innovation activities. On the social side, it could accompany the upskilling and reskilling of workers and job seekers. Finally, on the infrastructure side, it could be applied to upgrade district heating networks, especially combined heat and power plants, to unlock investments in the deployment of climate technology and systems, and for investments in renewable energy.

Evaluating the Just Transition Mechanism

Being the EU’s flagship mechanism to ensure no one is left behind in the green transition, the JTM’s main lever consists of requiring the development of territorial just transition plans. These are intended to ensure a high level of ambition whilst allowing civil society and the affected publics to have visibility over the just transition plan. There is also a certain degree of technical assistance provided for local public authorities, mostly through the Just Transition Platform, a one-stop shop platform providing information on all aspects of the JTM.

However, the JTM has several potential drawbacks. Firstly, the JTM might inadvertently reward countries that have delayed climate action by providing funds to member states with carbon-intensive industries that would not have decarbonisation plans otherwise. Secondly, the initial budget of the JTF was set at about EUR 44 billion, whereas it has now been downsized to EUR 17.5 billion, which will inevitably mean that fewer projects will be supported. Thirdly, the vision of fairness set out in the JTM and the European Green Deal in general has been criticised as a short-term, dirigiste solution to systemic challenges. Only specific sectors and regions are included, whereas other meaningful activities involving other types of actors and regions are left out of the JTM. Finally, the JTM’s operationalisation of climate justice is focused on those who are adversely affected by the transition, rather than on those who are adversely affected by climate change at large.

Timeline

11 December 2019
14 January 2020
28 May 2020
29 June - 3 July 2020
9 March 2021
July 2021
August 2021
11 December 2019

European Green Deal communication and announcement of the Just Transition Mechanism

14 January 2020

Commission adopts the Just Transition Fund Proposal

28 May 2020

Commission adopts the Public Sector Loan Facility Proposal

29 June - 3 July 2020

Launch of the Just Transition Platform

9 March 2021

Adoption of the InvestEU Guidelines, including guidelines for the Just Transition Special Scheme

July 2021

Entry into force of the Just Transition Fund Regulation

August 2021

Entry into force of the Public Sector Loan Facility Regulation

Unofficial Title

Just Transition Mechanism

Year

2021

In a Nutshell

Horizon Europe is the European Union’s key funding programme for research and innovation. It follows and builds upon Horizon 2020. Totalling a budget of €95.5 billion for the period spanning from 2021 to 2027, it is a key instrument in tackling climate change, helping achieve the UN Sustainable Development Goals and incentivising the competitiveness and growth of the EU.  

Beyond EU members, the programme is a strong strategic tool for international cooperation in research and innovation. It opens the window for researchers across the world to team up with the EU through different forms of cooperation, including the association of three non-EU countries. 18 countries have association agreements, including New Zealand and the UK as the newest addition with reached political agreements (still pending formal adoption).

Substantive and welltargeted research and innovation support is key to fostering the maturation of nascent removal methods and to underpinning the progression towards the scale-up needed to reach climate neutrality goals in the EU. Carbon removal projects have received funding from Horizon Europe, especially within Pillar II (see Deep Dive section below). The support has been predominantly indirect and provided through calls with potential spillovers into removals, with a lower share of funding support for CDR directly. Broadening the understanding of removal methods and providing more targeted and sufficient support that strengthens the diverse family of removal methods will form a crucial part of Horizon’s approach to CDR in forthcoming work programmes.  

What's on the Horizon?

  • More countries are likely to finalise association agreements with Horizon Europe in the future. Negotiations with Morocco, Canada, the Republic of Korea, and Japan are at various stages of advancement. The UK and the EU have reached a political agreement on the UK’s association to the programme starting 1 January 2024. However, it is still pending for Council approval before it is formally adopted by the EU-UK Specialised Committee on Participation in Union Programmes. The same is true for New Zealand which is still pending Parliamentary consent 
  • Building on the public consultation launched back in November 2022, the Commission will publish the Horizon Europe interim evaluation and consultation to inform the Horizon Europe Strategic Plan 2025-2027.  
  • In parallel, the expert group formed by the Commission’s latest call in May 2023 will meet between Q4 2023 – Q4 2024 and is expected to provide input on the programme’s evaluation. They will subsequently publish a report on how to amplify the impact of EU research and innovation programs and build on the conclusions of Horizon 2020. 
  • Further details on calls that are still open or yet-to-be-opened within the work programme 2023-2024 should be expected, as well as information on specific projects taken forward under each call. The work programmes for the following period should also be forthcoming.  

Deep Dive

A look at the various funding programmes of Horizon Europe

The program consists of four main pillars, each having dedicated funding and established working programmes that guide priorities for research and funding support:  

A table showing the main programs and total budgets for individual pillars of Horizon Europe
Adapted from Horizon Europe: Investing to shape our future (2021)

  • Pillar I – Excellent Science: aimed at strengthening the excellence and competitiveness of the EU’s scientific base. Three initiatives take the work forward:  
    • European Research Council: provides funding to researchers and their teams working on frontier science topics, with an emphasis on early-stage researchers.  
    • Marie Skłodowska-Curie Actions: focuses on enhancing the knowledge and skills of researchers through mobility and training.  
    • Research infrastructures: ensures world-class research infrastructure in Europe that is integrated, interconnected, and available to the top researchers in Europe and across the world.  
  • Pilar II – Global Challenges and European Industrial Competitiveness: centred around 6 clusters that tackle key global challenges underpinning EU policies and the Sustainable Development Goals, with a total of €53.5 billion. The launch of “Missions”- specified in the main work programme – is also part of the strategic planning process. Each cluster publishes a number of projects and calls within the main work programme for the relevant year, following priorities in R&I for the EU. Horizon Europe sets out its own Technology Readiness Level (TRL) scale, and projects are set to support the path towards different stages of maturity through a diverse range of actions including Research & Innovation Actions (RIA), Innovation Actions (IA) and Coordination and Support Actions (CSA).  
  • Pilar III – Innovative Europe:  
    • European Innovation Council (EIC): promotes breakthroughs, deep tech and disruptive innovation with scale-up potential at the global level through all stages of innovation.  It has two operating modes, an “Open” fund, holding no thematic preferences, and a “Challenge” fund, with specific thematic areas. Different technology readiness levels (TRL) are covered throughout its programmes:  A table of the total funding for programs in pillar three of Horizon Europe
    • European Innovation Ecosystems (EIE): supports the creation of better-connected innovation ecosystems across Europe, at both national and regional levels.  
    • European Institute of Innovation & Technology (EIT): brings together business, education and research organisations. 
  • Widening Participation & Strengthening the European Research Area (ERA): composed of two initiatives:

A look at carbon removal in Horizon Europe

Horizon Europe’s work programmes benefit a wide range of topics and technologies, especially in the six clusters of Pillar II. A close look at these programmes shows Horizon Europe has committed funding to CDRrelated topics (directly and indirectly, including calls with a high potential for spillovers), with the majority being clustered in three areas ( 8 Climate, Energy and Mobility; 9 Food, Bioeconomy, Natural Resources, Agriculture and Environment; and 12 Missions) in both the 2021-2022 and 2023-2024 work programmes.  

A table showing the various budgets available for CDR both directly and indirectly in Horizon Europe

The number of calls indirectly related to carbon removals found in both periods, – ranging from CCS and CO2 infrastructure projects to digital solutions and Monitoring, Reporting and Verification (MRV) – is higher than those with a direct link to CDR, such as blue carbon, carbon sequestration and BECCS projects.  For context, the funding allocated directly to CDR projects amounted to about 1.1% of the total budget for 2021-2022 and 0.9% of the 2023-2024 total budget. Direct and indirect funding for CDR reached 2.6% of the total 2023-2024 budget, instead of the 1.78% for 2021-2022.  

Research & Innovation actions (RIA) are dominant for the first period, while both RIA and Innovation Actions (IA) lead within the latest work programme, although RIA are slightly more present (65.73% of all projects) in direct CDR funding. RIA projects have 100% of costs covered by the EU and are directed to new knowledge and exploration of technologies. IA projects are covered until 70% of costs and focus more on prototyping, testing, piloting, and large-scale product validation, and marker replication.  

Knowledge and targeted funding

A number of projects in Horizon Europe can provide simultaneous benefits to Carbon Capture and Storage (CCS), Carbon Capture and Utilisation (CCU), and Carbon Removal (CDR). While there are sometimes overlaps between these families of methods – for example, shared CO2 transport and storage infrastructure – CDR is a much broader field and a set of methods on its own. The main work programme for 2023-2024, especially in Cluster 6, features more explicit mentions of carbon removals in the expected outcomes or scopes of the topics. However, the calls do not solely focus on CDR in most cases and are more likely to produce spillover effects that benefit CDR, such as providing CO2 transport infrastructure.  

It is a positive step that the Commission has progressively included mentions of CDR within Horizon’s work programmes. To ensure that Horizon Europe delivers the appropriate support for CDR solutions going forward, a more sophisticated approach must be introduced that differentiates between CCUS and CDR methods, providing dedicated funding for different types of CDR as part of a portfolio approach. 

Means in line with targets

There is substantial support for different types of removals given CDR’s status as a nascent field. Despite this support, the amount currently allocated to research into carbon removals is not nearly enough to meet the needs for accelerated development and deployment of CDR in light of the EU climate goals and the ambition for the EU to take the lead in this space globally. To deliver on these goals, the EU must commit to a significantly expanded budget for carbon removal, in line with the goals set out for the Green Deal, such as 310 MtCO2e of removals from the LULUCF sector, 55% emissions reductions by 2030, and climate neutrality by 2050.  

Diverse and precise support

Horizon Europe strategic plans guide the direction of the investments in research and innovation. Ahead of the next iteration, the Strategic Plan 2025-2027 analysis looks at changes in EU policy and how the global context has changed since the first Plan (2021-2024), to determine if adjustments in terms of priority, directions and actions need to be made for this period. The analysis states that significant research is needed to bring down the cost of nature-based and industrial removals and further identifies areas where the current efforts need to be reinforced, for example:  

  1. Sustainable economic models that incorporate ways to measure and incentivise the co-benefits of carbon removal; 
  2. Addressing challenges in soil, water, nutrient and biodiversity through e.g, carbon removal; 
  3. The removal potential of bio-based economies and bio-based value chains; 

Beyond these suggestions, directing calls for projects based on a diverse portfolio of CDR methods will be necessary to help the industry bridge the research and innovation gap and ensure the maturity of all removal technologies. This approach requires that Horizon Europe ensure there are sufficient calls for all levels of maturity (TRL levels) and types of actions (Research & Innovation, Innovation and Coordination & Support Actions), since carbon removal requires both early-stage research capacity and support for deployment. 

Timeline

7 June 2018
April 2019
11 December 2020
28 April 2021
29 July 2022
23 February 2023
15 May - 7 June 2023
Q2 2023
9 July 2023
7 September 2023
December 2023
Q4 2023
Q4 2023 - Q4 2024
Q4 2024
28 April 2021

Regulation (EU) 2021/695 of the European Parliament and of the Council establishing Horizon Europe

29 July 2022

Deadline for the Feedback Period – Horizon Europe – Interim Evaluation

23 February 2023

Deadline for the Public Consultation period

Q2 2023

Publication of factual summary reports from the public consultation

December 2023

Horizon 2020 ex-post evaluation report (staff working document)

Q4 2023 - Q4 2024

High Level Expert Group work

Q4 2024

High Level Expert Group Report publication

Further reading

A new horizon for Europe – Impact Assessment for Horizon Europe 2021-2027  

Horizon Europe budget breakdown  

Evidence Framework on monitoring and evaluation of Horizon Europe – focusing on the measurement of impact for Horizon, including the introduction of Key Impact Pathways.  

Funding and Tenders Portal 

Horizon Europe Strategic Plan 2021-2024 

Horizon Europe Strategic Plan 2025-2027 Analysis   

Horizon Work Programmes  

Countries

Since 1 August 2022, the following countries have association agreements in place: Albania, Armenia, Bosnia and Herzegovina, the Faroe Islands, Georgia, Iceland, Israel, Kosovo, Moldova, Montenegro, North Macedonia, Norway, Serbia, Tunisia, Turkey, Ukraine.  

Status

Policy Type

Unofficial Title

Horizon Europe

Year

2021

Official Document

Last Updated

31/07/2023

In a Nutshell

The National Energy and Climate Plans (NECPs) outline the EU member states’ 2021-2030 strategy to meet the 2030 energy and climate targets. The Regulation on the governance of the energy union and climate action (EU) 2018/1999, adopted in 2018, requires member states to regularly submit NECPs and update them. It also sets the EU Commission review process of the plans.

Member states outline how they will address energy efficiency, renewables, greenhouse gas emissions reductions, interconnections, and research and innovation in their NECP. A common template is used to facilitate transborder collaboration and efficiency gains.

So far, the 2030 climate and energy targets aim for at least 55% of greenhouse gas emissions reductions, 32% of renewable energy within the total energy production mix and 32.5% improvement in energy efficiency. The Fit-for-55 package called for more ambitious targets, some of which are still under review, including a 42.5% share of renewable energy within the Renewable Energy Directive.

The current versions of the NECPs, submitted at the end of 2019, massively overlook the role of carbon dioxide removal (CDR) in their ability to achieve their targets. None of the 27 plans include targets for CDR, nor do they take into consideration novel carbon removal methods. Even conventional CDR methods such as afforestation or soil carbon sequestration are not properly addressed in the majority of NECPs.

This is concerning. To reach the scale of removals needed to reach net zero emissions by 2050, CDR capacities must be scaled up now. Member states should seize the opportunity to include CDR in their NECPs. In parallel, the inclusion of CDR in the 2040 targets would set the course until 2050.

What's on the Horizon?

  • As set by the Regulation on the Governance of the Energy Union and Climate Action, member states must have submitted an updated draft of their NECPs by 30 June 2023, and the final version by 30 June 2024 unless they can justify that the current plan remains valid.
  • On 1 January 2029 and every ten years thereafter, member states will need to submit a new final NECP covering each ten-year period, and a draft one year prior.
  • On 3 July, only eight countries submitted their draft updated NECPs: Spain, Croatia, Slovenia, Finland, Denmark, Italy, Portugal and the Netherlands. We will keep monitoring this space as member states submit their NECPs and a more detailed analysis will follow accordingly.

Timeline

24 December 2018
31 December 2018
June 2019
31 December 2019
17 September 2020
30 June 2023
18 December 2023
30 June 2024
1 January 2028
1 January 2029
31 December 2018

Deadline for member states to submit their draft NECPs for the period 2021-2030

June 2019

EU Commission communicated an overall assessment and country-specific recommendations

31 December 2019

Deadline for member states to submit their final NECPs

17 September 2020

EU Commission published a detailed EU-wide assessment of the final NECPs. Later on, it also published individual assessments.

30 June 2023

Deadline for member states to submit draft updated versions of their NECPs

18 December 2023

The EU Commission published its assessment of EU member states’ draft updated NECP

30 June 2024

Deadline for member states to submit final updated versions of the NECPs

1 January 2028

Deadline for member states to submit draft NECPs covering the period 2031-2040

1 January 2029

Deadline for member states to submit final NECPs covering the period 2031-2040

Status

Policy Type

Year

2018

Unofficial Title

NECPs

Last Updated

23/06/2023

In a Nutshell

Article 6.4 of the Paris Agreement establishes the Article 6.4 mechanism, a market-based instrument that countries can voluntarily use to trade credits from emission reduction and removal projects. Under the mechanism, reducing emission levels in one country can be used by another country to fulfill its climate target, Nationally Determined Contribution (NDC).

Often seen as a tool to help countries achieve their climate targets cost-effectively, its real goal is to bring about higher ambition – enabling countries to do more than they could without using it. It’s built to incentivise and facilitate the participation of authorised public and private entities by crediting their emission reduction and removal activities. The projects need to deliver an overall mitigation in global emissions.

It’s a centralised UN crediting mechanism governed by Article 6.4 Supervisory Body. Being a successor of the Clean Development Mechanism (CDM) under the Kyoto Protocol, it will operate under the Paris Agreement, where all countries have climate targets. This means that the host countries need to know that they can still meet their climate targets when selling credits via the Article 6.4 mechanism, and double counting of the same emission reductions or removals must be avoided through the double-entry bookkeeping for emissions accounting (“corresponding adjustments”).

Among its other work in setting up the instrument, the Supervisory Body is preparing the foundation for how the Article 6.4 mechanism will apply to removals. There is a growing ecosystem of novel removal methods, and many of these are poised to be used by countries in their climate targets. Given the lack of broadly accepted international accounting rules for a range of removal methods, the decisions taken under Article 6.4, and the methodologies approved under it, are bound to have an outsized impact on carbon markets globally.

What's on the Horizon?

  • The Article 6.4 Supervisory Body has prepared recommendations on methodologies and removals. These recommendations have been sent for approval and were reviewed at the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement (CMA5 – during COP28). If the recommendations are approved, Article 6.4 will become operational in principle. More recommendations from the SB will be needed to make Article 6.4 fully operational.
  • The Subsidiary Body for Scientific and Technological Advice (SBSTA) is preparing recommendations on including emission avoidance and conservation enhancement activities in the scope of Article 6.4 mechanism, authorisation of credits, and connection between registries for adoption at CMA5 (during COP28).

 Getting the Article 6.4 mechanism up and running will take a few years. 

Deep Dive

How will it work? 

The Article 6.4 Supervisory Body is responsible for establishing guidance and procedures, approving methodologies, registering projects, issuing credits, and more.

Methodologies may be developed by project participants, host countries, stakeholders, or the Supervisory Body.

The credits are called the Article 6.4 Emission Reductions (A6.4ERs). These are used for both emission reductions and carbon removal. The host country will have to authorise A6.4ERs and account for these by applying corresponding adjustments unless the A6.4 ERs contribute to the national target in the host country (mitigation contribution A6.4ERs). 

Removal activities get a maximum of 15-year crediting periods, renewable twice. The mechanism credits emission reductions and removals by public and private sector actors.

2% of Article 6.4 credits are subject to cancellation (“Overall Mitigation in Global Emissions” clause), 5% of credits are dedicated to the Adaptation Fund (“Share of Proceeds for Adaptation”) and other fees for registration, inclusion, issuance, renewal, and post-registration apply as well (“Share of Proceeds for Administrative Expenses”).  

Many other details are yet to be ironed out, listed in the “Open elements” section below. 

How will removals be covered? 

Whilst the mechanism covers emission reductions and removals, it will likely focus on emission reductions in the coming decade, with interest in removals growing as climate targets get closer to net zero and beyond. 

The Supervisory Body has been tasked with preparing a general framework for including the full spectrum of carbon removal methods under Article 6.4, called “recommendations”, to be approved at CMA5 during COP28.  

For the first time, novel carbon removal methods will be tackled under the Paris Agreement, and the recommendations will set a precedent by establishing broad removals-specific rules under the UN crediting mechanism. 

Open elements 

Two separate ongoing work streams are ironing out the details of the mechanism – (1) the Supervisory Body and (2) the Subsidiary Body for Scientific and Technological Advice (SBSTA) where international climate negotiations under the Paris Agreement are ongoing on the technical elements. 

The Supervisory Body has a busy work program for 2023 and has been tasked to prepare several deliverables for adoption for CMA5 (during COP28). This includes recommendations on methodologies (baseline, monitoring methodologies, methodology development process, review), recommendations on activities involving removals (monitoring, reporting, accounting for removals and crediting periods, addressing reversals, avoidance of leakage), transitioning the Clean Development Mechanism into the Article 6.4 mechanism, developing accreditation standard, and designing project activity cycle.

SBSTA is negotiating recommendations on including emission avoidance1 and conservation enhancement activities in the scope of Article 6.4 mechanism, authorisation of credits by host countries, and work on the registry. These discussions are very technical, have continued throughout the Bonn Climate Conference in June 2023, and will be submitted for adoption at CMA5 during COP28.

1 Emission avoidance in this context mainly refers narrowly to reducing emissions from deforestation and forest degradation (REDD+ projects), not to be confused with how the term “emission avoidance” is used in the voluntary carbon markets where some stakeholders use it as a blanket term for emission reductions and avoidance. 

How can stakeholders engage with the Article 6.4 process?   

Documents for stakeholder input will be published at least a week before each Supervisory Body meeting. Any organisation can provide written input before meetings, but only UNFCCC-accredited observer organisations can attend the Supervisory Body meetings. Everyone can follow the live stream and watch recordings of past sessions.

 

Meeting number  Meeting dates  Deadline for registering as an observer  Deadline for submitting public comments on the meeting agenda 
SB 006  10-13 July 2023  19 June  3 July 
SB 007  11-14 September 2023  21 August  4 September 
SB 008  10 October to 2 November 2023  9 October  23 October 

In June 2023, the UNFCCC launched a dedicated Article 6.4 newsletter covering the latest news, calls for inputs and other announcements from the Supervisory Body. 

The negotiations under SBSTA take place in 2-week sessions twice a year during the Bonn Climate Conference and COP. 

 

Timeline

12 December 2015
4 November 2016
November 2021
November 2022
19 November 2022 - 15 March 2023
7-10 March 2023
16 March - 11 April 2023
18-25 May 2023
31 May - 3 June 2023
5-15 June 2023
5-19 June 2023
23 June 2023
10-13 July 2023
11-14 September 2023
Until 19 September 2023
30 October - 2 November 2023
Before SBSTA29/COP28
18 November 2023
30 November - 12 December 2023
12 December 2015

The Paris Agreement is adopted

4 November 2016

The Paris Agreement enters into force 

November 2021

CMA3/COP26 Glasgow – Adoption of the rules, modalities and procedures for Article 6.4 mechanism 

November 2022

Adoption of guidance on Article 6.4, elaborating on key processes and principles, providing SBSTA to work on remaining elements, and mandating the Supervisory Body to operationalise the mechanism 

19 November 2022 - 15 March 2023

Request for submissions by Parties and admitted observer organisations to submit their views on activities involving removals via the submission portal

23 June 2023

Article 6.4 Supervisory Body stakeholder webinar

Until 19 September 2023

Public consultation on the three SBSTA working areas on Article 6.4 (inclusion of emission avoidance and conservation enhancement, registries, authorisation of credits) 

Before SBSTA29/COP28

Technical expert dialogue on the three SBSTA working areas on Article 6.4 (inclusion of emission avoidance and conservation enhancement, registries, authorisation of credits) 

18 November 2023

The SB has approved the long-awaited recommendations on activities involving carbon dioxide removal and Article 6.4 mechanism methodologies.

30 November - 12 December 2023

CMA5/COP28 in Dubai.The Article 6.4 Supervisory Body’s recommendations on removals and methodologies have been sent for approval to CMA5. 

Unofficial Title

Article 6.4

Year

2015

Last Updated

23/06/2023

In a Nutshell

As part of the European Green Deal, the EU has set out legally binding climate objectives to (1) cut domestic net greenhouse gas (GHG) emissions by at least 55% compared to 1990 levels by 2030 and to (2) reach climate neutrality by 2050. The European Climate Law provides the legal framework to support these objectives. The law also requires the European Commission to propose a 2040 climate target for the EU in the first half of 2024, accompanied by an indicative EU GHG budget for the period 2030-2050.

The Commission is at the early stages of this process and has opened a public consultation to guide its assessment of a suitable 2040 climate target, inform the analysis of the sectoral transformations needed to meet this target, and provide input on the possible evolution of climate policy instruments beyond 2030. It will also lay out preferences between establishing separate or joint targets for emissions reductions and carbon removal – the two central components of net zero.

Carbon Gap advocates for the EU to set an explicit 2040 net emission reduction target of 95% compared to 1990, in line with advice by the European Scientific Advisory Board on Climate Change. This target will be the key milestone that the Union commits to reaching on the path to climate neutrality by or before 2050.

Timeline

23 June 2023
6 February 2024
23 June 2023

Deadline to submit feedback to the call for evidence for an impact assessment, which will inform the new Communication on the EU climate target for 2040

6 February 2024

Commission adoption of the Communication, which lays the foundation for a draft law setting the 2040 target

In a Nutshell

The Net Zero Industry Act (NZIA) is a legislative proposal from the European Commission from March 2023 that aims to provide a stable and simplified regulatory environment to support the scale-up of net zero technologies. The NZIA aims to reach a goal of at least 40% manufacturing capacity of strategic net zero technologies in the EU according to annual deployment needs.

The Act sets out enabling conditions, streamlined permitting processes, and one-stop shops for net zero technology manufacturing projects. It differentiates between ‘net zero technologies’ (at least TRL 8) and ‘innovative net zero technologies’ (lower TRL, and can benefit from regulatory sandboxes to foster innovation). It proposes a list of eight strategic net zero technologies that would benefit from even faster permitting process within what are defined as “net zero strategic projects”:

  • Solar photovoltaic and solar thermal technologies,
  • Onshore wind and offshore renewables,
  • Battery/storage,
  • Heat pumps and geothermal energy,
  • Electrolysers and fuel cells,
  • Sustainable biogas/biomethane technologies,
  • Carbon capture and storage (CCS),
  • Grid technologies.

The Act establishes an annual EU CO2 injection capacity goal of 50 million tonnes. This goal will be adjusted when the regulation is incorporated into the EEA Agreement to account for additional capacity in Norway and Iceland and is expected to grow post-2030; according to the Commission’s estimates, the EU could need to capture up to 550 million tonnes of CO2 annually by 2050 to meet the net zero objective, including for carbon removals.

In one of the world’s firsts, oil and gas producers are subject to an individual contribution to this target, making them directly responsible for building and operating the newly mandated CO2 injection capacity. The contributions will be calculated based on a “pro-rata” basis, accounting for their share of oil and gas production within the EU during 2020-2023.

The Act also aims to facilitate access to markets through public procurement, auctions, and support for private demand. It focuses on ensuring the availability of skilled workforce and foresees net zero industrial partnerships with third countries.

What's on the Horizon?

The NZIA proposal by the European Commission has entered ordinary legislative procedure to reach a formal adoption by the European Parliament and the Council. The European Parliament Environment Committee (ENVI) voted its opinion on the file in September, followed by the Industry Committee’s (ITRE) deliberation on its position on 25 October. The Parliament adopted its position on 21 November 2023. The Council adopted its general approach on 7 December 2023. After three trilogue meetings, the co-legislators reached a provisional agreement on 6 February. Over the next weeks, the agreed text will be voted on first by the European Parliament Industry Committee, then by the whole Parliament and by EU Ministers to formally adopt it. It will then become EU law once it is published in the Official Journal of the EU.  

To provide dedicated funding support to scale up clean technologies, the Commission was set to propose a European Sovereignty Fund by Summer 2023 within the context of the multi-annual financial framework (MFF). On 20 June, the Commission proposed, instead, to establish a ‘Strategic Technologies for Europe Platform’ (STEP), to provide an immediately available tool to member states. A provisional agreement on the STEP was reached on 7 February.

Deep Dive

As one pillar of a larger Green Deal Industrial Plan, the NZIA is meant to strengthen and support the EU’s capacity to reach its climate goals. It ensures Europe seizes the potential to be a world leader in the global net zero industry in the context of strong support for net zero technologies coming from different parts of the world, such as the United States’ IRA.

(Strategic) net zero technologies

The NZIA proposes key developments for net zero technologies. Two main aspects of the definition are particularly relevant: (1) the definition is not technology-neutral, it identifies key areas to be addressed, and further lists a family of eight strategic net-zero technologies, which benefit from even faster permitting, priority status, and in some circumstance of overriding public interest, and (2) net zero technologies must be at least Technology Readiness Level (TRL)  8. CDR is not explicitly listed as a strategic net zero technology, and the TRL 8 requirement would exclude most CDR methods. However, if based on TRL only, some could fall under the definition of ‘innovative net zero technologies’, e.g., some forms of direct air capture are considered TRL 7. This flaw of the proposal could be addressed by co-legislators by adding carbon removal in the definition of net zero technologies and in the related annex.

CO2 injection capacity target to incentivise CO2 storage infrastructure

The NZIA proposes a 50 million tonnes per year of CO2 injection capacity in the EU by 2030. The act rightly identifies the lack of storage capacity as one of the largest bottlenecks for CO2 capture investments. One of the key aspects of the act is the transparency of CO2 storage capacity, including the obligation for member states to make publicly available data on sites that can be permitted on their territory, as well as reporting on CO2 capture projects in progress, and their needs for injection and storage capacity. The NZIA clarifies that CO2 injection capacity will also be available to accommodate CDR, but provisions are not proposed to ensure the shared CO2 infrastructure can efficiently be used to accommodate both CCS and CDR methods. A comprehensive and coordinated approach to carbon management that considers both CCS and CDR is needed to ensure that limited CO2 storage capacity is used effectively to reach the EU’s climate neutrality targets. The target will need to be continuously reassessed to meet the storage needs in the EU, especially beyond 2030. Furthermore, separate provisions to ensure adequate transport infrastructure should be foreseen. The European Commission estimates that about 550 million tonnes of CO2 may need to be captured annually by 2050 to meet the net zero objective.

Oil and gas producers’ responsibility to develop the EU  CO2 injection capacity has the potential to be a world-leading initiative

The NZIA Article 18 introduces an innovative obligation on oil and gas producers to take responsibility for building EU CO2 storage infrastructure subject to the EU’s injection capacity target. This obligation could introduce an element of producer responsibility for fossil fuel producers in a similar way as producers of packaging, car tires, and other products are required by law to take responsibility for the environmental footprint of end-of-life disposal. If confirmed, this provision would also allow the development of open carbon storage sources by mapping and hosting transparent, open data on carbon storage resources, much of which is held today by private companies. Critical details of this obligation, such as how different sources of CO2 for storage are prioritised or barred, which entities, beyond oil and gas producers, are required to build the CO2 infrastructure, and the procedures to determine their location remain open and need further attention.

Fresh funding is needed

The proposal establishes new initiatives, such as the “Net Zero Europe Platform”, that will discuss the financial needs of the net zero strategic projects and could be key in advising how the financing of these projects can be achieved. Beyond this, the NZIA is anchored in already existing funding mechanisms such as Innovation Fund, InvestEU, Horizon Europe, Important Projects of Common European Interest (IPCEI), the Recovery and Resilience Facility, and Cohesion Policy programmes. Clarity on new and additional funding will be key, as bigger goals will require bigger means that can support the variety of CDR methods at different TRL stages.

Timeline

1 February 2023
16 March 2023
26 May 2023
13 June 2023
19 June 2023
27 June 2023
20 September 2023
25 October 2023
21 November 2023
7 December 2023
13 December 2023
22 January 2024
6 February 2024
22 February 2024
22 April 2024 (TBC)
1 February 2023

The Green Deal Industrial Plan Communication

16 March 2023
26 May 2023

Publication of Draft Report by MEP Christian Ehler

13 June 2023

Deadline for submission of amendments – ENVI Committee

19 June 2023

Deadline for submission of amendments – ITRE Committee

27 June 2023

Deadline to provide feedback to the Commission on the NZIA proposal

20 September 2023

ENVI Committee adopts draft opinion

25 October 2023

ITRE Committee vote

21 November 2023

EU Parliament plenary adopted the parliament’s report

7 December 2023

The Council adopted its general approach

13 December 2023

First trilogue on the file

22 January 2024

Second trilogue on the file

6 February 2024

Third trilogue on the file. The EU Parliament and the Council reached a provisional agreement.

22 February 2024

ITRE Committee adopted the provisional agreement

22 April 2024 (TBC)

Indicative plenary vote on the provisional agreement

Status

Unofficial Title

NZIA

Year

2023

Official Document

Last Updated

24/04/2023

In a Nutshell

The EU Emissions Trading System (EU ETS) is a market-based approach for setting a price for carbon dioxide (CO2) emissions. It works on a ‘cap and trade’ basis whereby a ‘cap’ or limit is set on the total greenhouse gas (GHG) emissions allowed from specific sectors of the economy each year, with the aim of achieving emissions reductions over time. This cap is converted into tradable emission allowances, which are then allocated to market participants through free allocation or auctions. One allowance gives the holder the right to emit one tonne of CO2 (or its equivalent) during a specified period. Companies covered by the EU ETS must monitor and report their emissions each year and purchase or trade allowances as needed to cover their annual emissions.

Participants who are likely to emit more than their allocation have a choice between taking measures to reduce their emissions or buying additional allowances; either from the secondary market, for example companies who hold allowances they do not need, or from member state-held auctions. When participants reduce their emissions, they can either sell their allowances or keep them for the future.

The ETS is the EU’s main tool for addressing emissions reductions, covering the following sector, representing about 40% of the EU’s total CO2 emissions: power, heat generation, energy intensive industrial sectors, aviation, and, since the latest revision, the maritime sector. It is now in its fourth trading phase (2021-2030). In December 2022, the European Parliament and Council reached a political agreement on the reform of the ETS. The overall target of the revised ETS was increased to a 62% reduction in carbon emissions from the sectors covered by the scheme by 2030, up from 42.8% since its introduction in 2005.

Carbon removal is not included under the EU ETS, but the Commission is set to report, by 2026, on how negative emissions could be accounted for and covered by emissions trading.

The Innovation Fund, a key source of EU support for nascent carbon removal projects amongst other clean technologies, is funded by the auctioning of ETS allowances. At 75 euro/tCO2, the ETS is set to provide around EUR 38 billion from 2020 to 2030 to the Fund.

What's on the Horizon?

The provisional political agreement reached between the European Parliament and Council in late 2022 needs to be formally adopted before the Regulation can enter into force:

  • 18/04/2023: Formal adoption by the European Parliament
  • 25/04/2023: Formal adoption by the Council of the European Union
  • 16/05/2023: Publication in the Official Journal of the European Union
  • 05/06/2023: Entry into force

By 31 July 2026, the European Commission is required to submit a report to the Parliament and the Council on the possibility of integrating negative emissions technologies (NETs) into the EU ETS. This should explore how emissions removed from the atmosphere through methods such as direct air capture can be safely and permanently stored, and how these negative emissions can be accounted for and covered by emissions trading without compromising necessary progress in reducing emissions.

By 31 July 2026, the Commission will have to assess and report on the possibility of including the municipal waste incineration sector in the ETS with a view to including it from 2028.

Deep Dive

Update to the ETS

The ETS was revised as part of the Commission’s ‘Fit for 55’ package, which aims to introduce new or improve existing legislative tools for achieving the EU’s target of reducing net GHG emissions by at least 55% below 1990 levels by 2030. The proposed changes to the ETS include:

  • Increased ambition to reduce emissions by 62% in the sectors covered by the ETS by 2030  and reduction of the cap by 4.3% per year in 2024-2027, and by 4.4% in 2028-2030.
  • End of free allowances for sectors covered by the Carbon Adjustment Mechanism (CBAM) in 2026-2034.
  • Phase-out of free emissions allowances for aviation (25% in 2024, 50% in 2025 and 100% from 2026).
  • Inclusion of maritime shipping in the ETS.
  • Creation of a separate ETS for the building and road transport sectors, applying to the distributors that supply fuels for combustion. A new Social Climate Fund will direct part of the revenue from the auctioning to support vulnerable households and micro-enterprises.
  • Increase in the Modernisation Fund and Innovation Fund.
  • Strengthening the market stability reserve (MSR), the mechanism to help prevent excessive carbon price fluctuations.

Support for CDR through the Innovation Fund

Although the EU ETS is designed to incentivise emissions reductions as opposed to carbon removals, money raised through auctions of emission allowances under the ETS are reinvested into the EU’s Innovation Fund, which provides a source of funding support for technology-based CDR methods among other low-carbon technologies.

For more information on the link between CDR and the Innovation Fund, see here.

Should carbon removal be integrated into the EU ETS?

The inclusion of carbon removal (with permanent storage of captured carbon) in the EU ETS is subject to a nascent and growing debate in the EU policy ecosystem, in anticipation of the announced Commission report. Integrating negative emissions into the ETS would allow participants to offset a portion of their emissions by purchasing carbon removal credits. This, in turn, could create a potential long-term market for CDR.

Including removals in the EU ETS could have a number of benefits. As the ETS allowance cap is steadily reduced over time, integrating negative emissions would create additional market liquidity and decarbonisation options for hard-to-abate sectors. It would therefore help to satisfy demand for removal credits or allowances from hard-to-decarbonise sectors like aviation and would allow for carbon removal credits to be easily integrated into existing market infrastructure and trading platforms.

Carbon removal project developers and investors would gain greater confidence that there will be sustainable long-term demand for carbon removal credits. It would also allow removal projects to benefit from the carbon price. However, the price differential between the cost of CDR and the EU ETS carbon price will be a key consideration. The EU ETS would only incentivise CDR solutions within a certain range of the ETS price. This could be sufficient for some approaches such as BECCS (cost at scale  USD 15 – 400/tCO2) and waste-to-energy with CCS, but additional incentives would be needed for direct air capture given its higher price point (cost at scale USD 100 – 300/tCO2) – although this is expected to change as technologies improve and costs of different methods decrease. Complementary incentive mechanisms such as Carbon Contracts for Difference (CCfDs) could bridge the gap between the actual cost of certain CDR methods and the EU ETS carbon price to drive the investment needed. The Commission is considering CCfDs as part of the overall agreement on the revision of the ETS Directive.

However, it is imperative that the potential inclusion of carbon removal credits in the EU ETS does not undermine the incentive for emitters covered by the ETS to decarbonise, or the urgency with which they should do so. One option to address this risk would be to limit access or quantities of removals to specific sectors that are harder to decarbonise and more likely to have residual emissions.

Another important consideration is the impact that any inclusion of CDR in the EU ETS would have on the integrity of the market. Developing robust monitoring, reporting and verification (MRV) standards would safeguard the integrity of the ETS. The introduction of these standards is underway under the EU’s CRCF legislation.

An alternative approach might be establishing a separate, regulated negative emissions market. This separate market could later be linked with the EU ETS after the differential between CDR and ETS prices has been reduced and CDR technologies have a demonstrated track record at scale.

The EU ETS & other markets

The EU ETS was the world’s first international emissions trading system when it was set up in 2005. It has since inspired the development of emissions trading in other countries and regions, including most recently the UK and China. The potential role of the UK ETS as a market for CDR was signalled in July 2023, when the UK Government stated its intention to include Greenhouse Gas Removals (GGRs) in the UK ETS, subject to further consultation, a robust MRV regime being in place and the management of wider impacts. In 2017, the EU and Switzerland signed an agreement to link their emissions trading systems. The agreement entered into force on 1 January 2020, and the link became operational in September 2020.

Timeline

27 October 2004
ETS Phase 1 (2005-2007)
ETS Phase 2 (2008-2012)
ETS Phase 3 (2013-2020)
ETS Phase 4 (2021-2030)
14 July 2021
18 December 2022
2026
27 October 2004

Entry into force of Directive 2004/101/EC establishing a scheme for GHG emission allowance trading

ETS Phase 1 (2005-2007)

The cap is set based on estimates. The majority of allowances are given for free, and ETS covers CO2 emissions from power generators and energy-intensive industries.

ETS Phase 2 (2008-2012)

The cap is lowered around 6.5% in comparison to 2005, based on actual emissions. Around 90% of the allocations are given for free, and auctions are held. N₂O emissions are included by certain countries. The aviation sector is included in 2012.

ETS Phase 3 (2013-2020)

National caps are traded with a EU-wide cap. Default auctioning method replaces the free allocation system, and the scope is expanded to include more sectors and gases.

ETS Phase 4 (2021-2030)

Current trading phase

14 July 2021

Proposal for a revision of the EU ETS released as a part of the Fit for 55 package

18 December 2022

Provisional agreement between co-legislators on the revision of the EU ETS

2026

Commission’s report on the inclusion of negative emissions in the ETS expected

Further reading

Status

Unofficial Title

EU ETS

Year

2022

Official Document

Last Updated

24/04/2023

In a Nutshell

The Innovation Fund (IF) is one of the world’s largest funding programmes for the commercial demonstration of innovative low-carbon technologies. It is also the EU’s key funding instrument for financing the green transition and promoting European industrial leadership in clean technologies.

The Fund’s goal is to create financial incentives for investment in first-of-a-kind clean technologies by sharing the risk with project promoters. This should help attract additional public and private resources.

The revenues for the IF are raised via the EU ETS and the auctioning of its 450 million allowances. As such, it depends on the carbon price – at EUR 75 /tCO2, it is set to provide around EUR 38 billion from 2020 to 2030. As part of the latest revision of the ETS, the free allowances which were allocated to certain energy-intensive sectors to avoid carbon leakage will be phased out due to the introduction of the Carbon Border Adjustment Mechanism. These allowances will instead be added to the IF, increasing the financial support available.

The IF uses a competitive selection process to choose the best projects to invest in. There are regular calls for proposals targeting four areas:

  1. innovative low-carbon technologies and processes in energy-intensive industries
  2. carbon capture and storage (CCS)
  3. innovative renewable energy generation
  4. energy storage technologies

While carbon dioxide removal (CDR) is not explicitly listed as a targeted area, the Fund does finance certain carbon removal projects. However, these projects are evaluated in the CCS category and based on methodologies developed for those technologies because there is no separate CDR category. This severely limits the type of CDR methods that can apply for IF funding and increases the complexity of their application processes.

The IF aims to finance varied projects across all member states, Norway and Iceland. There are no Technology Readiness Level (TRL) requirements for applications, but projects need to be sufficiently mature for first commercial examples and large-scale demonstrations. Projects are selected based on criteria specified in calls for proposals, covering degree of innovation, effectiveness of greenhouse gas emissions avoidance, maturity, scalability, and cost efficiency.

What's on the Horizon?

In December 2022, a political agreement was reached on the revision of the EU ETS Directive, which established the Innovation Fund, introducing two key changes to the Fund:

  • increase in the budget by bringing additional sectors (maritime, aviation, buildings and road transport) in the scope of the Fund;
  • new financing mechanisms whereby projects are selected based on an auction and are supported through fixed premium contracts, contracts for difference or carbon contracts for difference (CCfDs).

This will allow the IF to take the form of a production subsidy to cover 100% of the funding gap for scaling up clean tech. The Commission is now in the process of implementing these changes by revising its Delegated Regulation, which sets out the rules on the operation of the Fund.

The first auctions opened on 23 November 2023 and are on green hydrogen production. Winners will receive a fixed premium for each kg of renewable hydrogen produced over a period of 10 years. CCfDs, which could deliver a direct deployment incentive to different types of carbon management projects, including CDR, should follow shortly thereafter.

The Innovation Fund Call for 2023 opened on 23 November 2023 with a total budget of EUR 4 billion. It has five different sub-calls, namely for large, medium, and small-scale projects, cleantech manufacturing and pilot projects.

Deep Dive

While the Innovation Fund has benefitted CCS and Carbon Capture and Use (CCU), it has failed to recognise the specificities of CDR and the fact that it is, alongside emissions reductions, a vital tool for reaching Europe’s climate goals.

Certain carbon removal projects can benefit from IF funding but CDR is not explicitly listed as a targeted area. This omission severely limits the type of CDR methods that can apply for funding, primarily to projects such as direct air capture and storage (DACCS) and bioenergy with carbon capture and storage (BECCS). These projects are also evaluated in the CCS category, obliging them to adapt to CCS methodologies and increasing their administrative burdens.

Consequently, support for projects related to carbon removal within the IF has been significantly lower than for CCU and CCS. When CDR projects receive IF grants, they are labelled as CCS, making it difficult to keep track of CDR funding. Out of 37 projects in 2021, seven were categorised as CCUS, while within these, only two related to CDR, accounting for around 6% of IF’s total grants. Stockholm Exergi’s BECCS Stockholm project was awarded an IF grant of EUR 180 million and Carbfix’s Silverstone project was awarded EUR 3.8 million. In 2022, out of 16 projects, nine were CCUS-related and only one related to CDR (Coda Terminal by Carbfix was awarded a EUR 115 million grant, or 3.79% of IF’s grants).

Ringfencing CDR support

As with any nascent technology with elevated investment costs, CDR needs innovation funding and support for commercial deployment. To remedy the current funding gap, there needs to be increased internal understanding of the differences between CCS and CDR within the Innovation Fund as well as internal tracking of support for these different technologies.

The upcoming Delegated Act in which the Commission revisits the operation of the Fund provides an opportunity for the Fund to explicitly feature carbon removal as a key enabler of net zero and provide the corresponding targeted support.  As a second necessary step, the Fund should also consider the specifics of CDR in future calls for proposals and associated methodologies. This step would lead to dedicated higher and direct funding to carbon removal projects and contribute to strengthening the CDR ecosystem in Europe.

Beyond BECCS and DACCS

Due to the current structure of the Fund, most of the CDR projects funded so far have been related to DACCS and BECCS. Explicitly featuring carbon removal in the scope of the IF would also open a door to supporting a wider range of carbon removal solutions, beyond DACCS and BECCS, to include various carbon farming and ocean-based approaches, enhanced weathering, or mineralisation, for example.

Timeline

26 February 2019
3 July 2020
26 October 2021
29 August 2022
03 November 2022
11 May 2023
13 July 2023
7 August 2023
30 August 2023
19 September 2023
Q3 2023
23 November 2023
8 February 2024
9 April 2024
26 February 2019

Commission Delegated Regulation 2019/856 providing the overall framework for the Fund’s operation

3 July 2020

First call for large-scale projects

26 October 2021

Second call for large-scale projects

29 August 2022
03 November 2022

Third call for large-scale projects was launched.

11 May 2023

Deadline to submit feedback to the draft terms and conditions for the pilot auction – a new tool for funding innovative low-carbon technologies under the Innovation Fund

13 July 2023

The results of the third call for large-scale projects were published.

7 August 2023

Draft Commission Delegated Regulation implementing the changes to the Innovation Fund agreed in the ETS revision, notably the use of competitive bidding, is open for feedback until 7 August 2023.

30 August 2023

Publication by the European Commissions of the Terms and Conditions of its first auction dedicated to the production of renewable hydrogen production in Europe

19 September 2023

Deadline to submit projects to the third call for small-scale projects

Q3 2023

Second Innovation Fund progress report expected

23 November 2023

Opening of the first Innovation Fund auctions dedicated to renewable hydrogen, as well as a new call for projects

8 February 2024

Tentative closure of the first round of auctions for renewable hydrogen

9 April 2024

Tentative closure of the call for projects. Successful applicants will be notified in the fourth quarter of 2024

Status

Policy Type

Year

2019

Last Updated

24/04/2023

In a Nutshell

The European Commission has proposed a voluntary regulatory framework for the certification of carbon removals (CRCF), which will be the first of its kind in width of covered CDR methods, pending adoption by co-legislators. The stated goal is to foster and accelerate the scale-up of sustainable carbon removals, which includes a wide variety of CDR methods to be applied by land managers, industries, and others to capture and store atmospheric or biogenic CO2, as well as fight greenwashing, and harmonise carbon removal market conditions.

The proposal includes and distinguishes three types of carbon removal categories: carbon farming (such as reforestation and soil carbon management), permanent carbon storage (such as BECCS and DACCS), and carbon storage in products (such as wood-based construction materials). In order to ensure the quality of carbon removals certified under the framework, removals need to meet several quality criteria (so-called “QU.A.L.ITY” criteria), covering the aspects of quantification, additionality, long-term storage, and sustainability.

Under the framework, the European Commission, assisted by an expert group, will develop methodologies for the certification of a range of carbon removal methods and recognise certification schemes. The certification schemes will have the obligation of listing certified removals in interoperable public registries, while certification bodies, supervised by member states, will carry out certification audits and the issuing of certificates.

In its current state, the proposal does not align with scientifically widely accepted definitions of carbon removal as the definition also covers emissions reductions. It also does not outline any rules for how the carbon removal certificates generated under the framework could or should be used. The certificates could be used in corporate reporting, in contracts in supply chains, in voluntary markets, or to receive public support for carbon removal activities.

What's on the Horizon?

2023/2024: In the next steps, the European Parliament and the Council will engage in inter-institutional negotiations with the Commission to reach a final agreement. It is expected that negotiations will be finalised by the end of March 2024.

  • The draft report was voted on in the Parliament’s Environment Committee on 24 October 2023. It was adopted in the Parliament’s November plenary session.
  • In the Council, a general approach on the text among EU Member States was adopted on 17 November 2023.
  • Following the last trilogue, a provisional agreement on the file was found on 20 February 2024.
  • A tentative EU Parliament plenary vote has been scheduled on 10 April 2024. The Council will also need to adopt the agreement before the CRCF is published in the Official Journal of the EU.

Expert Group: The expert group on carbon removal kicked off their work in March 2023. Among other tasks, the group will be providing technical advice to the Commission on the development of the methodologies under the CRCF. The next meeting will take place on 15-17 April 2024.

Methodologies: In parallel to the legislative process, work has started on detailed methodologies for different carbon removal activities that will be set out in separate Commission delegated acts.

Within one year of the implementation of CRCF, the Commission will have to assess the potential inclusion of carbon storage in products in the scope of the LULUCF Regulation.

By 2026, the Commission will have to assess the potential inclusion of carbon removals with permanent storage in the EU ETS.

Deep Dive

Aim of the file

The CRCF will be the EU’s first certification framework that focuses exclusively on carbon removals. The stated goal of the file is a certification framework which creates trust in the quality and reliability of certified carbon removals among carbon removal providers, certificate buyers, and the public. The proposed framework also aims to increase transparency in the field of carbon removal certification, by creating public registries and methodologies for a wide variety of carbon removal methods, while also outlining requirements for monitoring, reporting and verification. As a result, interest and willingness to fund carbon removal activities and purchase certificates are expected to increase, leading to an expansion of carbon removal activities by current and potential operators. If adopted by co-legislators, the framework will form the basis of recognising and rewarding land managers, industry, and other carbon removal activity operators for high-quality carbon removal and their contribution to reaching the EU’s climate change mitigation goals.

Meaning for climate goals

By establishing this framework, the European Union works towards reaching its goal of climate neutrality in 2050 and net negative emissions thereafter, both of which will rely heavily on significantly upscaling carbon removal. As the first legislative file focusing primarily on carbon removal, it also contains a definition of which, in the current proposal, also includes emissions reductions. Furthermore, the proposal does not provide any rules around the potential uses of certificates. Potential uses envisioned by the Commission range from the use of certificates to access funding from policies, such as the CAP, to the use on voluntary carbon markets.

Room for improvement

  • Eliminate ambiguity as to what is and is not a removal
    The current definition of carbon removals in the proposal also includes emissions reductions from biogenic carbon pools, and is not aligned with broad scientific consensus (see e.g., IPCC definition). In order to avoid conflation of emissions reductions and removals, and to allow the CRCF to become a global model for carbon removal certification, emissions reductions need to be excluded from the definition.
  • Ensure a strict separation between higher-durability and lower-durability removals
    The currently proposed storage categories do not clearly differentiate CDR methods based on their carbon storage durability nor separate biological from geochemical storage media. Separation of these storage media is essential as the need and difficulty of MRV vary significantly between CDR methods based on their storage media.
  • Equip the framework to track how carbon removal is used so inappropriate claims can be policed
    The CRCF requires provisions determining permitted uses of carbon removal certificates and certified units, to prevent mitigation deterrence, greenwashing and the erosion of public trust, especially regarding compensation claims for fossil fuel emissions based on lower-durability removal certificates. The current proposal lacks guardrails as to which claims can be made based on the characteristics of generated certificates and the CDR methods used to generate them.

Timeline

15 December 2021
30 November 2022
7 March 2023
11 May 2023
21-22 June 2023
30 August 2023
24 October 2023
25-26 Oct 2023
17 November 2023
21 November 2023
2023
28 November 2023
23 January 2024
19 February 2024
15-17 April 2024
22 April 2024 (TBC)
2024
2025
2026
15 December 2021

Communication on Sustainable Carbon Cycles by the European Commission announcing the development of the framework

30 November 2022

Proposal for the certification framework adopted by the European Commission 

7 March 2023

First meeting of European Commission expert group on carbon removals

11 May 2023
Draft report from the rapporteur in the European Parliament

 

21-22 June 2023
30 August 2023

The AGRI Committee (committee for opinion) adopted its opinion on the file

24 October 2023

ENVI Committee vote on the adoption of the ENVI report

25-26 Oct 2023
Expert group meeting on industrial carbon removal methodologies
17 November 2023

Negotiating mandate adopted by Member States in the Council

21 November 2023

EU Parliament plenary adopted the ENVI Committee report

2023

Development of methodologies for certification of different carbon removal activities

28 November 2023

Kickstart of trilogues between EU institutions

23 January 2024

Second trilogue between EU institutions

19 February 2024

Third trilogue between EU institutions. A provisional agreement was reached

15-17 April 2024
4th expert group meeting (online only) which will cover a wide range of topics
22 April 2024 (TBC)

Tentative plenary vote on the provisional agreement

2024

Expected entry into force of the CRCF

2025

Commission report expected on the potential inclusion of carbon storage in products in scope of the LULUCF Regulation

2026

Commission will have to assess the potential inclusion of carbon removals with permanent storage in the EU ETS

Status

Unofficial Title

CRCF

Year

2022

Official Document

Last Updated

24/04/2023