Carbon Removal Compliance – EU vs. US Frameworks

Carbon Removal Compliance Frameworks in the EU and US

Table of contents

In a Nutshell

Carbon dioxide removal (CDR) will be a necessary service to the global community but, unlike other types of clean technologies, does not have a ready market with built-in demand. It is a public good with dispersed benefits that does not have inherent monetary value and can therefore be compared to a waste disposal service.

As such, voluntary markets will not be enough to drive sustained demand for CDR over the long term. Compliance regimes – government policies that set mandated emissions reductions and/or removal targets – will likely be needed to drive long-term demand by creating an obligation that creates demand and supply for such activities.

The most common example of a compliance regime is emissions trading, or cap-and-trade systems, such as the European Emissions Trading System (EU-ETS). These systems are regulated at the sub-national, national or international level and set an upper limit on emissions from certain sectors, which is reduced over time to reach zero eventually. These systems allow for the trading of emissions allowances or credits amongst the covered entities to achieve that goal. Since some activities are difficult to decarbonise fully, CDR will be needed to neutralise these remaining emissions, also known as residual emissions, either through some form of integration in an ETS or through other types of compliance regimes that directly mandate or incentivise the purchase of CDR. To avoid carbon removal being used to offset avoidable emissions, or to postpone necessary emissions reductions to the future, a compliance framework will need to carefully consider the risk of mitigation deterrence and design the policy to reduce this risk.

While ETSs are a common type of compliance regime today, they are just one example of a policy that could help ensure demand for CDR. Integrating CDR into existing compliance regimes or new, separate compliance policies, could be done in different ways. For instance, a carbon takeback obligation, which has been proposed but not yet enacted, would oblige fossil fuel importers/extractors to permanently sequester carbon dioxide equivalent to an increasing portion of the emissions generated by their products. Mandatory CDR targets could also be set at the national level, for instance through the EU’s Effort Sharing Regulation. Alternatively, targets could be set for companies, such as in California’s proposed SB308, where companies would have an increasing obligation to neutralise their remaining emissions with CDR. The way that CDR is scaled using compliance policies, be they existing or new, CDR-specific, compliance regimes, can vary depending on the political context, policy goals, and emissions profile, among other factors.

How could CDR be integrated into ETSs?

There are different degrees to which CDR could be integrated into ETSs: fully, partially or indirectly. CDR could also have its own compliance regime, separate from emissions reduction requirements, rather than being directly integrated into an ETS.

If CDR is fully integrated into an ETS, that means one tonne of CDR would be fungible with, or equivalent to, one tonne of reduced emissions. This approach has raised concerns, since emissions reductions and removals are not always equivalent in terms of their climate impact and cost, as well as in terms of other non-climate impacts. Treating them as interchangeable could present a risk of mitigation deterrence or the use of carbon removal to avoid reducing emissions, undermining the ETS’s purpose of reducing emissions. Furthermore, if both lower- and higher-durability removals were to be included as compliance options in an ETS, polluters would likely purchase the most affordable option, which is often lower-durability land-based carbon sequestration. Purchasing only lower-durability carbon removal to compensate for fossil emissions would be problematic since such approaches do not sequester CO₂ permanently and are often more difficult to measure and verify. To mitigate this risk, regulators could decide to only allow certain types of removal into the ETS, or only allow long-duration removals to compensate for fossil emissions, thereby applying the like-for-like principle. For example, since most ETSs cover fossil fuel emissions, only permanent CDR could be allowed to neutralise those fossil emissions. However, it should be noted that under either approach, the full integration of carbon removal units into an ETS could potentially undermine the effectiveness of an ETS in reducing emissions.

Partial or conditional integration of carbon removal into an ETS could take several different forms. As one option, regulators could limit the quantity of removals allowed, relative to emissions reductions, and could also reduce the overall emissions cap to maintain the initial level of ambition. Another option could be to have a stock of CDR units that are released only when certain conditions are met, such as when prices of emissions allowances rise unexpectedly above a certain ‘ceiling price’. Finally, a conversion factor could also be introduced, where one CDR unit would be equivalent to less than one emission allowance. Even with the use of these above options, mitigation deterrence could still be a risk if the level of residual emissions that must be counterbalanced with CDR is not well defined to inform the relative level of CDR in the ETS, such that carbon removal could take the place of emissions reductions. Another issue is establishing the appropriate levels of a ceiling price or a conversion factor, to reap the benefits of CDR integration without deterring emissions reductions.

CDR could also be indirectly included in an ETS, where revenues generated by auctioning emissions allowances could be used to fund permanent removals, which could take place via the EU Innovation Fund for instance. This form of integration would significantly lower the risk of mitigation deterrence, as the emissions reduction and removal efforts would be strictly separated. It would also provide support for permanent removals in the short term, as they are still much more expensive than emissions allowances.

Alternatively, a parallel removal trading system could be put in place, which would be entirely separate from the ETS. It would obligate covered entities to perform or purchase an increasing number of CDR units to neutralise their emissions. Having a separate system could be in line with a recommendation for separate carbon removal and emissions reduction targets, which has been put forward by several academics and civil society organisations. Entities could also trade CDR units among themselves. A key difference among these options is that when carbon removal is integrated into an ETS as one option for compliance, the level of carbon removal scale-up that will happen is uncertain, whereas, with a separate compliance market for CDR, certain scale up levels can be set beforehand and met in a predictable manner.

What’s on the Horizon?

Europe:

The European Commission is due to release a report by July 2026 about how negative emissions could potentially be covered by EU emissions trading. In parallel, it is also exploring other types of compliance frameworks for CDR, such as developing a separate removal trading system (RTS).
Carbon Gap released its EU CDR Strategy on 19 March 2024, in which it details how compliance frameworks for CDR could and should look like.
The United Kingdom is going ahead on its own, as the UK ETS Authority has already identified the UK ETS as a suitable long-term market for “greenhouse gas removals” (GGR). The UK is currently reviewing under which conditions CDR integration could take place.

United States:

The Carbon Dioxide Removal Market Development Act (SB308) was introduced in the California state legislature in 2023 but did not pass; a revised version is expected to be introduced in 2024This bill would a new mechanism under which greenhouse gas emitters would be required to purchase increasing levels of carbon dioxide removal through 2045, proportional to their remaining emissions, as they also reduce emissions to meet the state’s net zero target in the same year. As written, SB308 would be the first policy to require corporate purchase of CDR, as opposed to government procurement, which is being piloted in the U.S. and has been proposed in several other policies.

International:

The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) is a global offsetting scheme for reducing international aviation emissions. A pilot phase ran from 2021-2023 and in 2024, the programme entered phase 1. Participation is currently voluntary, so countries can choose to opt in or not. However, when a country opts in, national airlines must comply with the scheme, making it a hybrid voluntary-compliance scheme. Participation in the next phase, beginning in 2027, will be mandatory for airline operators in all countries that have not been exempted from the scheme. Airlines have three options to comply with the obligations set by the scheme: reduce operational emissions, use sustainable aviation fuels and use CORSIA-approved carbon credits. CORSIA-approved carbon credits can include reduction or removal credits.
Article 6.4, also referred to as the Paris Agreement Crediting Mechanism, will create a global carbon market, where emissions reduction and carbon removal credits can be traded internationally. It will be overseen by a United Nations Supervisory Body. Ahead of COP28, the Supervisory Body agreed on recommendations for CDR methodology guidelines, which set practical standards for carbon crediting methodologies under Article 6.4. No agreement on Article 6.4 was reached at COP28, so Article 6.4 is not operational yet. Negotiations around the mechanism and its methodology guidelines will resume at COP29.

Deep Dive

Comparison of US and European compliance frameworks:

Key similarities	There is a growing recognition among policymakers and civil society groups in both the EU and the US that creating long-term durable demand for carbon removal to reach the scale we expect to need to meet global climate targets will require CDR to be included in either existing or new, dedicated compliance mechanisms.
Key differences	The U.S. does not have a national level emissions trading system like the EU does but does have state and regional level emissions trading schemes. Politically, establishing CDR compliance regimes may be more difficult in the U.S., where incentives rather than mandates have so far been used to scale CDR.
	United States	Europe
Main actors involved	There is no federal compliance standard, so state-level agencies such as California’s Air Resources Board, are the most relevant actors.	European Commission: (Norway and Iceland directly participate in the EU-ETS; the Swiss ETS is linked to the EU-ETS, therefore Switzerland follows the EU) UK: UK ETS Authority
Approach	In general, the US’ prevailing approach to CDR scale-up is to provide incentives for demonstration and deployment, rather than imposing regulatory compliance. DAC is included under California’s and Washington state’s low carbon fuel standards, which are compliance regimes, and California’s cap-and trade allows for forestry-based carbon removal in its offset programme.	In the EU, integration of CDR into the ETS has been highlighted as one of the ways to both address very high EU Allowance prices following the cessation of issuance of new emissions allowances and create a long-term market for CDR. Other types of long-term compliance policy frameworks for CDR are also being explored in parallel. The EU LULUCF Regulation provides some sort of land compliance policy by allowing limited trading between member states.

Europe

Following the latest revision of the EU-ETS Directive, policymakers accelerated the rate of decline in the trajectory of the ETS cap. If the current rate of phasing out of emissions allowances is maintained, it is estimated that by 2038-2039, no new allowances will be issued, resulting in increasing prices and tightening supply. As part of the revision of the directive, the EU Commission must also report by July 2026 on how emissions removed from the atmosphere could be potentially covered by the ETS. Alongside the development of this report, the EU Commission signalled in the Industrial Carbon Management Strategy (ICMS) that it might explore alternatives to ETS integration, such as a removal trading system (RTS) and/or other types of long-term compliance integration. An RTS would oblige a set of entities to perform or purchase a minimum and increasing volume of CDR units to neutralise their remaining emissions. to neutralise their remaining emissions.

Alongside the development of the discussions around a potential ETS/RTS, CDR could be integrated into other pillars of the EU climate compliance framework. The Effort Sharing Regulation could serve as the basis for distributing CDR targets to member states to ensure climate neutrality is reached by 2050. The ESR could also be used to set removal targets beyond 2050, setting targets higher than countries’ residual emissions to deliver net negative emissions for the EU.

The Carbon Border Adjustment Mechanism (CBAM), which puts a price on the embodied carbon of some carbon-intensive goods entering the EU, could be another candidate policy into which CDR could be integrated. It could work either by allowing CDR to neutralise some emissions during the production process, or by allowing importers of non-EU goods to neutralise some of the embodied emissions of the imported products by purchasing CDR.

Outside of the EU, the UK ETS Authority has recently announced the decision that it considers the ETS to be an appropriate long-term market for engineered greenhouse gas removals (GGR – the UK uses this term instead of CDR). The UK will continue its work on developing a robust MRV regime in parallel. The ETS authority is also considering whether the UK ETS might also be a suitable long-term market for “high-quality nature-based GGRs”, for which further public consultations will be held.

United States of America

In the Unites States, cap and trade policies only exist at state or regional levels, but not yet at a national level. California has had a cap-and-trade policy since 2013 as well as a more targeted compliance policy for emissions intensity of transportation fuels, called the low carbon fuel standard (LCFS), which has been in place since 2011. California’s cap-and-trade programme allows for forestry-based offsets (both removal and reduced emissions) as a compliance mechanism, limiting the relative number of offsets that can be used. While no other types of carbon removal are allowed under cap-and-trade today, the California Air Resources Board has the discretion to add such protocols in the future.

California’s LCFS does include direct air capture under its purview since 2019. DAC projects where captured CO₂ is used for production of synthetic fuels can receive credits, as well as DAC projects that store captured CO₂ underground. For the former, produced synthetic fuel must be sold in California, and for the latter, DAC plants can be located anywhere and receive the credit. While the direct air capture credit under California’s LCFS has yet to be claimed, it was cited as a factor for DAC companies to begin commercialising in the United States. Washington state, and New Mexico also have similar LCFS programmes to California. Washington’s ‘Clean Fuels Standard’ was established in 2021 and allows for the generation of credits from direct air capture projects. New Mexico’s HB 41 mentions “removal of greenhouse gas emissions”. In these schemes, DAC or CDR more broadly is one compliance option to meet an overall target but is not directly mandated to reach a certain scale.

One example of a state-level policy that would mandate the purchase of carbon removal was introduced in California in 2023 and passed the Senate, but not the Assembly, so is on hold as of March 2024. Known as the Carbon Dioxide Removal Market Development Act (SB 308), the policy would require emitting entities to purchase increasing levels of carbon removal proportional to their level of emissions – for example, companies would need to buy carbon removal equivalent to 1% of emissions in 2030, 8% in 2035 up to 100% in 2045, when the state has committed to net zero. California has a legal target of 85% emissions reductions to meet net zero goals by 2045, meaning that if both targets are met, CDR would only be allowed to provide 15% of the overall mitigation to help meet the state’s climate goals. SB308 is expected to be re-introduced in 2024, in a revised form.

The other emissions trading scheme in the United States, the Regional Greenhouse Gas Initiative, which covers power sector emissions from eleven states in the Northeast, does not include carbon removal as an offsetting option.

Summary and Reflections

With its Carbon Removal Certification Framework (CRCF) in the final stages of development, the EU now has a union-wide mechanism in place to assess what activities are recognised as carbon removal. While it is not yet clear whether the CRCF will be used as the quality benchmark for determining the inclusion of CDR into EU compliance policies, it is very likely. On the one hand, the EU is aware that tightening the cap on EU-ETS allowances will likely result in very high prices once no new allowances are issued (current projections by 2038/2039). In that context, CDR integration in the EU-ETS could allow for an easier road towards this “ETS endgame”, by allowing polluters additional flexibility to neutralise the very last hard-to-abate emissions. The EU-ETS could, under certain strict conditions, be a suitable mechanism for providing a long-term market for CDR. However, the EU-ETS’ prime function is to bring covered emissions to zero, not to provide a stable, long-term market for CDR and could pose risks of mitigation deterrence if not done correctly. Consequently, the EU is also looking at other types of long-term CDR compliance integration, such as a potential RTS.

In general, the United States’ policies for carbon removal have been focused on providing incentives for scaling different technologies through support for research, development, demonstration and deployment. Politically, especially at the federal level, it is more difficult to enact mandatory or compliance regimes for climate mitigation activities in the United States. State-level compliance schemes are beginning to include carbon removal, particularly DAC, in ways that provide incentives for its scale-up. Much more work is needed to lay the groundwork for compliance policy in the U.S. – including to identify policy options, understand legal pathways, and shift political discourse on compliance options.

Contributors

Katie Lebling, Associate II, Carbon Removal and Industrial Decarbonization, World Resource Institute

Danielle Riedl, Research Analyst II, Industrial Innovation & Carbon Removal, World Resource Institute

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Last updated: 15 Oct 2025

This deep-dive is part of our EU-US comparison. For other comparisons, see our full list of thematic EU-US comparisons