Explanatory Memorandum to COM(2022)672 - Union certification framework for carbon removals - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2022)672 - Union certification framework for carbon removals. |
|---|---|
| source | COM(2022)672  |
| date | 30-11-2022 |
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
Limiting the global average temperature increase to below 1.5 °Celsius (C) will require deep cuts in global greenhouse gas (GHG) emissions throughout the forthcoming decades. To achieve this, first we need to improve the efficiency of our buildings, transport modes and industries, to move to a circular economy, and to massively scale up renewable energy. Second, we need to recycle carbon from waste streams, from sustainable sources of biomass or directly from the atmosphere, to use it in place of fossil carbon in the sectors of the economy that will inevitably remain carbon dependent, for instance through carbon capture and use (CCU) and sustainable synthetic fuels. In parallel, increasing amounts of carbon dioxide (CO2) will have to be captured and removed each year from the atmosphere by carbon farming and industrial removal activities or projects to compensate hard-to-abate emissions from sectors like agriculture, cement, steel, aviation or maritime transport, with the view to reach climate neutrality.
At a global scale, the latest report 1 by the International Panel on Climate Change (IPCC) point towards a decreasing likelihood of limiting global warming to 1.5°C unless rapid GHG emission reductions occur. The IPCC report clearly states that ‘the deployment of carbon dioxide removal to counterbalance hard-to-abate residual emissions is unavoidable if net zero CO2 or GHG emissions are to be achieved’. This will mean the large-scale deployment of sustainable activities for capturing CO2 from the atmosphere and durably storing it in geological reservoirs, terrestrial and marine ecosystems, or products.
The European Climate Law 2 provides for the EU to become climate neutral by 2050. This requires that GHG emissions are significantly reduced, and that the unavoidable emissions and removals should be balanced within the European Union at the latest by 2050, with the aim to achieve negative emissions thereafter. To achieve this objective, both natural ecosystems and industrial activities should contribute to removing several hundred million tonnes of CO2 per year from the atmosphere. Today and with current policies, the EU is not on track to deliver these quantities: carbon removals in natural ecosystems have been decreasing in recent years, and no significant industrial carbon removals are currently taking place in the Union.
In line with the scenarios assessed by the IPCC, the European Commission has announced in the Circular Economy Action Plan 3 from March 2020 that it will develop an effective certification framework for the certification of carbon removals to incentivise the uptake of carbon removal and to increase circularity of carbon, in full respect of the biodiversity and the zero-pollution objectives.
The main objectives of this initiative are: (i) to ensure the high quality of carbon removals in the EU, and (ii) 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 actions are necessary to trigger action in the deployment of carbon removals and to build any future policy in this area, in view of the need to remove hundreds of million tonnes of CO2 per year. This will support the achievement of the 2050 climate neutrality objective set in the European Climate Law, as well as the other environmental objectives of the European Green Deal Communication 4 .
• Consistency with existing policy provisions in the policy area
Under the proposal for amending the Regulation on Land Use, Land Use Change, and Forestry (LULUCF) 5 , the European Commission proposed – for the first time – a separate land-based net removals target of -310 million tonnes of CO2 -equivalent by 2030. The EU-wide target is to be implemented through binding national targets for the LULUCF sector, requiring Member States to step up ambition for their land use policies. This proposal enables to channel more effective and result-based support toward carbon farming activities that can contribute to the achievement of this target. The Commission has also proposed to increase the size of the Innovation Fund 6 , which is financed by the revenues from the EU Emissions Trading System (EU ETS) 7 , thereby helping businesses invest in innovative clean technologies, including those generating carbon removals.
The 2021 Commission’s Communication on Sustainable Carbon Cycles 8 stresses the importance of enabling a business model that rewards land managers for carbon sequestration in full respect of ecological principles (i.e. ‘carbon farming’), and of creating an EU internal market for capture, use, storage and transport of CO2 through innovative technologies. The communication also defines an action plan to achieve the following aspirational goals for carbon removals: by 2028, all land managers should have access to verified emission and removal data to measure carbon farming practices, and all CO2 captured, transported, used and stored through industrial activities should be reported and accounted; by 2030, carbon farming approaches should contribute to reaching the LULUCF target of -310 Mt CO2 eq net removals; and industrial technologies should remove annually at least 5 Mt CO2 eq by 2030.
This proposal is also in line with the final Proposals of the Conference on the Future of Europe 9 , in particular Proposal 1 that explicitly aims to ‘Introduce a certification of carbon removals, based on a robust, solid and transparent carbon accounting’ (measure 5). Furthermore, the 2022 Communication on Greening the Commission 10 announced that, in addition to the ambitious set of GHG reduction actions, the Commission will have to rely also on carbon removal to neutralise unavoidable emissions and achieve net zero GHG emissions by 2030.
The certification framework described in this proposal is designed to build on the following existing climate change legislation:
• The directive on the geological storage of CO2, called CCS Directive 11 , establishes the overall legal framework for the environmentally safe geological storage of CO2. Activities storing CO2 from an ETS installation in a storage site permitted under the CCS Directive are explicitly included in the EU ETS Directive and EU ETS allowances must be surrendered in the event of CO2 leakages. The proposed certification framework will ensure that the quantification of carbon removals for industrial activities such as bioenergy-based CCS (BECCS) 12 and Direct Air Carbon Capture and Storage (DACCS) is in line with the rules set out in the Commission Implementing Regulation (EU) 2018/2066 13 on the monitoring and reporting of GHG emissions under the ETS and the detailed EU methodologies developed by the Commission 14 for the quantification of GHG emission avoidance of BECCS and DACCS projects under the Innovation Fund 15 .
• For carbon farming and carbon storage products, the LULUCF Regulation 16 provides a blueprint for accurate monitoring and reporting of carbon removals in line with IPCC guidelines, and in synergy with policies on biodiversity, zero pollution, renewable energy and climate adaptation. The rules laid down under the LULUCF Regulation encourage monitoring land use in a geographically-explicit way, at low cost and in a timely fashion, for example through digital databases, Geographic Information Systems (GIS) and remote sensing, including the Copernicus Sentinel satellites and services (e.g. Climate and Land Services), or commercially available services.
• Consistency with other Union policies
The EU certification framework on carbon removals will either build on or play an important role to enable the following Union policies:
• The proposed Nature Restoration Law 17 sets out the goal that 20% of the EU’s land and sea should be covered by restoration measures by 2030 and that all ecosystems in need of restoration should be covered by restoration measures by 2050. There are many synergies among carbon removal activities, particularly carbon farming, and nature restoration measures. The proposed certification framework for carbon removals will contribute to achieve the restoration targets and fulfil the obligations set out in the Nature Restoration Law. For instance, carbon farming activities that enhance carbon storage can contribute to meeting the obligation to ensure an increasing trend at national level of the stock of organic carbon in forest ecosystems and in cropland mineral soils in agricultural ecosystems. They can also support the obligation to put in place restoration measures for organic soils in agricultural use constituting drained peatlands. The proposed Nature Restoration Law and this proposal will therefore reinforce each other, contributing to both climate and biodiversity policies.
•
• The Common Agricultural Policy (CAP) provides for support to farmers who commit to undertake specific environmental and climate practices or investments. This policy also includes some environmental and climate conditions (called Good Agricultural and Environmental Conditions, GAECs) to be respected by farmers when receiving CAP income support. These conditions go beyond statutory requirements. Certain conditions are relevant for sequestration and carbon protection in soil such as in grassland and peatland. In addition, the CAP can help with the uptake of certification by covering upfront investments and by promoting relevant practices at farm level. The EU carbon removal certification framework will contribute to improving the GHG quantification of supported practices and GHGs inventories of national land sector. Through voluntary markets development it can ensure longer-term protection of carbon stocks and actions in land not supported by the CAP. Public certification schemes, developed by Member States, could apply for EU recognition under this proposal in order to implement the EU carbon removal certification framework, including the certification methodologies laid down in this proposal. Furthermore, this proposal will allow disclosing non-CO2 emission reductions as co-benefits of carbon removals.
• The Renewable Energy Directive 18 includes a set of sustainability criteria for bioenergy, which are implemented by either national competent authorities or private certification schemes recognised by the Commission. These schemes could potentially certify also the compliance of carbon removal activities with the quality criteria for carbon removals presented in this proposal.
• The EU Forest Strategy 19 sets out the policy framework to deliver growing, healthy, diverse and resilient EU forests, which contribute significantly to our biodiversity ambition, increase removals by natural sinks, secure livelihoods in rural areas and beyond and support a sustainable forest bioeconomy that relies on most sustainable forest management practices.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
The proposal is based on Article 192(1) of the Treaty on the Functioning of the European Union (TFEU), which gives the Union the right to act in order to achieve objectives of its policy on the environment. The objectives of the Union policy on the environment as defined in Article 191(1) of the TFEU include, inter alia, preserving, protecting and improving the quality of the environment; a prudent and rational utilisation of natural resources and promoting measures at international level to deal with regional or worldwide environmental problems, in particular combating climate change.
• Subsidiarity (for non-exclusive competence)
Climate change is a trans-boundary problem. Its effects are global, irrespective of the location of the sources of greenhouse gas emissions. Therefore, these challenges cannot be solved by national or local action alone as this is unlikely to lead to optimal outcomes. Coordination at the European level enhances climate action and can supplement and reinforce national and local action effectively; EU action is justified on grounds of subsidiarity, in line with Article 191 of the Treaty on the Functioning of the European Union.
A European framework would be more appropriate than national initiatives in addressing the difficulty to assess the quality of carbon removals. Such framework would create a level-playing field within the internal market for the certification of carbon removals, enhancing comparability and trust. A patchwork of national initiatives in this area would only exacerbate the problem rather than solving it.
• Proportionality
This proposal complies with the proportionality principle because it does not go beyond what is necessary in order to achieve the objectives of establishing a Union certification framework for high quality carbon removals. It provides for quality criteria for carbon removals, the necessary rules and procedures for certifying and verifying carbon removals and a framework for recognition of private and public certification schemes.
• Choice of instrument
The objectives of the present proposal can best be pursued through a Regulation. This will ensure direct and uniform applicability of the provisions in the Union at the same time. Requirements are placed on operators of voluntary certification schemes, on Member States in view of recognition of public certification schemes and on the Commission regarding reporting and review.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
• Ex-post evaluations/fitness checks of existing legislation
Contents
• Stakeholder consultations
In line with the Better Regulation guidelines, a number of consultation activities took place:
• An online conference on Sustainable Carbon Cycles which took place on 31January 2022;
• A call for evidence running from 7 February until 2 May 2022, which received 231 responses;
• An open public consultation running from 7 February until 2 May 2022, which received 396 responses.
Overall, the public consultation activities demonstrated strong general support for a regulatory initiative covering the creation of a certification framework for carbon removals. Most stakeholders advocated for the initiative to cover a wide range of carbon removals options and to take into account aspects such as: ensuring precise, accurate and timely measurement for removals; ensuring that strong action to reduce emissions is not undermined by shifting focus on carbon removals; providing sufficient guarantees for the duration of carbon storage and the prevention of reversals.
The main criteria that stakeholders considered important for carbon removals included the robustness of monitoring, reporting and verification aspects, the potential for deployment at large scale, technical readiness and economic feasibility, and the potential for environmental co-benefits. The majority of respondents agreed that establishing a robust and credible certification system for carbon removals was the first essential stepping stone towards achieving a net contribution from carbon removals in line with the EU climate-neutrality objective.
Respondents indicated that the key objectives for the certification of carbon removals should be: allowing comparability and competition between different carbon removals activities; increasing the transparency and levelling the playing field of voluntary carbon markets; and, providing better public incentives for nature-based and industrial carbon removals within EU and national funding programmes.
According to the majority of respondents, the role of the EU should be to establish comprehensive quality requirements for carbon removals, ensuring correct quantification of carbon removals, additionality, long-term storage and environmental sustainability. A summary of the findings from the stakeholder consultations are presented in Annex 2 of the Impact Assessment to this Regulation.
• Collection and use of expertise
An external consortium of experts was tasked to carry out a technical assistance study to inform the preparation of the proposed Regulation on carbon removals and the related impact assessment. The study delivered a review of existing mechanisms and schemes for the certification of carbon removals and a synoptic assessment of the various carbon removal activities, including permanent removal, carbon storage products and carbon farming. On behalf of the Commission, the external consortium organised a number of outreach events, including the Conference on Sustainable Carbon Cycles, and helped assessing the replies to the stakeholder consultation. Finally, the technical assistance study provided part of the data underpinning the analysis of the policy options set out in the impact assessment.
• Impact assessment and opinion of the Regulatory Scrutiny Board
The Impact Assessment accompanying this proposal assessed different policy options to address three main problems impacting the future development of carbon removals.
The first problem is the difficulty to assess and compare the quality of carbon removals, which creates significant search costs for potential financiers of carbon removals. This is a typical ‘market failure’, which creates a risk that financial support goes to carbon removal activities that cannot be relied upon as effective mitigation actions. This problem has two drivers:
1. The certification of carbon removals is much less common than that of emission reductions, and it involves several methodological challenges. Different certification schemes propose different methodologies to quantify total and additional carbon removals, to incentivise the long-term storage of carbon, and to encompass broader sustainability aspects such as the environmental impacts (e.g. biodiversity loss, pollution etc.) of the carbon removal activity.
2. Carbon removal activities (i.e. permanent removal, carbon storage products and carbon farming) are very heterogeneous in terms of their maturity, cost-effectiveness and related monitoring costs, and pose different challenges for certification.
To address this problem, this initiative aims to guarantee the quality of all carbon removals certified in the EU through certification methodologies that are tailored to the specific circumstances of different carbon removal activities.
To this end, this initiative proposes an EU certification framework for carbon removals based on four quality criteria (hereafter called QU.A.L.ITY), indicating how to ensure QUantification, Additionality and baselines, Long-term storage and sustainabilITY. The Impact Assessment identifies a number of best practices for each of those QU.A.L.ITY criteria, while recognising that the certification approach for each criterion will differ across carbon removal activities.
In a second step, detailed certification methodologies to implement the QU.A.L.ITY criteria across the different carbon removal activities will have to be developed. In this step, specific rules will be tailored to the characteristics of the different types of carbon removal activities: for instance, the rules will recognise the strong guarantees for permanence offered by solutions storing carbon in geological formations, while enhancing co-benefits for carbon farming activities. In this respect, the Impact Assessment compares two Quality options:
• Option Q1: certification schemes develop methodologies in line with the QU.A.L.ITY criteria and submit them for recognition to the responsible public authority;
• Option Q2: the Commission develops the methodologies in close consultation with an expert group.
The analysis concludes that option Q2 has the largest potential to guarantee the quality of carbon removals and to ensure their comparability, while minimising the administrative costs of developing or approving detailed certification methodologies.
The second problem is that many stakeholders do not trust carbon removal certificates because certificates may be generated through non-transparent and unreliable certification processes which certify activities that are not delivering true climate and sustainability benefits. To tackle this problem, certification schemes should put in place transparent and robust rules and procedures to mitigate the risks that the certification process is not able to detect low-quality removals, that the carbon removal activities are not actually delivering the removals as planned, and that the same activity is certified twice, or that the same certificate is used twice.
The third problem is that the providers of carbon removals face barriers to access finance. This problem is driven by the fact that there is a wide variety of ways to use carbon removal certificates (e.g. public funding, corporate sustainability reporting, eco-labels, voluntary carbon markets etc.). This diversity creates transaction costs for those that want to have their carbon removal activity certified, such as search costs (the time and effort spent to understand the quality of the certification procedures of a given scheme) and switching costs (the cost of trying to raise other complementary or alternative types of funding, which is likely to require changing their operations and providing a different set of evidence and information).
To address the second and the third problems, certification schemes should comply with harmonised certification requirements to ensure transparency and build trust:
1. Scheme management: certification schemes should be operated on the basis of reliable and transparent procedures (e.g. internal management and monitoring, complaints and appeal management, stakeholder consultation, transparency and publication of information, etc.);
2. Independent verification: the compliance of the carbon removals with the QU.A.L.ITY criteria should be verified by third-party auditors; and,
3. Full disclosure: all information on the certified carbon removals should be publicly available and traceable through public registries.
In line with these transparency criteria, a process to recognise certification schemes is set out and only recognised certification schemes can be used by operators (i.e. owners of carbon removal activities) to demonstrate compliance with the QU.A.L.ITY criteria and the relevant certification methodologies.
In this context, the Impact Assessment compares two Governance options as to who would be responsible for recognising certification schemes: the Member States (option G1) or the Commission (option G2). The analysis concludes that option G2 performs best in terms of guaranteeing a robust and harmonised certification process and promoting the internal market for carbon removal certification, while minimising the administrative costs for public authorities.
In conclusion, the preferred policy option is one where the Commission: (i) develops certification methodologies, in consultation with experts and stakeholders; and (ii) harmonises the implementation of the certification framework and the QU.A.L.ITY criteria through recognised certification schemes.
In the Impact Assessment, the Commission also assessed the consistency of the proposal with the objectives set out in the European Climate Law, as provided for in Article 6 i of the European Climate Law. The Commission found that carbon farming approaches can help to achieve the separate 2030 target proposed for the LULUCF sector with the Fit-for-55 legislative package (-310 Mt CO2 eq), therefore exceeding the contribution of LULUCF carbon removals to the -55% economy-wide target established in the European Climate Law (capped at -225 Mt CO2 eq). The European Climate Law also includes a target for the Union to become climate-neutral by 2050 and to achieve negative emissions thereafter, but the Union needs to increase the uptake of carbon removal activities to achieve this objective. The Impact Assessment analyses policy options to address the barriers that undermine the uptake of effective carbon removal activities, that should not deter action to reduce greenhouse gas emissions.
The Regulatory Scrutiny Board provided a positive opinion on the Impact Assessment and provided a list of recommendations to improve the report in view of better demonstrating that the absence of a reliable certification framework represents the main obstacle to the development of carbon removal activities as well as of better presenting transparently all policy choices regarding the methodology and governance.
The following aspects were consequently integrated in the finalised version of the impact assessment report:
• in the introduction, the context of the initiative (i.e. role of carbon removals in the 2050 climate neutrality objective and in the current policy baseline) and the voluntary nature of the initiative were made clearer;
• in the problem definition, new references have been added to confirm the existence and the scale of the identified problems (in particular the lack of trust) and to highlight the importance of internationally harmonising framework in the views expressed by stakeholders;
• in the section about objectives, it was clarified that the shortlisting of the four QU.A.L.ITY criteria follows a general consensus about what constitutes high-quality certification according to most existing certification methodologies, and the presentation of the criteria in the section describing the policy options now includes more arguments from the dedicated annexes;
• to take into account the voluntary nature of the framework, several clarifications were added (e.g. the objective of “level-playing field” has been rephrased as “harmonisation”);
• the section about discarded policy options better explains why a mandatory use of the certification framework policy was discarded;
• the section on the assessment of the impacts cites the voluntary nature as a risk that could undermine the success of the initiatives, and measures to mitigate this risk;
• the assessment of policy options better identifies the barriers to upscale of carbon removal activities, and explains how the certification framework will address these barriers; this section also clarifies the uncertainty related to the qualitative statements about expected benefits and costs;
• the section on the one-in-one-out approach has been moved from an annex to the main text;
• the section on monitoring and evaluation of the initiative includes more elaborated operational objectives.
• Regulatory fitness and simplification
• Fundamental rights
4. BUDGETARY IMPLICATIONS
Major budgetary implications for the Union concern the preparation of the non-legislative acts and operation of the Expert Group on Carbon Removals.
The proposal provides for a number of delegated and implementing acts to be prepared in parallel following the entering into force of the proposed Regulation. Most importantly, it will be necessary to adopt delegated acts setting out the certification methodologies for different carbon removal activities (e.g. for permanent removal, carbon farming and carbon storage products).
For the preparation of these highly technical non-legislative acts, the Commission will be assisted by an Expert Group on Carbon Removals. The Group will include approximately 70 members and could involve a number of sub-groups, including additional expertise. It will be operated by the Commission with the help of an external contractor.
In addition, budgetary implications for Commission are associated to the recognition process of public or private certification schemes that would be responsible to implement the certification framework in one or more Member States. Budgetary implications are also foreseen for those Member States that intend to establish and operate a national certification scheme, including the supervision of independent certification bodies and the establishment and operation of a national registry.
The legislative financial statement shows the detailed budgetary implications and the human and administrative resources required by this Proposal.
5. OTHER ELEMENTS
• Implementation plans and monitoring, evaluation and reporting arrangements
In accordance with the Better Regulation guidelines published in November 2021 and in particular tool 38, the Commission will draw up an implementation strategy after the legislative proposal has been adopted by the co-legislators. It will present the different compliance promotion tools to be used and will include aspects related to digital implementation.
• Detailed explanation of the specific provisions of the proposal
The provisions and structure of the proposed Regulation corresponds to the objective of the initiative to create a transparent and credible certification framework for carbon removals with high climate and environmental integrity, in order to support physical and legal persons that are willing to make the extra effort, beyond reducing as much as possible their GHG emission, and bring their activities to the level of sustainability, within the context of the increased climate ambition stated in the European Green Deal and the objective of the 2050 climate neutrality set out in the European Climate Law.
The key provisions of the proposed Regulation are the following:
The objective and scope of the Regulation is defined in Article 1. This proposal aims to facilitate the deployment of high quality carbon removals through a voluntary Union certification framework. This Article also defines the overall structure of the proposal, which consists of three pillars: the first sets out the four quality criteria, the cumulative compliance of which makes the carbon removals eligible for certification. The second pillar determines the key elements of the verification and certification process. The third pillar provides rules for the functioning of the certification schemes that are responsible for implementing the Union certification framework.
Article 2 provides for the key terminology necessary to complete the provisions of the proposed Regulation, in particular the definitions of carbon removals and carbon removal activity.
Article 3 identifies the two conditions for carbon removals to be eligible under the Union certification framework: first, to be generated by carbon removal activities that meet the quality criteria; and, second, to be verified by an independent certification body.
The first pillar of the proposed Regulation is defined in Articles 4 to 8. Article 4 establishes rules for the quantification of the net carbon removal benefit against a baseline, whereas Articles 5, 6 and 7 set out the quality criteria on additionality, long-term storage and sustainability of carbon removal activities. Article 8 provides the empowerment for Commission delegated acts, which will establish tailored certification methodologies for the assessment of compliance with the quality criteria. Annex I lists the elements to be included in those certification methodologies.
The second pillar of the proposed Regulation regarding the certification of compliance is set out in Articles 9 and 10.
Article 9 defines the key elements of the certification process which is composed of two steps. In an initial stage, an operator submits comprehensive information concerning the carbon removal activity and its expected compliance with the quality criteria to a certification body. The certification body carries out an audit to verify the operator’s claims, issues a certification audit report and – if the quality criteria are met – a certificate.
In a second stage, the certification body carries out a re-certification audit to verify that the carbon removal activity has been implemented correctly and in full compliance with the quality criteria, and issues a re-certification audit report and an updated certificate, on the basis of which the certification scheme issues and registers the certified carbon removal units. Annex II lists the minimum information to be included in the certificate.
Article 10 sets minimum conditions for certification bodies to ensure their competence to carry out the certification audits and their independence and impartiality. It also sets an obligation for the Member States to supervise the operation of certification bodies.
The third pillar regarding the certification schemes is determined in Articles 11 to 14. Article 11 sets the obligation for operators to use certification schemes, recognised by the Commission, to demonstrate compliance with the quality criteria. This article lays down also a number of requirements for the functioning of the certification schemes, including measures to ensure the good governance, transparency, and accountability.
Article 12 imposes the obligation for certification schemes to set up and maintain public registries for evidence of carbon removal activities and carbon removal units. It is of key importance that registries use automated systems and are interoperable in order to prevent fraud and avoid double counting.
Article 13 provides the legal basis for the recognition of certification schemes through Commission decisions and Article 14 prescribes reporting requirements on certification schemes.
Article 18 provides for a review of the Regulation: for a first time three years after its entering into force and not later than by the end of 2028, and then at regular intervals after each stocktake exercised as laid down in the Paris Agreement.