EU signals importance of carbon dioxide removals with new draft regulation

Key Contact: Philip Lee – Partner and Executive Chairman  |  Alice Whittaker – Partner  |  Lev Gantly

On 30 November 2022, the European Commission published its plans for establishing a Carbon Removal Certification Framework (“CRCF”) to quantify, certify and monitor carbon removals, and outlined how the corresponding governance system will operate.  If approved by the EU Parliament and Member States, the draft regulation establishing a Union certification framework for carbon removals (“Draft Regulation”) will result in the formation of the first government-backed voluntary certification scheme for carbon removals.  The implications of this for project developers in Europe are significant as the CRCF will provide a route to market for projects relating to soil carbon sequestration, kelp forest carbon sequestration and direct air capture, amongst others.

Why are carbon removals part of the EU’s climate agenda?

By issuing the draft CRCF, the Commission is responding to the clear message from the IPCC’s latest report that the deployment of carbon dioxide removal (“CDR”) “to counterbalance hard-to-abate residual emissions is unavoidable if net zero CO2 or GHG emissions are to be achieved”.  In other words, the EU’s commitment to achieve climate-neutrality by 2050 necessarily involves deploying nature-based and technological CDR at scale – without CDR, net zero cannot be achieved[1].

The lack of a unified CDR certification framework has led to an increasingly complex international market for removal credits, with supply and availability falling far short of demand from corporates and governments. The CRCF proposal, applicable across the EU, will set the benchmark for coordination of emerging regulatory regimes.

Scope of the Draft Regulation

The scope of the Draft Regulation is the establishment of a voluntary Union framework for certifying carbon removals. The Commission will bear most of the heavy lifting in its implementation, establishing criteria for carbon removal activities, adopting methodologies for their certification and verification and governing the operation of certification schemes.

By certifying projects through a central certification system, the CRCF aims to accelerate the adoption of high-quality carbon removal technologies and address increasing worries about greenwashing in this emerging market.

Certification methodologies

To be certified, projects must satisfy the QU.A.L.ITY eligibility requirements laid out in Articles 4 to 7 of the Draft Regulation. These criteria include measurable quantification of removal, demonstrable additionality, distinguishing long-term storage, and support for sustainability initiatives like biodiversity, climate change mitigation, or circular economy.  For better or worse, the Commission has not cross-referred the sustainability co-benefits to the United Nations Sustainable Development Goals.

The methodologies that the different carbon removal projects would be certified against are yet to be defined.  Article 8 tasks the Commission with developing these tailored certification methodologies with support from an expert group, set to begin work in Q1 2023.

In what some consider to be a pioneering move, the EU is the first national or regional authority to define “additionality” in the context of carbon removal projects.  By this definition, a prospective project must demonstrate that it would only “take place due to the incentive effect of the certification” and that “it goes beyond Union and national statutory requirements”. However, the Draft Regulation does not specify what those statutory requirements are, as many national requirements are yet to be established.

Certification Bodies/ Schemes

Articles 9, 10 and 11 of the Draft Regulation outline how the certification scheme will operate, proposing certification audits, verifications and periodic re-certification audits carried out by certification bodies.  The certification bodies will be subject to Member State supervision; though who will be responsible for operating these bodies is yet to be determined.

Market feedback

Definition of Carbon Removals

Article 2 proposes the following definition of carbon removal:

“Carbon removal means either the storage of atmospheric or biogenic carbon within geological carbon pools, biogenic carbon pools, long-lasting products and materials, and the marine environment, or the reduction of carbon release from a biogenic carbon pool to the atmosphere”.

This formulation has caused a degree of consternation in the market, particularly due to the variability and nature of permanence across the referenced sequestration solutions. Carbon Market Watch has validly commented that the grouping together of three carbon removal activities, despite the variance in durations these activities store carbon for, is problematic. Other commentators have remarked that embracing both relatively non-permanent nature-based solutions and more permanent solutions (such as geological storage) without defining quality creates the risk of projects with unproven feasibility and viability being certified.  

Questions have also been raised regarding “reduction of carbon release” forming part of the definition of carbon removals.  Providing a role for emission reductions from biogenic carbon pools, for example for activities that avoid further forest conversion, is not aligned with the IPCC’s definition of a carbon removal. Critics warn that diverging from this definition risks bifurcation and potentially isolating the EU from global markets.  It will be interesting to observe how this definition evolves in the lead up to COP28 in Dubai next year, in parallel with the continued discussion of whether avoidance and REDD+[2] projects more generally will be recommended to form part of the Article 6 market mechanisms by the UNFCCC’s Subsidiary Body for Scientific and Technological Advice.

Use-case for removal credits

Another criticism has centred around the voluntary nature of the proposed CRCF and the lack of guidance for the use and retirement regimes of credits once they are issued for a project.  The concern is a familiar one – credits will be purchased and retired by polluters, extending the lifespan of their polluting assets.  This is where clarity by the Commission around the interaction of the CRCF with other schemes, such as the EU ETS, will be key.  Guidance from initiatives such as the Voluntary Carbon Markets Integrity Initiative will need to consider the integration of the credits from the certification schemes to be developed under the CRCF into its Claim Code, which is due to be published next year[3].

Conclusion

Despite the issues identified above as well as some missing detail (which, it is hoped, will be provided during the consultation phases scheduled for 2023), it is important to stress that the CRCF represents a critically important building block for scaling the carbon removal market. As the first policy of its kind driven by a government body, the CRCF may provide a foundation for compliance markets to embrace carbon removal. The EU is responding to the much-needed urgency in unlocking routes to market and finance for removal projects which are critical to achieving its 2050 net-zero target.

 

[1] IPCC Working Group III (2022), Technical Summary.  In: Climate Change 2022: Mitigation of Climate Change.  Sixth Assessment Report.

[2] REDD+, Reducing Emissions from Deforestation and forest Degradation, plus the sustainable management of forests, and the conservation and enhancement of forest carbon stocks, is a framework created by the UNFCCC Conference of the Parties (COP) under Article 5 of the Paris Agreement.

[3] The VCMI is developing guidance on defining an acceptable and meaningful approach to offsetting in the context of a company’s overall decarbonisation strategy, in an effort to provide transparency on the demand side of the voluntary carbon market. Its Provisional Claims Code (which has recently undergone public consultation) aims to provide guidance to buyers of offsets on what is appropriate from a claims perspective with reference to the buyer’s strategy and the type of credit being procured.

 

For further information in relation to this article please contact Philip Lee, Alice Whittaker or Lev Gantly.

 

News and insights

Peter Crawford

Peter Crawford

It is with great sadness that we announce the unexpected and tragic passing of our colleague and dear friend Peter Crawford. Peter was with the firm for almost ten years, joining as an intern and most recently becoming a senior associate. He was an excellent lawyer...

read more
Share This