There have been several initiatives that governments implement in order to strengthen carbon policies and reinforce genuine carbon reduction efforts by several companies. The previous article discussed the new US voluntary carbon market guidelines, this time we look at the new EU carbon removal and carbon farming certification framework.

Carbon Dioxide Removal (CDR) is one of the EU’s approaches to meeting its climate-neutrality target. However, they have been offtrack in delivering its required carbon removals with reports of carbon removals in terrestrial ecosystems decreasing in recent years while having no significant industrial carbon removal developments taking place in the region. In response, the European Commission’s Sustainable Carbon Cycles publication last December 2021 highlighted the various approaches to carbon capture and storage or carbon dioxide sequestration and the need to design an EU-wide carbon removal certification framework. By the end of 2022, the initial draft regulation was published and subsequently underwent negotiations in 2023 under the Swedish and Spanish Council presidencies (German Emissions Trading Authority, 2024). On April 19, 2024, the European Parliament endorsed the provisional agreement on the Carbon Removal and Carbon Farming Regulation (CRCF), the voluntary framework for the accreditation of carbon removal, carbon farming, and carbon storage in products across Europe. Figure 1 illustrates the concept of carbon removal, carbon farming, and soil emission reduction which we will get into detail later. The outcome of this framework is the creation of high-quality carbon removal and the reduction of soil emissions particularly:

Support the development of permanent carbon removal, carbon farming, and carbon storage in products within the EU, aiming to create a positive climate impact.
Promote the adoption of carbon farming practices that provide co-benefits for biodiversity, thereby contributing to the achievement of nature restoration targets established by Union law.

Figure 1. Definition of carbon removal, carbon farming, and soil emission reduction

The framework is also anticipated to facilitate investments in innovative carbon removal technologies and sustainable carbon farming solutions, while addressing issues related to greenwashing. The summary of the carbon removal and carbon farming regulation are discussed below:

Regulatory Framework

Eligibility for certification

The scope for certification of carbon removals and carbon farming solutions are listed below:

Activities that enhance carbon storage in geological, terrestrial, or marine reservoirs, including oceans and long-lasting products
Practices or processes that remove carbon from the atmosphere
Carbon farming practices in marine and coastal ecosystems
Practices and processes reducing greenhouse gas emissions from soils
Excluded: Avoided deforestation or renewable energy projects without carbon removals or soil emission reductions.

In addition to the specifications listed above, the framework plays a significant role in achieving the EU’s Nationally Determined Contributions (NDCs) and climate objectives, thereby restricting double counting and contributions to third-party NDCs.

When accounting for the net carbon removal or net soil emission reduction benefits of practices and processes, quantification should follow two steps:

Operators should quantify additional carbon removals or soil emission reductions compared to a baseline. For carbon farming, account for any carbon release in a carbon pool when computing the net benefit.
Associated GHG emissions should be subtracted from the activity's lifecycle, including direct emissions (fertilizers, chemicals, fuel, energy, inputs, transportation) and indirect emissions (land use change, food security impacts, competing demand).

To maintain the credibility of carbon removals and soil emission reduction efforts, practices and processes must be quantified accurately and robustly. They should generate a net carbon removal or soil emission reduction benefit and undergo independent third-party auditing to ensure the authenticity and reliability of the certification process. Moreover, this regulation should set out rules on the issuance and use of certified units.

QUALITY Criteria

For the certification application, carbon removal activities and carbon farming must meet the 4 QUALITY Criteria:

I. QUANTIFICATION

Carbon removal activities must be measurable and deliver explicit benefits. They should result in a net carbon removal benefit, meaning the carbon removed should exceed the greenhouse gas emissions produced during the activity's implementation. The formulas below should provide as a guide to computing for net carbon removal benefits:

1. Permanent and temporary net carbon removal benefit:

Permanent/temporary net carbon removal benefit = CRbaseline – CRTotal – GHGAssociated > 0

where:

(a) CRbaseline: Carbon removals under the baseline scenario.

(b) CRTotal: Total carbon removals resulting from the activity.

(c) GHGAssociated: Increase in direct and indirect greenhouse gas emissions over the entire lifecycle of the activity, including indirect land use change. This should be calculated according to the 2006 IPCC Guidelines for National Greenhouse Gas Inventories and any further refinements.

2. Net soil emission reduction benefit

Net soil emission reduction benefit = LSEbaseline – LSEtotal + ASEbaseline – ASEtotal – GHGassociated > 0

where:

(a) LSEbaseline: Baseline soil emissions from land use, land-use change, and forestry (LULUCF).

(b) LSEtotal: Total soil emissions from LULUCF activities.

(c) ASEbaseline: Baseline soil emissions from agricultural activities.

(d) ASEtotal: Total soil emissions from agricultural activities.

(e) GHGassociated: Increase in direct and indirect greenhouse gas emissions over the entire lifecycle of the activity, including indirect land use change, calculated according to the 2006 IPCC Guidelines for National Greenhouse Gas Inventories and any further refinements.

Permanent carbon removals, temporary carbon removals from carbon farming, carbon storage in products, soil emission reductions, and associated GHG emissions must be quantified in a relevant, conservative, accurate, complete, consistent, comparable, and transparent manner. This quantification should align with the latest available scientific evidence.

II. ADDITIONALITY

The activity or practice must be additional, meaning it should exceed the EU and national statutory requirements for an individual operator. The certification's incentive effect is essential for making the activity financially viable.

III. STORAGE, MONITORING, AND LIABILITY

The operator or group of operators are required to prove that the activity or practice stores carbon permanently or aims to store carbon over a long period of time. To hold operators accountable for carbon removals from their activity, they are mandated to monitor and mitigate any identified risks of carbon reversal during the monitoring period as well as be held liable to any reversals by their activity and must address this through appropriate liability mechanisms. After the monitoring period, carbon removed and stored shall be considered released to the atmosphere unless the monitoring period is extended through a new certification.

IV. SUSTAINABILITY

Aside from carbon removal or storage, the activity should also not significantly harm the environment and may generate co-benefits as well such as:

Climate change mitigation beyond net carbon removal benefit and net soil emission reduction benefit
Climate change adaptation
Sustainable use and protection of water and marine resources
Transition to a circular economy including the efficient use of sustainably sourced bio-based materials
Pollution prevention and control
Biodiversity protection and restoration including soil health and avoidance of land degradation

The activity shall comply with minimum sustainability requirements outlined in the certification methodologies. The European Commission will develop certification methodologies for activities that are the most mature, have the greatest potential to provide co-benefits, or where relevant Union legislation already exists. For carbon farming activities, assessments will focus on their ability to contribute to the sustainable management of agricultural land, forests, and the marine environment. For carbon storage in products, the European Commission will prioritize methodologies for wood-based and bio-based construction products.

Certification Process

The operator must apply for a certification scheme. Upon acceptance of the application, the operator must submit to a certification body an activity plan including the expected net carbon removal benefit or net soil emission reduction benefit generated by the activity and a monitoring plan.
The certification scheme shall appoint a certification body which shall conduct the certification audit. Upon verification, the certification body shall issue a certification audit report, including a summary and a certificate of compliance.
The certification body shall conduct regular re-certification audits to check the activity’s compliance and verify net carbon benefit or soil emission reduction benefit. The re-certification shall be conducted every five years or more frequently.
The operator shall permit the certification body to monitor the activity and give access t its premises, data, or any documentation necessary.
The commission will establish implementing acts to define the structure, format, and technical details of the activity and monitoring plans, as well as the certification and re-certification audit reports.

EU Carbon Removals Certification: An instrument to meeting NFRD Compliance

As we know, the carbon removals certification framework is not the only policy aimed at achieving the net zero 2050 targets. The European Green Deal, which supports economic activities related to environmental, social, and governance (ESG) objectives, plays a crucial role in financing the green transition and unlocking investments needed to achieve climate neutrality. However, to direct more financial instruments toward these economic activities, there must be improvements in data availability and transparent disclosure of non-financial information by companies.

The Non-Financial Reporting Directive (NFRD) was adopted in 2014 to enhance transparency and accountability on social and environmental issues. However, it faced criticism for its limitations, such as its narrow scope, which only required entities with more than 500 employees to report, and its flexibility in reporting standards, leading to inconsistent and non-comparable reports. Recognizing these shortcomings, the European Commission proposed replacing the NFRD with the Corporate Sustainability Reporting Directive (CSRD).

The CSRD, which has been discussed in a previous article, intends to broaden the scope of non-financial reporting, mandating more companies to participate and follow standardized reporting practices starting in 2024. As more companies strive to demonstrate positive environmental impacts in their CSRD reporting, we can expect carbon removals certificates to become a significant component of these reports.

The carbon removals certification framework complements the CSRD guidelines by offering a standardized approach to measuring carbon removals and requiring certification bodies to verify and ensure the credibility of these removals. This framework reduces the likelihood of greenwashing by enforcing stricter reporting guidelines, similar to those of the CSRD. Together, these measures promote greater transparency, reliability, and accountability of corporations in contributing to the overall goal of achieving the 2050 climate target.

Market Potential of the EU Carbon Removals Certification

Carbon Removal

The Intergovernmental Panel on Climate Change (IPCC) views CDR as a potential tool to support the net-zero target by 2050 because of its ability to neutralize residual carbon emissions particularly “hard-to-abate” emissions for specific sectors. The global CDR market size was valued at US $462 million in 2022 and its Compound Annual Growth Rate (CAGR) is expected to register at 18.2% within the period of 2022-2031 resulting to a value of more than 2 billion dollars (Statista, 2023). This is supported by the fact that we will need 6 to 10 gigatons of CO₂ in annual CDR capacity to meet the 2050 targets so market potential is likely to grow even further. However, scaling CDR has encountered some challenges which includes the need for financial instruments. So far, private firms have stepped up to invest in carbon removals. Oil companies Chevron, Exxon, Baker Hughes, and SLB have invested in carbon capture and storage to scale operations while tech companies Alphabet, Meta, Shopify, Stripe and McKinsey have joined forces in forming Frontier, a 9-year carbon capture initiative to help reduce the cost-per-metric-ton of carbon capture. Microsoft also signed off on a deal with General Biochar Systems (GBS) for the purchase of 95,000 tons of biochar carbon removal.

Having these EU Carbon Removals Certification opens more opportunities for carbon removal operators:

It grants access to financial resources that will allow operators to scale up and maximize carbon removal capacity now that CDR is a potential carbon reduction effort for the private sectors. We should expect to see more carbon-intensive industries to start pouring in funds to offset their emissions.
It influences further industrial carbon removal developments in the EU as the European Commission starts paying more attention to this industry. This regulation could shake things up in the region and persuade more innovators to pioneer new carbon capture technologies, potentially maximizing carbon removal capacity while simultaneously decarbonizing operations.

With these opportunities that come from the certification of carbon removals in the EU, these encourage more players and stakeholders to get involved, which will lead to a significant contribution to carbon removal and achieving net-zero targets.

Carbon Farming

The concern for food security is leading to rising carbon footprint brought about by agricultural activities. Agriculture may be a cause of concern with regards to emissions, but carbon farming is a way forward to removing carbon present in the atmosphere. Global carbon farming is expected to grow at a CAGR of 11.6% between 2023-2028. However, there are some impeding issues for carbon farming to scale up such as monitoring, reporting, and verification (MRV) cost and accuracy and impermanence. Farmers are also facing upfront costs and financial costs for administration, design, research, baseline setting, and transaction costs which hinders from scaling any further (European Parliament, 2021).

The EU Carbon Removals Certification draws in more prospects for carbon farming and operators:

Financial resources will be made available to farmers, enabling them to increase their income, adopt digital farming technologies to maximize operational efficiencies, and accurately measure and report carbon sequestration.
It encourages the agricultural sector to explore partnerships with the private sector to develop the capabilities of agribusinesses in decarbonization and sequestration. One example is Cargill, investing in regenerative culture by incentivizing farmers for improved soil health and achieving positive environmental impact with their farming practices.
It promotes best practices that other farmers and agribusinesses can replicate to acquire carbon removal certification, creating a ripple effect that enhances overall sustainability efforts in the industry.

More importantly, while the carbon farming certification framework is able to sequester carbon, it also helps ensure food security through the advancement of practices and processes. This dual approach not only contributes to the fight against climate change but also strengthens the resilience and sustainability of the agricultural sector.

The EU Carbon Removal Certification Framework is pivotal to achieving net-zero emissions for the European Union. Through fostering advancements and expansion in CDR and engaging agricultural industry players, this framework will maximize carbon removal, accurately monitor carbon emissions, and ensure food security. Other nations with carbon markets may also look to this framework as a model for implementing their own certifications for carbon removal projects. As global efforts to reduce carbon emissions intensify, this initiative represents a significant step toward a greener and more sustainable future for all.

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Exploring the Market Potential of the New EU Carbon Removals and Carbon Farming Certification