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Biggest update to EU emission trading rules in years, part II: EU ETS II, revenue distribution and take-aways

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Much of the climate ambition of the EU hinges on the bloc’s emission trading system (EU ETS). During December 2022, the Council and the European Parliament reached important agreements on the “Fit for 55” proposals. Specifically, new rules for the existing EU ETS, the implementation of a carbon border adjustment mechanism (CBAM) and the introduction of a new EU ETS for emissions from buildings and road transport are in sight. With these revisions implemented the EU would edge closer to its 2030 climate targets, but question marks remain. 

In the first part of this series, we looked at changes to the EU ETS I, free allocations and the new Carbon Border Adjustment Mechanism (CBAM). In this second article we shed light on the new EU ETS II on buildings and road transport and on the utilisation of revenues from auctioning emission allowances by governments.

The EU ETS II: Pricing CO2-emissions from buildings, road transport and fuels in other sectors  

A separate emission trading system will be introduced for emissions currently not priced across the entire EU. This EU ETS II will include emissions from the building sector as well as from road transport and the usage of fuels in other, as of now not defined, sectors. The EU ETS II will however only become operational from 2027 earliest, while high energy prices later this decade may even postpone the start until 2028. Not all details have been worked out yet, especially as member states are allowed to exempt fuel suppliers from the EU ETS II in case a national carbon price scheme with a price level equivalent or higher than the EU system exists (compare Figure 1 for the EU ETS II implementation timeline).

Figure 1: EU ETS II implementation timeline (source: carboneer)

This leads to another important not entirely finalised aspect: An emission reduction trajectory with a high annual linear reduction factor (LRF) of more than 5% should be in place from 2024 onwards to achieve a total emission reduction of compliant sectors of about 60% by 2030 compared to 2005. However, the EU ETS II will start pricing emissions only in 2027. Furthermore, once prices for allowances under the EU ETS II are higher than 45 EUR/ton over a certain period of time, additional allowances will be released to increase the supply on the market. 

Effectively, the EU ETS II in its currently discussed shape and form will be closer to a carbon tax with a maximum price level of 45 EUR/ton at least until 2030. From then onwards no price cap is foreseen as of now. A low price of 45 EUR/ton would be far below the actual CO2-avoidance costs ranging between 100-300 EUR/ton in the building and road transport sectors. Clearly, the price signal in the EU ETS II will not be high enough to incentivise the adoption of low-carbon technologies alone.

With all these higher ambitions and new pricing schemes, one very important question of course remains: Where will the money from EU ETS I, CBAM and EU ETS II go to and what will it be used for? 

Auction income for climate and social measures only

The allocation of income for the existing Innovation Fund, which supports industrial decarbonisation, will be stocked up from 450 million to 575 million emission allowances (EUA). At an average price of 90 EUR/ton this represents a monetary value of more than 50 billion EUR to be allocated to decarbonisation projects. In addition, earnings of EU member states from auction income must now be entirely used for climate measures. However, the Modernisation Fund for less wealthy member states still allows some investments into fossil infrastructures. 

One of the largest concerns of the European Parliament was that the introduction of the EU ETS II will predominantly hurt economically weaker states and citizens. Therefore, the current agreement allocates 50% of the income from the EU ETS II to the newly introduced Social Climate Fund. It should support vulnerable households and small businesses to cope with the price increase of fuels. The fund would start operation already in 2026, one year before the actual pricing scheme commences, and is set up to run until 2032 for now. It is supposed to have a budget of about 65 billion EUR for social climate measures such as renovation in social housing to direct income support. The remaining 50% of the income passes to the EU national states, which must use the money for social climate measures in the building and transport sector as well. An estimated total of 87 billion EUR will thus be allocated to reduce social hardships due to more comprehensive carbon pricing. This sounds like a huge amount of money but is actually being dwarfed by expenditures to alleviate the current fossil energy price crisis: Germany alone will make available up to 200 billion EUR for consumer price breaks if necessary.  

What to make of all the news?

The EU emission trading space will become more complex with additional sectors and phased-out free allocation, the pricing of imports through CBAM and the new EU ETS II for sectors currently not under a pricing scheme at all. Figure 2 provides an overview of the entire implementation timeline of the most important changes. 

Chart Description automatically generated with medium confidence
Figure 2: Implementation timeline of most important changes to the European emission trading systems and rules (source: carboneer)

Players from all sectors must act now to understand the extent to which they are exposed to regulatory and carbon pricing risks and how to prepare themselves. Our seven main take-aways are the following:

  1. If implemented, the increased ambition in the EU ETS I can have the potential to bring the EU towards is 2030 climate targets.
  1. Phasing out free allocations for industries means a much higher exposure to carbon price risks for industrials and “real” incentives to make progress on industrial decarbonisation.
  1. The implementation of CBAM incentivises climate action in non-EU countries while setting the stage for much confusion concerning greenhouse gas measurement, reporting and verification (MRV) along with the need for importers to understand the EU ETS and start hedging.
  1. Until 2026 supply of emission allowances in the EU ETS I will remain adequate while the full-scale implementation of several mechanisms from 2027 onwards will lead to higher prices and lower supply of EUA.
  1. Carbon prices of above 100 EUR/ton in the EU ETS I will be common during this decade, especially if the macro-economic situation normalises. 
  1. The implementation of the EU ETS II is less ambitious with a price cap of 45 EUR/ton and will likely not drive decarbonisation in the sectors under question until 2030. 
  1. The EU ETS II will however provide a common ground for pricing emissions in other sectors in the EU and bring about 75% of the bloc’s emissions under a pricing scheme. 

Feel free to get in touch if you want to learn more. We at carboneer are looking forward to supporting you in all questions on the existing and upcoming carbon pricing schemes in the EU. 

Biggest update to EU emission trading rules in years, part I: EU ETS and CBAM

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Much of the climate ambition of the EU hinges on the bloc’s emission trading system (EU ETS). During December 2022, the Council and the European Parliament reached important agreements on the “Fit for 55” proposals. Specifically, new rules for the existing EU ETS, the implementation of a carbon border adjustment mechanism (CBAM) and the introduction of a new EU ETS for emissions from buildings and road transport are in sight. With these revisions implemented the EU would edge closer to its 2030 climate targets, but question marks remain. In this article we unpack some of the most relevant points on changes and updates on the EU ETS I and CBAM.

EU ETS I: new inclusion, rebasing and strong annual cap reduction

Currently, the existing EU ETS covers roughly 40% of the EU’s emissions. They stem from the energy sector, industrial installations and aviation. Maritime transport will be the newcomer and large vessels of 5000 gross tonnage and above must gradually surrender emission allowances (EUA) for an increasing share of their emissions: 40% in 2024, 70% in 2025 and 100% in 2026. The inclusion of smaller vessels and non-CO2-emissions such as methane and N2O will likely start from 2026 onwards.

Next to this new inclusion, the overall ambition of emission reductions until 2030 compared to 2005 under the EU ETS increased to 62% (Figure 1). The agreement reached on 18th of December 2022 would thus lead to about 23 million tons less CO2-emissions compared to the EU Commission’s proposal from 2021 and is much more aggressive than the minus 43% that has been the previous reduction target. While the target is politically ambitious, it still falls short of the necessary reductions in the EU to limit global warming to 1.5°C even without taking into account fair share considerations.

To achieve this stronger reduction of 62%, the legislators agreed on a rebasing of emissions: 90 million EUA are taken out of the market in 2024 with another 27 million EUA following in 2026. In addition, the entire emission cap will be reduced by 4.3% annually from 2024 to 2027. From 2028 onwards this linear reduction factor (LRF) will even rise to 4.4%. As expected, the market stability reserve (MSR) will continue to take out 24 % of surplus EUAs.

Figure 1: Emission reductions targets under the EU ETS I (source: European Union)

All these reductions will lead to significantly tighter supply of EUAs, drive prices and incentivise more decarbonisation especially in industrial sectors. This brings us to the changes for the industrial sector.

Fundamental change for the industrial sector

Most of the industrial sectors under the EU ETS are currently still eligible for free allocation of EUAs. Based on benchmarks on efficient and thus less emission-intensive production, different industrial facilities will still receive free allowances. However, the benchmark system will be overhauled in 2026: the basis for the free allocations will not be a production process, but the product. This facilitates a better comparison between industries. In addition, industrial companies must have energy audits in place and implement related decarbonisation measures. Otherwise, the free allocation volumes of a facility will be reduced by 20%. Similarly, industrial facilities that are among the worst 20% in terms of carbon-intensity in one sector have to design and implement decarbonisation plans, otherwise their free allocations will be cut by 20%.

However, the biggest change will be the phase-out of free allocations for industrial players as such. From 2026 onwards, the number of free allowances handed over to industries will be reduced gradually until 2034 when industries have to procure all of their needed allowances through the auctioning mechanism or on the market. Free allocation will be part of the history books. As becomes clear from Figure 2 below, the phase-out of free allocation for industry starts relatively slowly compared to the phase-out for aviation and picks up speed from the end of the decade. This approach postpones that necessary price signals kick in for industrial polluters while allowing the EU industry to prepare and decarbonise in earnest during the next five years.

Figure 2: Share of free EUA allocations over time in aviation and industry (source: carboneer)

The EU Commission expects that about 75 million more EUAs will be auctioned due to the phase-out of free allocations to industry, increasing the auction income. Half of that income should go into the EU Innovation Fund that supports these very industries with the implementation of decarbonisation projects. The other half will be available for the EU member states to support their exporting industries. Which leads us to the next large update as phasing out free allocations is tightly coupled with the introduction of the carbon border adjustment mechanism (CBAM).

CBAM: pricing imported emissions

At the same time and rate as European industries will not receive free allocations of EUA anymore, importers of certain goods into the EU will have to pay for the emissions of their products. This carbon border adjustment mechanism (CBAM) should on the one hand create a level-playing field between EU and non-EU industries for products in the EU (both paying a similar carbon price) and increase climate ambition in non-EU states (climate instruments and carbon pricing abroad can reduce necessary payments for importers).

Initially, CBAM will cover the most emission-intensive sectors: iron and steel, cement, fertilisers, aluminium, electricity. The new agreements from 13th of December 2022, however, also feature hydrogen, certain precursors and other downstream products such as screws and bolts as imports under CBAM. In addition, the EU Commission will assess the inclusion of other products that might be at risk of carbon leakages such as organic chemicals and polymers into CBAM from 2030 onwards. Indirect emissions at the production facility also might have to be part of the emissions to be reported and consequently paid for by importing companies. From October 2023 importers in the covered sectors must be ready for their monitoring, reporting and verification (MRV) obligations, which start 3 years ahead of the pricing mechanism. Figure 3 depicts the timeline of the CBAM implementation.

Figure 3: CBAM implementation timeline (source: carboneer)

Two main contentious issues remain for CBAM:

  • How will reporting and verification methods and schemes really look like and work for imported goods?
  • How to compensate or support companies that produce in the EU and must purchase EUAs but export to non-EU countries where no or less ambitious carbon pricing rules exist?

Next to those sectors that are already under the EU ETS, a lot of emissions from other activities in the EU are not part of an emission pricing scheme. After much uncertainty about its prospects, it is now clear: a new or second emission trading system (EU EHS II) will be implemented as well. This will be the topic of our second article.

Feel free to get in touch if you want to learn more. We at carboneer are looking forward to supporting you in all questions on the existing and upcoming carbon pricing schemes in the EU.

What is the potential for negative emission technologies in Germany?

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The updated German climate law requires negative emissions technologies (NETs) and carbon removal from the atmosphere (read all about that in our previous article). Here we want to answer the question, which of the solutions could be used in Germany and what their potential might be. The main take-away: Nature-based and technological carbon removal solutions will both be necessary at the Megatonne scale.

New studies confirm need for carbon removal

Two new reports that model pathways of how Germany can achieve climate neutrality by 2045 have been published in October 2021. The dena-Leitstudie “Towards Climate Neutrality” by the German Energy Agency and the Ariadne report as part of the Kopernikus Project funded by the German Ministry of Education and Research both make clear that substantial amounts of negative emissions are required to balance certain land use, agricultural or industrial emissions. Figure 1 extends our findings about how much annual negative emissions will be needed in Germany in 2045 including the data from the latest studies.

Figure 1: Required annual negative emissions in Mt CO2-eq in 2045 in Germany (source: cr.hub)

Generally, the latest numbers are similar to those from earlier studies. However the various studies still disagree on how much carbon Germany needs to remove from the atmosphere by a large margin. The resulting figures range between 40 and 100 Mt CO2-eq. The average between all studies points at annual carbon removal needs of a bit over 74 Mt CO2-eq at the point where Germany wants to be climate neutral.

Not only the scientific community alone is stressing the need of negative emissions, but increasingly industry groups and associations take the issue seriously. In a recent open letter to the new federal government a range of large corporations under the Stiftung 2 Grad stressed the need for developing a political framework for actively managing the carbon cycle and start developing solutions for capturing CO2 from industrial facilities and storing it underground (CCS).

Which negative emissions technologies are needed?

Broadly we can differentiate between nature-based carbon removal solutions and technological ones. The predominant nature-based solutions is re-, and afforestation, but also the renaturation of peatlands, the enhanced sequestration of carbon in soils through different agricultural practices or growing kelp in the sea fall into that category.

On the technological side, the main focus currently lies on DACCS (direct air capture and storage). Of course also hybrid solutions exist, such as BECCS (bioenergy with carbon capture and storage) or the production biochar which uses biomass and utilizes a technical process to sequester or bind the carbon in a non-reactive form.

We explain and compare a range of those NETs here. Figure 2 shows which of the various NETs are being foreseen to help Germany to achieve climate neutrality by 2045 based on selected studies. The answer to the question which NETs and carbon removal solutions are needed is simple: all of them!

Figure 2: Comparison of annual carbon removal capacity in MtCO2-eq of different NETs in recent reports for Germany in 2045 (source: cr.hub)

The different nature-based solutions are summarized into the land use, land use change and forestry (LULUCF) category in Figure 2, which takes up the largest share of necessary carbon removal in most studies and in many cases is not split up into more detailed removal pathways and sinks in the studies.

In addition, most studies foresee the need for substantial technical removals via BECCS and DACCS. Especially in case the nature-based solutions would not be able to deliver the large CO2-capturing capacities, technological solutions are required.

More exotic carbon removal solutions such as enhanced weathering do not feature prominently. The usage of carbon dioxide from the atmosphere as feedstock for green naphtha or methanol production and in long-lived plastic products goes into the 10 MtCO2-eq range. It is worth noting that the different studies do not necessarily agree on the potential or capacity of the different NETs. This is also due to the fact that not all studies consider the entire range of possible NETs or focus on specific technologies or sinks.

And just as a reminder: In 2018 the LULUCF sector in Germany only delivered 18 MtCO2-eq of negative emissions (source: dena). That means within the next 23 years a doubling to tripling of the annual carbon removal capacity through forests, swamp renaturation and soil carbon sequestration needs to be achieved. Otherwise the reliance on technological solutions that are as of now not scaled-up will be even higher.  

Negative emission potential in Germany

As seen above, a silver bullet or one NET to take out the excess carbon to make Germany truly climate neutral by 2045 does not exist. Much more, all solutions and technologies will be needed. To give a better overview of how such a carbon removal portfolio on the country level can look like, we used the numbers from the Ariadne project report and compared the potentials across the different NETs. Figure 3 shows the shares of different NETs in Germany in 2045 according to the report of the Ariadne project with a total potential of almost 110 MtCO2-eq.

Figure 3: Potential share of different NETs in Germany by 2045 according to the Ariadne project, light green wedge represent LULUCF (source: cr.hub)

The light green wedge taking 46 per cent of the total carbon removal potential represents the LULUCF sector, which can then further be split into re-and afforestation, soil carbon sequestration and carbon storage through changed agricultural practices such as agroforestry. Technological solutions such as BECCS and DACCS make up 37 per cent of the entire carbon removal potential, whereas biochar and enhanced weathering add up 17 per cent in total.

The way forward

The most recent results from climate and energy system modeling from a variety of different research groups are clear: Carbon removal from the atmosphere will be important for Germany to reach its climate targets. In 2045 the capacity to remove 10 per cent of the greenhouse gas emissions Germany emitted in 2020 from the atmosphere has to be in place.

That is not an easy feat, especially considering that carbon removal from the LULUCF sector today only has the capacity of providing a fifth to a quarter of the required negative emission capacity. In addition, climate change might impede the carbon storage capacity of nature-based solutions further during the coming decades. If natural carbon sinks cannot deliver, then technical or hybrid carbon removal solutions such as BECCS, DACCS or biochar become more relevant.

The most recent studies under consideration in this article arrive at different carbon removal capacity and needs for different NETs, as figure 2 demonstrates. Starting a structured conversation about how the recent reports arrive at their negative emission capacity for different technologies would be important. In that way science can develop an understanding about assumptions and the potential for an integral negative emissions modeling framework.

At the political level, devising a framework for active carbon management alongside capacity building measures and restarting a public dialogue on carbon removal and CO2-storage as necessary and important parts towards climate neutrality are the most important steps. Furthermore, a process on revising current regulations on CO2-storage and -transport, possibly across borders in a European context has to start. German climate targets should accommodate the differences between genuine emission reduction and carbon removal (as already being started in the UK and Sweden).

The take-away for the private sector: A new industry is forming and it needs to be scaled rapidly. Forward-looking companies and industries can be on the forefront of that development if they seize the opportunity. This holds for technology providers, project developers and emitting industries that can provide and utilise NETs. However, also companies with climate targets can demonstrate more credible climate action by neutralizing part of their difficult-to-abate emissions via negative emissions or carbon removal credits instead using less permanent and less credible offsetting projects.

We can help you to develop strategies concerning your climate targets and the role of negative emissions and provide you with insights into this new sector and market. Feel free to reach out for further discussions.

New German climate goal only possible with negative emissions?

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Following the ruling of the Federal Constitutional Court in April 2021, the German government had to revise the Climate Protection Act. According to the revised law, Germany must be climate neutral as early as 2045 and greenhouse gas negative by 2050. These higher climate ambitions also mean earlier use of significant amounts of negative emissions. What changes have there been in climate legislation and what do the latest scenarios on carbon removal say for Germany?

As promised in our article on the global dimensions for negative emissions, this time around, we want to have a closer look at Germany. The country is touted for being one of the leaders in decarbonizing the energy system of an industrialised country both in terms of speed and scope. Renewable energies already make up 45 to 50 per cent of Germany’s electricity consumption with a goal to reach 65 per cent in 2030. 

Updated climate target requires climate neutrality by 2045

The German climate law has been revised in June 2021, after the Federal Constitutional Court required changes and more ambitious action. As a result the current government updated the country’s climate goals with an increased ambition towards climate or greenhouse gas neutrality by 2045. From 2050 onwards Germany is supposed to be greenhouse gas negative. Figure 1 depicts Germany’s historical emissions, the targets stipulated in the new law and potential negative emissions in 2050 according to the study Klimaneutrales Deutschland 2045 (Climate neutral Germany 2045) (data sources: BMU, UBA, Agora Energiewende).

Figure 1: Historic greenhouse gas emissions and targets for Germany in Mt CO2eq according to the new climate law and estimates for negative emissions by Agora Energiewende (source: cr.hub)

For 2021, Agora Energiewende expects the strongest annual increase in emissions since 1990, with a plus of almost 50 Mt (source: Agora Energiewende). This means that emissions this year could be back at the level of 2019 before Corona. The emission reduction of 40 per cent compared to 1990, which the country managed to achieve in 2020, would then be obsolete again.  

Are negative emissions part of the German climate strategy? 

A few years ago negative emissions or CCS were not part of the discussion concerning the climate and emissions reduction strategy in Germany, at least not on the policy level and only partially in the scientific context. This outlook changed:

  1. It is increasingly clear that emissions of greenhouse gases will remain in hard-to-abate sectors (such as industry and agriculture) even after strong emission reductions. 
  2. The current efforts of decarbonizing sectors other than the electricity sector, specifically buildings and transport is lagging behind and might not deliver the emissions reductions needed to even achieve the older and less ambitious climate targets. 
  3. Climate ambitions grew as the impact of a warming planet is already clearly visible and civil society demands more action. On the EU level the new target of 55 per cent emission reductions by 2030 compared to 1990 has been agreed on, and Germany followed suite with its new climate law.

Therefore negative emissions are more prominent in recent scenarios and studies on how Germany might be able to achieve its climate targets. On the policy level, they are only implicitly mentioned in the new climate law in terms of negative emissions in the Land Use, Land-Use Change and Forestry (LULUCF) sector. Concrete expansion targets for technologies that generate negative emissions are still lacking.

How much negative emissions does Germany need?

In this analysis we present and compare the results and implications of three detailed studies released during the past three months: the study Klimaneutrales Deutschland 2045 (Climate neutral Germany 2045) by Agora Energiewende, the outcomes of the Fraunhofer ISI project Langfristszenarien für die Transformation des Energiesystems in Deutschland (Long-term scenarios for the transformation of the energy system in Germany) commissioned by the German Ministry for Economic Affairs and the working paper Wissensstand zu CO2-Entnahmen (Knowledge base on CO2-removals) by the Mercator Research Institute on Global Commons and Climate Change (MCC). 

Based on those three publications, figure 2 depicts the projected needs for negative emissions in Germany. All of the studies agree that negative emissions in the order of several ten to hundred millions of tons CO2eq will be needed in Germany by 2050 to achieve the country’s climate targets.

Figure 2: Amount of negative emissions including LULUCF sector needed in Germany from 2030 onwards in Mt CO2eq (missing numbers in studies have been linearly interpolated) (source: cr.hub)

According to current estimates Germany emitted about 740 Mt of greenhouse gases in 2020. As figure 2 shows, the negative emissions necessary by the time Germany wants to reach climate neutrality (2045) range from 67 to 100 Mt CO2eq, so 9 to 13 per cent of 2020’s emissions. Scaling-up nature-based and technological solutions and technologies is already required starting today and in this decade. At present, the use of technologies to remove CO2 from the atmosphere is comparatively expensive. Reducing these costs requires massive investments in technical and organisational infrastructure, and comprehensive political and economic support.

To some extent the new German climate law takes into account negative emissions and aims at a contribution of LULUCF sector of 25, 35 and 40 Mt in 2030, 2040 and 2045, respectively. However, land-use and forestry related carbon removal suffer from low permanence, tricky accounting and potential reversibility through misaligned management practices or natural events such as wildfires.

Thus, in addition to negative emission from the LULUCF sector as part of nature-based carbon removal solutions, technological removals will be needed as well according to all of the three studies. In a coming article we will dive deeper into the proposed kinds of negative emissions solutions for achieving Germany’s climate targets and the potential of some of those solutions. 

To learn more about carbon removal and how it can play a role for your company’s climate strategy, follow us on Twitter or LinkedIn, subscribe to our newsletter or directly get in touch with us.

How much carbon do we need to take out of the atmosphere? Current global scenarios

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Net zero targets are taking centre stage in climate policy and action. Depending on the speed of emissions reductions in the coming years and the ambition level of climate goals, negative emissions and thus carbon removal from the atmosphere will be instrumental for achieving those targets. To get a better picture of the scale required we dig into the latest global reports on Net Zero scenarios. 

Net Zero terminology

Even after aggressive emission reduction have taken place, residual emissions might still occur. Greenhouse gases must then be actively removed from the atmosphere in order to further reduce emissions on balance. A country or organisation achieves net zero emissions or climate neutrality when the amount of emissions removed reaches that of the residual emissions, i.e. when no more greenhouse gases are released into the atmosphere on balance. Emissions removed from the atmosphere are also called negative emissions. Various negative emissions technologies exist, which today mainly focus on the removal of CO2 as the most important greenhouse gas from the atmosphere, hence the focus on carbon removal.

Here it is necessary to differentiate between carbon removal, carbon capture and storage (CCS) and carbon capture and use or utilisation (CCU). CCS prevents emission from fossil fuels from entering the atmosphere in the first place, but does not remove any emissions from the atmosphere. In that respect it is not a negative emissions technology or solution. CCU refers to the use of captured CO2 in the production of fuels or other products. If a particular CCU process and product actually leads to negative emissions or not depends on where the captured CO2 comes from and on the life-time of the product in question. Figure 1 explains the difference between carbon removal, CCU and CCS.

Figure 1: Differences between Carbon Removal, CCU and CCS (source: cr.hub)

Clearly, terminology is important when it comes to setting and specifically achieving credible Net Zero targets or climate strategies as well as when evaluating Net Zero claims or scenarios.

Assessing global scenarios

Given the vast amount of global climate scenarios and modeling exercises we only focus on a few of them in the following. Figure 2 shows an exemplary emission pathway for achieving 1.5°C, while at the same time showing traditional mitigation technologies, such as renewables and energy efficiency and carbon removal separately. The figure is based on data from the Network for Greening the Financial System (NGFS) climate scenarios for central banks and supervisory authorities.

Figure 2: Necessary order of magnitude for carbon removal for emission paths of 1.5 °C (source: cr.hub)

In order to widen the scope of the analysis and to reduce the risk of looking in only one direction, we included scenarios of five different organisations:

The International Energy Agency’s (IEA) Net Zero by 2050 Roadmap, the Consultation Paper Reaching climate objectives: the role of carbon dioxide removals by the Energy Transitions Commission (ETC), the Special report: Global warming of 1.5°C of the Intergovernmental Panel on Climate Change (IPCC), McKinsey’s Climate math: What a 1.5-degree pathway would take and NGFS’s Climate scenarios. A few numbers on the relevant amount of negative emissions has been distilled from the report The case for Negative Emissions by the Coalition for Negative Emissions. We are aware that this selection only captures part of the available literature.

All scenarios considered aim to keep the temperature increase below 1.5 °C compared to pre-industrial levels. Still, comparing scenarios and studies is difficult due to different assumptions on which part of the economy and thus which emissions are included in the scenario or what exactly qualifies as carbon removal and what does not. In addition, the probabilities in keeping below a certain temperature threshold differ between scenarios and studies.

All of the above shows that increasing attention needs to be paid to making modeling and scenario assumptions for Net Zero as clear as possible in order to understand the implications of the scenario outcomes. 

Rapid scale-up of carbon removal needed

What do the scenarios have in common?

Emission reductions from large-scale deployment of renewables and electrification of large parts of the industrial and transport sectors are included in all scenarios. Yet, all scenarios agree that there is a significant need for negative emissions in the gigatonnes (Gt CO2eq) range to achieve the 1.5°C climate target, as Figure 3 shows (data sources: Coalition for Negative Emissions, IEA).

Also, carbon removal technologies have to be available on a large-scale basis already during this decade and reach the Gt level by about 2030 from a very low level today. Given today’s greenhouse gas emissions of almost 50 Gt per year, the removals needed according to the five scenarios in 2050 amount to about 5 to 20 per cent of current global emissions. This is a stark reminder that negative emission technologies are not marginal implementations and potential fixes on the race to Net Zero, but important requirements to deal with residual emissions in laggard and hard-to-abate sectors.

Where do the numbers disagree and why?

On the upper end are the high range numbers of the ETC and the IPCC with up to 10 GtCO2eq of carbon removal by mid-century, while the IEA’s Net Zero Roadmap features on the lower end with an expected need of 2.4 Gt of negative emissions by 2050. The IEA foresees a total capture of 7.6 Gt including CCS and CCU. However, removals from the atmosphere make up only about 30 per cent of those. Also, the scenario assumption of the IEA include no new investments into unabated coal power plants and new oil and gas fields or coal mines from 2021 onwards, as well as the phase-out of unabated coal power globally by 2030. The level of ambition for classical mitigation strategies is very high here compared to the other four scenarios.

Figure 3: Required negative emissions for 1.5°C climate targets according to different scenarios in Gt CO2eq/year (source: cr.hub)

If a medium pathway such as in the NGFS or McKinsey scenarios is taken seriously, that means that negative emission technologies (NETs) need to be scaled up rapidly within the coming decades to achieve a removal potential in the Gt scale. A scale-up of at least 50 times from the present days is needed for that according to The case for Negative Emissions report. Especially as the current pipeline for carbon removal projects including Natural Climate Solutions, Bioenergy with CCS and Direct-Air-Capture until 2025 only stands at about 0.15 Gt (source: Coalition for Negative Emissions).

Implications for policy

To achieve net zero by 2050 while keeping global temperature below 1.5°C will require unprecedented efforts and are seemingly not plausible any longer without large-scale utilisation of carbon removal. Indeed, even many 2-degree pathways hinge on negative emissions although on a lower level, especially if international climate action falls short of more ambitious action (source: Minx, et. al., Fuss et. al.).

This leaves policy makers with many questions, such as:

  • Which ways exist to integrate carbon removal in climate policy?
  • What is the interaction between emission reduction and removal policy?
  • How to scale-up NETs and innovation in the sector?
  • Where to focus investments and resources?
  • How to implement carbon removal credits and how to integrate them into the emission trading systems such as the EU ETS?

On the EU-level the first initiatives are on their way to support carbon removal, such as the Negative Emissions Platform and the European Commission wants to propose a robust carbon removal certification system by 2023. In addition, research and innovation on carbon removal are being funded by Horizon 2020 and the follow-up program Horizon Europe. The Innovation Fund, which receives 10 billion EUR from the income of the EU Emission Trading System, includes the commercial demonstration of low-carbon technologies, such as carbon removal and CCS into its framework. 

As an example of how increased climate ambition leads to negative emissions is the case of the German new climate law. In a forthcoming article, we will have a closer look at the need for carbon removal in Germany’s road to greenhouse gas neutrality.

How is the industry preparing?

For the private sector, especially for corporations and companies that set climate targets and aim to go for their own net zero goals, the complexity of the discussion rises. Internationally acknowledged standards of setting climate targets and the role removals and reduction play within those such as the Net Zero Standard by the Science Based Targets initiative will be of great importance (source: SBTi).

Industry-led initiatives on voluntary carbon markets such as the Taskforce for Scaling Voluntary Carbon Markets (TSVCM), where cr.hub is part of the consultation group are needed as well to drive the demand and market. The TSVCM just launched their report of Phase II of implementing an industry-wide carbon market. However it is important that only high-quality removals feature in those industry-led initiatives in order to achieve real climate benefits. The discussion of what a high-quality removal actually entails, is a story for another time. We will come back to that in further articles.

In conclusion it becomes clear thatmany players and organisations are taking carbon removal and negative emissions now much more seriously in their climate and energy modelling scenarios and as a potential tool for reaching net zero targets. In addition, NETs have to be scaled dramatically in order to achieve the required removal potential.

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Carbon. Removal. Accelerated.

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With this motto, our goal is to counter climate change also with carbon removal and negative emissions. carboneer guides your company through carbon markets, negative emissions and climate strategies.

But first things first: 

What is Carbon Removal and how does taking CO2-emissions out of the atmosphere relate to global climate goals?

CO2-emissions back at pre-Corona levels

Looking back at the past year, the Corona pandemic will probably be the most remembered thing of 2020. And in the public perception, the pandemic and its effects seem to have displaced climate change as the biggest challenge.

As a result, global energy-related CO2-emissions also fell by about 6 percent in 2020 compared to 2019. Due in particular to lockdown restrictions and the economic crisis, energy-related emissions fell by more than 2 gigatons in 2020 to just over 30 gigatons. No one expected such a drop in emissions in early 2020. In fact, some countries, such as Germany only achieved their climate targets as a result of the Corona crisis. Otherwise emissions would not have dropped that much. 

However, a look at the latest figures and statistics reveals that energy-related CO2-emissions have been back at the previous year’s level since December 2020 and could end up just 1 % below pre-Corona emissions of 2019 during 2021. 

Carbon Removal essential for climate goals

Let’s leave 2020 and 2021 behind for a moment and look at how CO2-emissions would have to develop to meet the Paris Climate Agreement’s 1.5 or 2 degree target. For that to happen, carbon emissions would have to decline globally by about the same factor (3-7 percent) each year for the next few decades as they did during the Corona pandemic.   

However, based on the most current plans of the various countries regarding their climate targets (Nationally Determined Contributions), it is more likely that the overall decrease in emissions will be no more than 2 percent by 2030 compared to today. This corresponds to a temperature increase of 2.4 ˚C from pre-industrial levels. Because of these realities, the discussion about large-scale atmospheric removal of CO2 through negative emission technologies is gaining momentum. 

Necessary order of magnitude for carbon removal for an emission path of 2 °C (Data source: NGFS (Network for Greening the Financial System) Scenario Explorer. Model: REMIND-MAgPIE 1.7-3.0; provided by IIASA)

Carbon Removal solutions need support

All solutions are needed in the fight against climate change, from emission savings and reductions to the removal of greenhouse gases from the atmosphere. For a process or technology to be considered carbon removal, four conditions must be met:

  1. CO2 is physically removed from the atmosphere.
  2. the removed CO2 is permanently stored outside the atmosphere.
  3. emissions generated during the process are included in the overall balance.
  4. emissions generated during the process are less than the negative emissions produced.

However, scaling and application of the various nature-based and technological solutions to remove carbon dioxide from the atmosphere are still in their infancy.

Selected negative emission technologies

Based on scientific research from the IPCC reports, these negative emission technologies will need to remove and permanently store several gigatons of CO2 per year from the atmosphere over the coming years and decades. This is roughly equivalent in magnitude to the decline in CO2-emissions caused by the Corona pandemic, the largest economic collapse since the 1930s. 

carboneer: the experts on CO2 markets and negative emissions

Against this background, Simon Göß and Hendrik Schuldt founded carboneer.

Our expertise covers mandatory carbon markets and negative emissions. Through our consulting services (link) we help companies to understand the complexity of carbon markets, to meet the legal requirements and to successfully use negative emissions for the company’s climate strategy. 

Feel free to contact us with your questions.

Let’s take the next step towards solving the climate crisis together.

Your team from carboneer.