EU's new carbon certification proposal

First, what is happening?

The European Commission (EC) has published their Proposal for establishing a Union certification framework for carbon removals.(Here is the press release and links to relevant documents). In simple language, the EC wants to create a single set of rules under which all EU carbon removal credits would operate.

How does the EU define carbon removals?

They acknowledge 3 main types:

• Carbon farming - including forest restoration, afforestation, and agricultural soil carbon
• Permanent storage - this includes things usually referred to as DACS (direct air capture and storage) and BECCS (bioenergy with carbon capture and storage)
• Carbon storage in long-lasting products and materials - this includes things sometimes referred to as “supply chain carbon”, such as building more houses out of wood.

Here is a handy graphic from the factsheet published by the EC:

What is the EC’s goal?

In their own words, the European Union wants “to ensure the high quality of carbon removals in the EU, and /…/ to establish an EU governance certification system to avoid greenwashing by correctly applying and enforcing the EU quality framework criteria in a reliable and harmonised way across the Union.”

These are laudable goals, and ones that we believe all serious participants in the carbon markets heartily agree with (certainly we at Arbonics agree!).

What will the new standard measure?

The EC has outlined four main criteria, referred to as QU.A.L.ITY:

In short, they want to ensure that any carbon removal is:

1. clearly & accurately accounted for
2. additional - i.e. captures more carbon than the “business-as-usual” scenario
3. backed with verifiable data on the duration of carbon storage - i.e. that any potential buyer can clearly understand for how long the carbon associated with particular certification is stored
4. supporting additional goals around ecosystem protection and restoration

It is particularly important that the Commission’s guidelines acknowledge the variability of each of these four criteria for different types of carbon removal.

For example, different types of carbon farming such as afforestation and soil carbon-friendly agriculture have very varying expectations around duration (where forests may be expected to lock carbon up for 60+ years, but soil carbon only perhaps 5-10 years). (Providing clear guidance around this helps ensure that both types of projects are encouraged (which is necessary to fulfil the overall goal of removing 310 Mt of CO₂ in the Land Use, Land Use Change and Forestry (LULUCF) sector) while still providing clarity for counterparties around what exactly they are buying.

Who will develop specific methodologies under the new standard?

In short, the EU will.

Here’s how they outline the process:

So, the EU develops methodologies - or more specifically, an Expert Group of around 70 experts, including “individuals with special expertise in the field of carbon removals, as well as representatives from academia, industry, civil society, Member States' competent authorities, and other public entities” will do so. They will meet twice a year, starting in early 2023.

So… what does this mean? Can we still run forest carbon projects?

In short - absolutely. This is a very positive sign that the EU is taking the voluntary carbon market (or at least the removal side of the market) very seriously and is looking to it to be a key player in developing the EU’s climate goals.

That is great news for project developers and landowners interested in participating in carbon projects.

Furthermore, even before the actual methodologies are published, the four QU.A.L.ITY criteria provide clear guardrails to create high-quality projects.

Are there any open questions to keep an eye out for?

While this initial publication by the EC does a great job of laying out the high-level goals and principles behind the planned unified standard, it does not yet lay out specific rules.

In particular, we will be eagerly awaiting more info on the following:

Establishing additionality

The proposal outlines a baseline-based approach, where “the baseline shall correspond to the standard carbon removal performance of comparable activities in similar social, economic, environmental and technological circumstances and take into account the geographical context.” How this will be implemented in practice remains to be seen.

How do legacy certifiers slot into this?

The likes of Verra and Gold Standard already run carbon standards and certification programs, as well as keep registries of credits. It is likely that they may join the EU scheme as operators; but whether that really happens remains to be seen.

How does the trading of these certificates work alongside the country-based emissions cap model?

The Proposal explicitly calls out that the certificates resulting from this new framework can be bought and sold on the voluntary carbon markets. However, it does not yet address questions around how that aligns with inter-country trading of carbon allowances (via ITMOs) as proposed by the Paris agreement. This is a highly complicated issue, and we expect reaching clear answers will take some time.