EU Carbon-Removal Rules Threaten Region’s Climate Targets

(Bloomberg) -- The European Union’s progress toward its climate targets risks being impaired by its latest guidance on carbon-removal credits, according to German research nonprofit Oeko-Institut.

The bloc plans to use the units, generated by projects such as sequestering CO2 by planting trees, to help meet its 2050 net zero emissions goal under the Paris climate agreement.

The European Commission’s draft methodologies, which focus on how peatland, forestry and agricultural projects can produce carbon-removal credits, fall far short of recently developed international standards, Lambert Schneider, research coordinator for international climate policy at Oeko-Institut, and his colleagues wrote in an article published Wednesday.

European officials are currently reviewing whether to allow companies to use the credits to meet part of their mandated-emissions caps, as part of a wider review of its Emissions Trading System due in 2026.

The report from Oeko-Institute follows an assessment by the European Commission that says European Union members are getting closer to their ambitious target of cutting greenhouse gases by at least 55% by 2030. Still, to meet the goals, the EU will need to significantly step up efforts in the next few years, including by implementing a robust carbon-removals framework. 

For now, however, the rules underpinning that framework don’t stand up to scrutiny, according to Oeko-Institute.

“If the European Commission doesn’t fundamentally improve these methodologies, the vast majority of [carbon-removal] units will not represent any actual emission reductions or removals,” the authors wrote. As it stands, the proposed certification framework “could seriously undermine EU climate action,” they said.  

A spokesperson for the European Commission said the methodologies’ process is “ongoing and inclusive,” involving an expert group on carbon removals. The goal is to “strike the right balance between the views of different stakeholders,” the spokesperson said. 

With global emissions cuts falling far short of targets, removing large quantities of CO2 from the atmosphere will be essential for the planet to avoid catastrophic levels of warming. But capacity to do so is just a fraction of what scientists say is needed.

The market for carbon credits – a mechanism for financing CO2 removals — has slumped from a peak in 2022 after a series of greenwashing allegations spooked buyers. While demand in the broader market is yet to materialize, carbon-removal credits have witnessed recent deals. Earlier this month, Microsoft Corp. signed a deal to finance the extraction of 18 million tons of carbon dioxide from the atmosphere. That follows a $160 million initiaitive by startup Chestnut Carbon in February to plant, restore and manage trees. 

To address the slump, industry groups have drafted guidance on generating credible units, while the United Nations has been designing a separate market under the Paris Agreement. But the European Commission’s proposed guidance sets “a considerably lower standard” than both of those plans, Schneider and colleagues wrote.

The shortcomings touch on a number of areas, according to Oeko-Institut. These include provisions for funding activities that have already taken place without the incentives carbon credits are designed to provide. They also provide for “considerable flexibility” in how CO2 removals can be quantified, which creates a risk of over-crediting projects, and fail to adequately prevent harmful activities simply relocating elsewhere, the researchers wrote.

Ultimately, “the revised methodologies aren’t fit for purpose and must be fundamentally improved” for the EU to deliver climate action, Schneider and colleagues wrote.

(Adds comment from Euopean Commission in eighth paragraph.)

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