The European Commission recently took an important step for the future of the bloc’s industrial competitiveness and climate ambitions by proposing to integrate high-integrity carbon dioxide removals (CDR) into its Emissions Trading System (ETS) for the first time. The proposal would allow up to 250 million tonnes of permanent, high-integrity domestic removal credits between 2031 and 2040 to be used for compliance.
This is a pivotal moment. How carbon removals are integrated into the ETS will not only determine how effectively Europe addresses residual emissions, but early design choices will lock in which carbon removal pathways scale, where capital flows, and whether Europe can build a competitive advantage in the sector.
The Commission has shown recognition that reaching net zero requires more than cutting emissions. Scientists around the world have made clear that removing carbon dioxide already in the atmosphere is necessary to counterbalance emissions from hard-to-abate sectors. But while the direction of travel is right, the current ETS integration of removals risks constraining the market before it has had the chance to mature.
A full portfolio of carbon removal pathways is essential to maximise the economic and climate benefits that carbon removal can bring to Europe.
A careful balance to encourage a level playing field
Under the proposal, the European Commission will purchase carbon removal credits, and sell an equivalent number of ETS allowances for companies to use to meet their compliance requirements. However, eligibility is currently limited to just two pathways: Direct Air Carbon Capture and Storage (DACCS) and Bioenergy with Carbon Capture and Storage (BECCS).
Both pathways have an important role to play and deliver many co-benefits. However, these are only two of the many pathways in the diverse portfolio of solutions needed to meet climate targets. Many private sector buyers already take a portfolio approach to carbon removal purchasing, and regulation should follow the same logic.
Restricting the market to two pathways risks slowing innovation and limiting the development of a broader, more competitive ecosystem of solutions. It’s premature to pick winners, and there are major benefits to a level playing field across pathways.
Just as renewable energy markets matured through a mix of technologies, carbon removals will need a diversified portfolio to drive down costs and accelerate deployment. By adopting a more technology-inclusive framework, the Commission can create the conditions for competition, innovation, and ultimately a more resilient and affordable market.
Europe already has the foundations of a technology-inclusive approach. The EU’s own Carbon Removals and Carbon Farming (CRCF) Regulation includes multiple, with methodologies for approaches like enhanced rock weathering under development.
However, it is crucial that as Europe’s carbon markets and infrastructure continue to evolve, the bloc invests in accelerating the pace of CRCF methodology development, as well as providing a clear path from the CRCF into the EU ETS. This would allow the compliance market to evolve as CDR pathways meet rigorous standards, rather than locking in a narrow set of approaches.
The reality of residual emissions
Even under the most ambitious decarbonisation pathways, some emissions will remain unavoidable, particularly in high-emission sectors such as steel, cement, and aviation. Carbon removals are not a substitute for emissions reductions, but an essential complement, enabling these industries to address what cannot be eliminated.
These residual emissions create a structural, long-term demand for carbon removals within the ETS. Without a scalable and cost-effective removals market, companies in these sectors will face increasing compliance costs with limited options to address them.
Building an EU carbon removals market also represents a significant economic opportunity. Some projections estimate that the market could be worth as much as $1.2 trillion by 2050, create high-quality jobs, spur investment for critical infrastructure, and demonstrate that climate ambition and industrial competitiveness can work in tandem.
Building confidence for private capital
Carbon removals face a challenge to scale through market forces alone. As with other climate technologies, early policy support is critical to create demand, de-risk investment, and give companies the confidence to deploy and commercialise new solutions.
Private capital will only flow toward carbon removal at scale if buyers have confidence in delivery. A technology-inclusive framework can strengthen delivery confidence rather than undermine it. A diversified portfolio spreads risk across technologies and project types, so the success of the compliance market does not hinge on the performance of a limited number of approaches. Paired with strong, independent verification standards, diversification and integrity work together, rewarding pathways proven to perform while giving buyers confidence in what they are purchasing.
Why competition matters for scaling carbon removals
Embracing a broader range of durable pathways can deliver high-integrity climate outcomes and economic value. This includes pathways that remove carbon dioxide from the land, air, and water, as varied as marine CDR to enhanced weathering.
Climate technologies become affordable through deployment. As solutions move from pilot projects to widespread use, costs fall, supply chains mature, and innovation accelerates. Battery costs, for example, have fallen 93% since 2010, and solar and wind followed similar curves as markets expanded. Carbon removal is unlikely to be different, but only if the market is structured to allow a range of pathways to compete and mature together.
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Countries that create clear, technology-inclusive market signals will be better positioned to attract investment, build domestic industries, and establish leadership in this race. Excluding promising pathways at such an early-stage risks narrowing the market before it has had the chance to mature, ultimately slowing innovation and the cost declines that follow from it.
Speed matters, since the countries building credible, technology-inclusive carbon removal markets first stand to attract the investment and industrial leadership defined in this decade. Europe has the industrial base, policy infrastructure, and scientific expertise to lead a market still taking shape around the world, and the ETS reform now determines how the bloc advances its role.
Editor’s Note: The opinions expressed here by the authors are their own, not those of Impakter.com — Featured Photo Credit: Guillaume Périgois.
