How the EU can utilize its carbon market to scale up carbon dioxide removal

Abstract

Novel carbon dioxide removal (CDR) technologies need to be ramped up rapidly to ensure the Paris goal can still be reached. Under the current geopolitical situation, many now expect the European Union (EU) to maintain and increase momentum in CDR deployment. While fiscal space is limited, the EU’s emissions trading system (ETS) offers a unique opportunity to provide CDR investors with long-term financial certainty. At the same time, CDR integration into the EU ETS comes with risks that may prevent the EU from taking this step. Using the numerical EU ETS model LIMES-EU, we show that the EU ETS could incentivize 68–86 Mt/year of bioenergy with carbon capture and storage (BECCS) and direct air carbon capture and storage (DACCS) combined by 2050. We discuss abatement deterrence in the context of an ETS and propose a sequencing approach for integration, which could minimize integrity risk while providing long-term prospects for CDR to scale.