Researchers propose a trading system for negative emissions

Researchers at IVL Swedish Environmental Research Institute have investigated the pros and cons of including credits in the EU Emissions Trading System. A report proposes an alternative approach: the continued allocation within the EU ETS of a limited number of emission allowances after 2040, and a separate system for negative emissions, not directly linked to the EU Emissions Trading System.

Negative carbon dioxide emissions are necessary for the EU to meet its climate targets. According to the EU Commission, approximately 350 – 400 Mt carbon removals will be needed in 2040 and 450 Mt in 2050, whereof 49-75 Mt permanent removals (Bioenergy Carbon Capture and Storage - BECCS, and Direct Air Carbon Capture and Storage - DACCS) will be needed to 2040 and 125 Mt in 2050.

No later than 31 July 2026, the European Commission will examine whether and how credits representing carbon removals can be integrated into the EU ETS emissions trading system.

In the EU today, there are almost no incentives to produce negative carbon removal. The appeal of including credits is that it seems to solve two problems with a single instrument. The first problem is producing a large amount of negative emissions, and the second is giving participants in the EU ETS the opportunity to use credits when the allocation of emission allowances approaches zero in 2039, says Lars Zetterberg, climate policy expert at IVL Swedish Environmental Research Institute.

At the same time, he maintains that there are a few problems with including credits in the EU ETS. It could lead to participants buying credits instead of reducing emissions or overusing biomass resources, which are needed for several purposes, such as carbon storage in forests, as raw materials in industry and for the production of renewable fuels for shipping and aviation.

It is true that these problems can be addressed by introducing restrictions on the type and number of credits that may be used. But other problems remain. Over the next five to ten years, the price of emission allowances will be too low to finance the technology required for BECCS and DACCS. In addition, large amounts of negative emissions will be needed after 2050 to achieve net negative emissions. It is unreasonable to expect the participants in the EU ETS alone to bear the cost of all this, says Lars Zetterberg.

Instead, he proposes that a separate negative emissions system be introduced in the EU, aimed at creating negative emissions consistent with the EU's needs over time.

For the second challenge – meeting the EU ETS participants' needs for emission allowances – we propose that a limited amount of emission allowances be sold to participants even after 2040. The proceeds from this sale may be sufficient to finance the total need for permanent carbon removal in the EU, i.e. 50-75 million tonnes in 2040, says Lars Zetterberg.

Download the report: An EU Removals Target and Trading System for Carbon Dioxide External link, opens in new window.

Questions? Please contact:
Lars Zetterberg, lars.zetterberg@ivl.se, tel. +46 (0)10-788 65 57