The EU Emissions Trading System is entering a new phase. As part of its work towards a 2040 climate target, the European Commission has proposed a set of reforms that would, for the first time, bring domestic permanent carbon removals and high‑integrity international credits inside the ETS architecture.
According to analysis of the proposal, the EU would integrate up to 250 million tonnes (Mt) of domestic permanent carbon removals into the ETS between 2031 and 2040. These removals would come from projects certified under the forthcoming Carbon Removal Certification Framework (CRCF), focusing on biogenic carbon capture with storage (BioCCS) and direct air carbon capture with storage (DACCS). Nature‑based removals are explicitly excluded from this first phase, with a review planned before the end of 2034.
The proposal would allow the Commission to purchase certified removal units and add them to the ETS cap on a one‑for‑one basis, issuing an equivalent number of allowances for auction. Additional allowances – potentially up to 10 million – could be allocated to bridge the price gap between removal units and standard EU allowances. This design preserves the integrity of the overall cap while providing a dedicated revenue stream to scale durable removals.
In parallel, the Commission proposes to set aside up to 260 Mt of allowances to fund the purchase of high‑quality international credits, likely sourced through mechanisms aligned with Article 6 of the Paris Agreement. These credits could cover up to around 5% of the ETS‑sector contribution to the 2040 target, easing the required domestic emissions reduction from 90% to 85% compared with 1990 levels. A “fallback” clause would tighten the domestic target back to 90% if sufficient high‑integrity credits are not available.
For carbon market participants, this package represents a structural shift. Removals and international credits are no longer peripheral voluntary tools; they become integrated into the cap trajectory, with clear quantity limits and quality controls. That could create more predictable demand for permanent removals, while also signalling that only the highest‑integrity international credits will qualify.
There are, however, important design questions still to be resolved. Policymakers will need to define how CRCF methodologies interact with ETS rules, how to avoid double counting with national inventories, and how Article 6 authorisation and corresponding adjustments are handled. Stakeholders are already debating whether the balance between domestic action and international flexibility is appropriate, and how the package interacts with CBAM, free allocation reforms and industrial decarbonisation plans.
For companies covered by the ETS, the message is two‑fold. First, direct decarbonisation remains the priority, as removals and credits are strictly capped and reserved for hard‑to‑abate residual emissions. Second, corporates with exposure to durable removals or high‑integrity credit supply chains may see new opportunities – but only if they can meet stringent integrity criteria and withstand regulatory scrutiny.
As negotiations progress, sustainability and finance teams should track how volume limits, eligibility rules and timelines evolve, and consider how integrated removals and credits might affect long‑term ETS price expectations and compliance strategies.
Source: European Commission EU ETS revision documents and analytical summaries of the carbon removals and international credits proposal.