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 well–targeted 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.
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:
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:
- 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:
- Widening participation and spreading excellence: aims to enhance research and innovation capabilities in countries that are currently falling behind according to the European Research Area policy goals.
- Reforming and enhancing the European R&I system: focuses on training researchers for successful R&I participation while prioritising networking, gender equality, ethics and integrity.
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 CDR–related 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.
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:
- Sustainable economic models that incorporate ways to measure and incentivise the co-benefits of carbon removal;
- Addressing challenges in soil, water, nutrient and biodiversity through e.g, carbon removal;
- 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.
Regulation (EU) 2021/695 of the European Parliament and of the Council establishing Horizon Europe
Deadline for the Feedback Period – Horizon Europe – Interim Evaluation
Deadline for the Public Consultation period
Publication of factual summary reports from the public consultation
Horizon 2020 ex-post evaluation report (staff working document)
High Level Expert Group work
High Level Expert Group Report publication
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.
Regulation (Eu) 2021/695 of the European Parliament and of the Council of 28 April 2021 establishing Horizon Europe – the Framework Programme for Research and Innovation, laying down its rules for participation and dissemination, and repealing Regulations (EU) No 1290/2013 and (EU) No 1291/2013
Key Institutional Stakeholders
European CommissionDG – Research and Innovation, Commissioner Carlos Moedas
European ParliamentCommittee on Industry, Research and Energy Rapporteur: Dan Nica - S&D, RO Shadow Rapporteur: Christian Ehler - EPP CD, DE Shadow Rapporteur: Martina Dlabajová - Renew, CZ Shadow Rapporteur: Ville Niinistö - Greens/EFA, FI Shadow Rapporteur: Elena Lizzi - ID, IT Shadow Rapporteur: Evžen Tošenovský - ECR, CZ Shadow Rapporteur: Giorgos Georgiou - GUE/NGL, CY
Council of the European UnionCOMPET
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.
The Regulation on the Governance of the Energy Union and Climate Action entered into force
Deadline for member states to submit their draft NECPs for the period 2021-2030
EU Commission communicated an overall assessment and country-specific recommendations
Deadline for member states to submit their final NECPs
Deadline for member states to submit draft updated versions of their NECPs
Deadline for member states to submit final updated versions of the NECPs
Deadline for member states to submit draft NECPs covering the period 2031-2040
Deadline for member states to submit final NECPs covering the period 2031-2040
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 fulfil 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 is preparing recommendations on methodologies and removals, the rules for transitioning the Clean Development Mechanism into the Article 6.4 mechanism, the accreditation standard, and the project activity cycle for adoption by CMA5 (during COP28).
- 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.
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.
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.
The Paris Agreement is adopted
The Paris Agreement enters into force
CMA3/COP26 Glasgow – Adoption of the rules, modalities and procedures for Article 6.4 mechanism
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
Request for submissions by Parties and admitted observer organisations to submit their views on activities involving removals via the submission portal
Article 6.4 Supervisory Body stakeholder webinar
Public consultation on the three SBSTA working areas on Article 6.4 (inclusion of emission avoidance and conservation enhancement, registries, authorisation of credits)
Technical expert dialogue on the three SBSTA working areas on Article 6.4 (inclusion of emission avoidance and conservation enhancement, registries, authorisation of credits)
CMA5/COP28 in Dubai. The Article 6.4 Supervisory Body will prepare recommendations on removals and methodologies for approval to CMA5.
Article 6.4 Mechanism
- Achieving Overall Mitigation of Global Emissions under the Paris Article 6.4 Mechanism (2019), by Wuppertal Institute
- Designing the Article 6.4 mechanism: assessing selected baseline approaches and their implications (2019), by OECD and IEA
- Best available technology and benchmark baseline setting under the Article 6.4 mechanism (2021), by Perspective Climate Group
- Private sector engagement in Article 6- A post-COP27 analysis (December 2022) by Philip Lee LLP
- Cooperative approaches or Article 6.4 mechanism: which of the Article 6 market mechanism will win the race to engage the private sector? (February 2023) by Holman Fenwick Willan LLP
- UN standard-setters turn their attention to carbon removal (Oct 2022), by Eve Tamme and Paul Zakkour
- COP27: Paving the way for the “removals COP” (Nov 2022), by Eve Tamme and Paul Zakkour
- EU and UN Kickstart Their Work on Carbon Removal for 2023 (March 2023), by Eve Tamme
- Challenges for Carbon Removal under the UN Standard (May 2023), by Eve Tamme
Mechanism established by Article 6, paragraph 4, of the Paris Agreement
Key Institutional Stakeholders
Additional StakeholdersThe Article 6.4 Supervisory Body Parties to the Paris Agreement The UNFCCC Secretariat, Mitigation Division Observer organisations in the UNFCCC
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.
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
Planned Commission adoption of the Communication, which will lay the foundation for a draft law setting the 2040 target
- Call for evidence for an impact assessment on the new EU climate target for 2040
- Letter from academics and climate experts urging European legislators to adopt separate targets for carbon removals
- 2023 — the Year of Shaping EU’s 2040 Climate Target, by Eve Tamme
- Scientific advice for the determination of an EU-wide 2040 climate target and a greenhouse gas budget for 2030–2050
- Carbon removal: the key to getting the 2040 climate target right
Key Institutional Stakeholders
European CommissionDG Climate Action (CLIMA), Unit A.2: Foresight, Economic Analysis & Modelling DG Climate Action (CLIMA), Unit A.1: Strategic Coordination, Legal & Institutional DG Energy (ENER), Unit A.4: Chief Economist Team DG Energy (ENER), Unit A.1: Interinstitutional, policy coordination and planning
Additional StakeholdersThe European Scientific Advisory Board on Climate Change will inform the Commission’s assessment of a suitable 2040 climate 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,
- 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) will vote its opinion on the file in September, followed by the Industry Committee’s (ITRE) deliberation on its position in October. The Council is due to agree on its negotiating position (general approach) by early December. Soon after, trialogues negotiations between the EU co-legislators are expected to kick off.
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. The STEP proposal will need to be approved by the European Parliament and Council.
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.
The Green Deal Industrial Plan Communication
European Commission legislative proposal on the Net Zero Industry Act (NZIA)
Publication of Draft Report by MEP Christian Ehler
Deadline for submission of amendments – ENVI Committee
Deadline for submission of amendments – ITRE Committee
Deadline to provide feedback to the Commission on the NZIA proposal
ENVI vote on Committee’s Opinion
ITRE Committee vote
Council to adopt its general approach
- The Green Deal Industrial Plan, European Commission
- Investment needs assessment and funding availabilities to strengthen EU’s net zero technology manufacturing capacity, Commission Staff Document
- Making good on the “net” in net zero: Carbon Gap reaction to the Net-Zero Industry Act, 2023
- European Commission Staff Working Document on the Net-Zero Industry Act
- Carbon Gap’s feedback to NZIA Consultation
Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on establishing a framework of measures for strengthening Europe’s net-zero technology products manufacturing ecosystem (Net Zero Industry Act)
Key Institutional Stakeholders
European CommissionDG Internal Market, Industry, Entrepreneurship and SMEs (GROW)
European ParliamentCommittee responsible: ITRE Rapporteur: Christian Ehler (EPP, DE) Shadow rapporteur: Tsvetelina Penkova (S&D, BG) Shadow rapporteur: Christophe Grudler (Renew, FR) Shadow rapporteur: Damien Carême (Greens/EFA, FR) Shadow rapporteur: Marc Botenga (GUE/NGL, BE) Shadow rapporteur: Paolo Borchia (Identity& Democracy Group, IT) Shadow rapporteur: Evžen Tošenovský (European Conservatives and Reformists Group, CZ)
Council of the European UnionCouncil configuration: COMPET
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.
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 emission 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 has been explored through a call for evidence published by the UK ETS Authority in 2022, the outcome of which is expected in 2023. 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.
Entry into force of Directive 2004/101/EC establishing a scheme for GHG emission allowance trading
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.
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.
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.
Current trading phase
Proposal for a revision of the EU ETS released as a part of the Fit for 55 package
Provisional agreement between co-legislators on the revision of the EU ETS
Commission’s report on the inclusion of negative emissions in the ETS expected
- Should negative emissions be included in the EU ETS? by Eve Tamme
- Review of the EU ETS, European Parliament briefing, 2023
Directive (EU) 2023/959 of the European Parliament and of the Council of 10 May 2023 amending Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union and Decision (EU) 2015/1814 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading system (Text with EEA relevance)
Key Institutional Stakeholders
European CommissionDG Climate Action (CLIMA) Unit B.1: Policy Coordination, International Carbon Markets DG Climate Action (CLIMA) Unit B.2: Implementation, Policy Support & ETS Registry
European ParliamentCommittee responsible: ENVI Rapporteur: Peter Liese (EPP, DE)
Council of the European UnionCouncil configuration: ENV
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:
- innovative low-carbon technologies and processes in energy-intensive industries
- carbon capture and storage (CCS)
- innovative renewable energy generation
- 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.
First auctions are expected in autumn 2023 and will be 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.
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 emission 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 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, e.g., various carbon farming and ocean-based approaches, enhanced weathering, or mineralisation.
Commission Delegated Regulation 2019/856 providing the overall framework for the Fund’s operation
First call for large-scale projects
Second call for large-scale projects
Third call for large-scale projects was launched.
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
The results of the third call for large-scale projects were published.
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.
Publication by the European Commissions of the Terms and Conditions of its first auction dedicated to the production of renewable hydrogen production in Europe
Deadline to submit projects to the third call for small-scale projects
Second Innovation Fund progress report expected
Commission Delegated Regulation (EU) 2019/856 of 26 February 2019 supplementing Directive 2003/87/EC of the European Parliament and of the Council with regard to the operation of the Innovation Fund (Text with EEA relevance.)
Key Institutional Stakeholders
European CommissionDG Climate Action (CLIMA) has overall responsibility for the Fund, including the volume and policy priorities of calls for proposals and adopting the award decisions. European Climate, Infrastructure and Environment Executive Agency (CINEA) runs the calls for proposals, evaluations, grant preparation and signatures and daily follow up of projects.
Additional StakeholdersEuropean Investment Bank (EIB) provides project development assistance. Innovation Fund Expert Group supports the preparation of the calls for proposals.
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 3 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: In the next steps, the European Parliament rapporteur on the file (MEP Lidia Pereira, EPP, PT) will prepare her initial report, and discussions in the Parliament and Council will continue.
- The draft report is expected to be voted on in the Parliament’s Environment committee in September 2023 and then in its October plenary session.
- In the Council, a general approach on the text among EU Member States is expected in Autumn 2023.
2023: The expert group on carbon removals 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.
2023: In parallel to the legislative process, work will be ongoing on detailed methodologies for different carbon removal activities that will be set out in 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 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.
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 removals 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 removals, 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.
Communication on Sustainable Carbon Cycles by the European Commission announcing the development of the framework
Proposal for the certification framework adopted by the European Commission
First meeting of European Commission expert group on carbon removals
The AGRI Committee (committee for opinion) adopted its opinion on the file
ENVI Committee vote on the adoption of the ENVI report
General approach expected to be reached by Member States in the Council
Development of methodologies for certification of different carbon removal activities
Trilogues between EU institutions and provisional agreement expected
Expected entry into force of the CRCF
Commission report expected on the potential inclusion of carbon storage in products in scope of the LULUCF Regulation
Commission will have to assess the potential inclusion of carbon removals with permanent storage in the EU ETS
- Communication on Sustainable Carbon Cycles, European Commission
- Impact assessment accompanying the CRCF proposal, European Commission
- A Union certification framework for carbon removals, European Parliament briefing, 2023
- Carbon Gap White Paper: A Guide to Certifying Carbon Removal, 2022
- Carbon Gap reaction to the European Commission proposal on carbon removal certification, 2022
Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL establishing a Union certification framework for carbon removals
Key Institutional Stakeholders
European CommissionDG Climate Action (CLIMA), Unit CLIMA C.3: Low Carbon Solutions (III): Land economy and carbon removals
European ParliamentCommittee responsible: ENVI Rapporteur: Lídia Pereira (EPP, PT) Shadow rapporteur: Tiemo Wölken (S&D, DE) Shadow rapporteur: Emma Wiesner (Renew, SE) Shadow rapporteur: Ville Niinistö (Greens/EFA, FI) Shadow rapporteur: Anna Zalewska (ECR, PL) Shadow rapporteur: Mick Wallace (GUE/NGL, IE)
Council of the European UnionCouncil configuration: ENV
In a Nutshell
The Directive for the substantiation of explicit environmental claims (Green Claims Directive) is a legislative proposal that aims to address and reduce greenwashing in consumer-facing commercial practices. It establishes minimum requirements on the substantiation and communication of voluntary environmental claims and labels that are not otherwise banned under the Directive on Empowering Consumers.
To make green claims (including climate-related claims) about the environmental footprint of their products, services, and operations, companies will need to comprehensively demonstrate environmental impact and performance by submitting recognised scientific evidence and the latest technical knowledge. The Directive establishes specific requirements for distinguishing claims on environmental performance from common practice, legal obligations, and from other traders or products.
Environmental claims and labelling schemes will be verified by independent accredited bodies before being put on the market. Member states will nominate a competent national authority to supervise this process, monitor and verify the claims and substantiations on a regular basis. This monitoring will help the Commission to evaluate where more specific requirements are needed and to implement delegated acts accordingly.
Climate-related claims such as net zero or carbon neutrality claims based on offsetting or carbon removal fall under the remit of this Directive. To substantiate such claims companies must report offsetting and emissions data separately, specify whether offsetting relates to emissions reductions or carbon removals, and explain accurately the accounting methodology applied. Once approved and when communicating to consumers, climate-related claims must be accompanied by additional information detailing the extent of reliance on offsetting and whether it is based on emissions reductions or removals.
What's on the Horizon?
The Green Claims proposal by the European Commission will now enter ordinary legislative procedure with the goal of reaching a formal adoption by the European Parliament and the Council.
2023-2024: The European Parliament and the Council will develop their positions separately.
- The Council adopted its negotiating mandate regarding the Directive on Empowering Consumers for the Green Transition on 3 May. The mandate outlines the Council’s position on this Directive which would lay the foundation for the Green Claims Directive.
- The European Parliament on 11 May adopted its position which sets stricter conditions than the Commission proposal and adds a definition of carbon offsetting.
- Negotiations between the Parliament and member states to find a middle ground are expected to start shortly. Complementing the Directive on Empowering Consumers, the Green Claims Directive will provide further guidance on the conditions to make substantiated environmental claims.
2024: Following trilogues between EU institutions, the Directive is expected to pass into EU law.
The Green Claims Directive complements the Empowering Consumers Directive published by the European Commission on 30 March 2022 within the EU Together, they aim to improve the circularity of the EU’s economy and achieve climate neutrality. They respectively set requirements to substantiate environmental claims made to consumers and and other commercial practices.
Apart from the French ministerial decree n°2022-538, the Green Claims Directive is a first of its kind in the specificity with which it regulates environmental claims and addresses climate-neutrality claims. The French decree regulates advertising claims based on emission compensation projects. It has different requirements surrounding emissions reporting, compensation data, and net zero plans.
The Green Claims Directive proposal addresses the issue of greenwashing, increasingly prevalent in recent years. It seeks to standardise environmental claims and labels to improve transparency and credibility for consumers. The proposal aims to use delegated and implementing acts in the future to address substantiation methodologies for specific product groups and evolving commercial practices.
The preamble of the proposal states that climate-related claims are prone to being unclear and misleading, as they are often based on offsetting greenhouse gas (GHG) emissions through carbon credits of low environmental integrity and credibility, generated outside the company’s value chain and calculated based on methodologies that vary widely in transparency, accuracy, and consistency. Offsetting can also deter traders from reducing emissions in their own operations and value chains.
However, credible net zero claims have the potential to incentivise and drive the development of safe, just and sustainable carbon removals to transition towards real climate neutrality. Claims based on offsetting must be regulated through a robust and science-based system to prevent greenwashing.
Room for improvement
Unfortunately, the Green Claims Directive as it currently stands does not establish the necessary measures to do so:
- The Directive does not align with scientific consensus as it allows offsetting through emissions reductions and avoidance to substantiate carbon neutrality claims. The IPCC’s definition of net zero is clear: balancing emissions with physical removals. Accordingly, offsetting projects that avoid emissions, but do not physically remove and store carbon, must be barred from use in substantiating claims about net climate impacts.
- The proposal rightly requires companies to report GHG emissions separately from offsetting data, to disclose the share of their total emissions that are addressed through offsetting and whether these come from emission reductions or removals. This isn’t enough to monitor whether the claimed climate impacts are real There is a need for more extensive disclosure on the types of carbon credits companies are purchasing (avoidance, reduction, removals), which emissions they are claiming compensation for, and the methodologies used to ensure integrity and correct accounting.
- The proposal allows all types of offsetting without any clear criteria for which emissions they can compensate for, nor which climate claims they can substantiate. However, not all carbon storage is equal in terms of capacity, duration or reversal risk. This means that long-lived fossil fuel emissions otherwise impossible to abate can only be balanced by removals with high-durability storage in the geosphere where the carbon came from. Lower-durability removal and storage of carbon into the biosphere must be accelerated for its own sake, to halt and reverse the loss of ecosystems and natural carbon stocks but cannot be eligible to compensate for fossil fuel emissions. Failing to enshrine this non-fungibility principle in EU law would allow companies to continue offsetting their long-lived emissions through shorter-term carbon storage with higher risks of reversal.
- Although the Directive encourages companies to use offsetting only for residual emissions, it provides no robust definition for what constitutes these residual or ‘hard-to-abate’ emissions. Without a sector-specific and measurable definition, companies can weaken emission cutting efforts by manipulating the boundary between ‘emissions that must be reduced’ and ‘emissions that physical removals can offset’. The EU will need to establish a transparent process for classifying emissions as difficult-to-decarbonise.
- The proposal excludes from its scope environmental claims and labels substantiated by rules in the Carbon Removal Certification Framework (CRCF). However, the proposal for the CRCF has no rules for claim substantiation. Instead, the Green Claims Directive could establish guardrails for legitimate net zero claims, which could be substantiated through the purchase of high-quality carbon removal credits certified under the CRCF.
The EU Circular Economy Action Plan sets out the plan to support the EU’s transition to a circular economy, including by protecting consumers
Impact assessment and public consultation on substantiating green claims
European Parliament resolution ‘Towards a more sustainable single market for business and consumers’
European Commission proposal for a Directive on Empowering Consumers for the Green Transition
European Commission proposal for Green Claims Directive
European Parliament adopts its position on the Directive on Empowering Consumers for the Green Transition
Deadline to provide feedback to the Commission on the Green Claims legislative proposal
- The EU Circular Economy Action Plan, European Commission
- Annual ‘sweep’: Screening of websites for ‘greenwashing’, European Commission
- Impact Assessment Report on Empowering Consumers, European Commission
- Recommendation on the use of the Environmental Footprint method, European Commission
- Strengthening climate-related claims: Carbon Gap response to the Green Claims proposal
- Corporate Climate Responsibility Monitor 2022, NewClimate Institute and Carbon Market Watch
- Greenwashing Factsheet, BEUC
- Sustainable consumption briefing, EPRS
Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on substantiation and communication of explicit environmental claims (Green Claims Directive)
Key Institutional Stakeholders
European CommissionDG Environment (ENV), Unit B.1: Circular Economy, Sustainable Production & Consumption
European ParliamentCommittee co-responsible: IMCO Co-Rapporteur: Andrus Ansip (Renew, EE) Shadow Rapporteur: Arba Kokalari (EPP, SE) Shadow Rapporteur: Laura Ballarín Cereza (S&D, ES) Shadow Rapporteur: Kim van Sparrentak (Greens, NL) Shadow Rapporteur: Carlo Fidanza (ECR, IT) Shadow Rapporteur: Anne-Sophie Pelletier (GUE/NGL, FR) Committee co-responsible: ENVI Co-Rapporteur: Cyrus Engerer (S&D, Malta) Shadow Rapporteur: Pernille Weiss (EPP, Denmark) Shadow Rapporteur: Emma Wiesner (Renew, SE) Shadow Rapporteur: Annalisa Tardino (ID, Italy Shadow Rapporteur: Petros Kokkalis (GUE/NGL, GR)
Council of the European UnionCouncil formation: ENV
In a Nutshell
The Directive on the geological storage of CO2 (CCS Directive) establishes a regulatory framework for the safe and responsible development and operation of geological carbon dioxide (CO2) storage in the EU. It applies to commercial scale facilities with a capacity of 100 kilotonnes per year (ktCO2/yr) or more.
One of the key elements of the Directive is a permit regime for CO2 storage. The rules set out minimum requirements for selecting CO2 storage sites to ensure there is no significant risk of reversal or damage to health or the environment. Operators are required to demonstrate financial security prior to injecting CO2 to cover potential liabilities and must closely monitor the sites during the operational phase to ensure long-term integrity and containment of stored CO2.
The Directive also introduces a liability mechanism in case of a reversal of CO2 out of storage, where the operator must take corrective measures. It also integrates CO2 storage into existing EU legislation. Environmental Liability Directive provides liability rules for environmental damage; and operators are included in the Emission Trading Scheme (ETS). If emissions are captured, transported, and stored in compliance with the CCS Directive, they are considered as not emitted under the ETS. In the case of reversal, ETS allowances must be surrendered. Liability for damage to health and property is left for regulation at Member State level.
The entire lifetime of storage sites is another key element. The Directive prescribes the decommissioning requirements for sites at and after closure and provides for the transfer of liabilities from the storage operator to the Member State 20 years after closure of sites.
While the CCS Directive was introduced to provide an enabling framework for carbon capture and storage (CCS), it governs any instance of geological storage of CO2. This includes the storage portion of any carbon dioxide removal (CDR) activities which store pure gaseous/supercritical CO2, e.g., bioenergy with carbon capture and storage (BECCS) and direct air capture with carbon storage (DACCS).
What's on the Horizon?
2023: The Commission is reviewing the CCS Directive’s implementation guidance documents to address the latest technical and market developments and remove the ambiguities identified during the implementation of the first CCS deployments.
2023: The Commission is expected to share the results of two studies on CO2 infrastructure, one analysing an outline of the CO2 transport and storage infrastructure in 2030 and 2040, and the other analysing the regulatory environment, which will inform the upcoming Communication on industrial carbon management.
June 2023: National Energy and Climate Plans (NECP) expected. The Commission has requested that Member States include a dedicated chapter on geological storage of CO2, addressing the need for CO2 capture in hard-to-abate industrial sectors, but also considering ongoing or planned biogenic carbon and direct air capture projects.
Q3-Q4 2023: Member States need to report to the European Commission on the implementation of the Directive by April 2023, which will be followed by the Commission’s fourth Implementation Report.
Q4 2023: A Communication on industrial carbon management is expected from the Commission in Q4, preceded by a public consultation (timing tbd). The strategy will address the prevailing lack of CO2 infrastructure development in Europe, and as such may intersect with the CCS Directive.
The CCS Directive was originally designed to assist the EU in meeting its CO2 reduction obligations through capture and geological storage of CO2. It is an essential tool to enable the activities for CO2 management and, as such, an important tool in the CDR regulatory toolkit.
The CCS Directive governs the geological formations in which carbon can be stored. Member States are required to cooperate with the Commission to establish maps of existing, potential, and closed geological storage sites. The Directive also requires operators and competent authorities to establish 3D dynamic models of storage complexes, including protected natural areas. These data offer a critical resource for developing Europe’s carbon management plans, including CDR.
Transborder CO2 movement
The Directive also includes provisions for the transport of CO2 across borders and for storage reservoirs which span multiple countries. This is an important base on which to develop a modular CDR ecosystem where facilities employing CO2 capture and storage sites might be located across Europe with CO2 transported across national borders.
The recent revision (2022) of the Trans-European Networks for Energy (TEN-E) Regulation, which identifies priority corridors and priority thematic areas to develop and interconnect, updated the infrastructure categories eligible for support allowing CO2 transport infrastructure to qualify as a Project of Common Interest (PCI). 14 such projects have already been submitted to the PCI selection.
The implementation of the Directive varies across Europe. In addition to the restrictions allowing CO2 storage only in geological formations which are permanently unsuitable for other purposes (see the EU’s Water Policy), Member States retain the right to not allow geological storage in parts or all of their territory (for example, Germany currently limits the amount of CO2 that can be geologically stored annually to 4 million tonnes and does not allow new demonstration projects to be approved, meaning there is no underground geological storage of CO2 taking place). CDR operators dependent on geological storage will have to navigate this fragmented regulatory landscape.
The information on the practical application of the Directive is limited, despite it being in force for more than 10 years. The uptake of CCS in Europe has been slower than predicted and the rules have not had the chance to demonstrate their effectiveness. The lack of CCS projects has largely been due to the low carbon price and absence of policy support measures to enable the deployment of CCS. Still, the Directive requires a rigorous reviewing process prior to permitting, which makes for intensive work on both storage applicants’ and the national authorities’ side. In any event, the European Commission’s upcoming strategic vision for CCS and CCU might yet provide the necessary fuel to jumpstart the industry and stress test the CCS Directive.
CCS Directive signed into law
Decision 2018/853 empowers the Commission to amend the Annexes of the CCS Directive via delegated acts to adapt to technical and scientific progress
Revision of the CCS Directive implementation guidance documents
Results expected from two studies on the CO2 transport and storage infrastructure and the regulatory environment, to inform the upcoming Communication on CCS and CCU
Member States will report to the Commission on the implementation of the CCS Directive
Member States will update National Energy and Climate Plans (NECP), with a dedicated chapter on geological storage of CO2
Fourth CCS Directive Implementation Report from the Commission
Expected publication of the Communication on CCS and CCU
- Carbon Capture and Storage, European Commission
- Implementation report of the CCS Directive, European Commission, 2019
- Identification and analysis of promising carbon capture and utilisation technologies, including their regulatory aspects, study for the European Commission, 2019
Directive 2009/31/EC of the European Parliament and of the Council of 23 April 2009 on the geological storage of carbon dioxide and amending Council Directive 85/337/EEC, European Parliament and Council Directives 2000/60/EC, 2001/80/EC, 2004/35/EC, 2006/12/EC, 2008/1/EC and Regulation (EC) No 1013/2006 (Text with EEA relevance)