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The Council of the EU (the Council) and the European Parliament reached a provisional political agreement (the Agreement) earlier this week on a regulation to establish the Carbon Removals Certification Framework (CRCF), the first EU-level certification framework for permanent carbon removals. The CRCF is a voluntary framework intended to facilitate deployment of high-quality carbon removal and soil emission reduction activities in the EU, in support of net-zero by 2050. The Agreement follows the European Commission’s (the Commission’s) regulatory proposal for the CRCF (released December 2, 2022) and the Council’s mandate for negotiations with the European Parliament (released November 17, 2023). The European Parliament and Council now need to formally approve the Agreement. Once this process is completed, the new legislation will be published in the Official Journal and enter into force. We anticipate that the CRCF will facilitate integration of carbon dioxide removals into the EU’s broader package of climate policies and eventually allow for market-based trading of CRCF-certified units. CRCF certification may also serve as an integrity benchmark for CDRs developed for the voluntary carbon market. This bulletin briefly summarizes the main elements of the Agreement. Scope of activities. The CRCF will use an “open definition” of carbon removals, in line with the IPCC and which only covers atmospheric or biogenic carbon removals. It will cover the following carbon removal and emission reduction activities and differentiate between four corresponding unit types: permanent carbon removal (storing atmospheric or biogenic carbon for several centuries); temporary carbon storage in long-lasting products (such as wood-based construction products) of a duration of at least 35 years and that can be monitored on-site during the entire monitoring period; temporary carbon storage from carbon farming (e.g., restoring forests and soil, wetland management, seagrass meadows) of a duration of at least 5 years; and soil emission reduction (from…

On October 1, 2023, the European Union’s Carbon Border Adjustment Mechanism (CBAM) became effective in its transitional phase until December 31, 2025. The European Commission (EC) noted that the transitional phase will serve as a pilot and learning period for stakeholders and will be used to collect information on embedded emissions to further refine and improve the CBAM’s methodology. We expect other countries to consider and adopt their own border carbon adjustments to avoid carbon leakage and to ensure the competitiveness of domestic emission intensive and trade exposed sectors of the economy (see our earlier bulletins on the development of BCAs in Canada and USA). This bulletin briefly highlights key information related to the transitional phase of the CBAM. CBAM Overview. The CBAM applies to importers of CBAM-covered goods. Importers of covered goods must register with national authorities, through which they will also able to buy CBAM certificates once the CBAM is fully in place on January 1, 2026. The price of certificates will be calculated depending on the weekly average auction price of EU Emission Trading System (ETS) allowances expressed in €/tonne of CO2 emitted. Importers into the EU are required to declare the direct and indirect emissions embedded in imports and, once fully operational, “surrender” the corresponding number of CBAM certificates each year; however, initially, importers will only be required to pay for direct emissions. Importers may reduce the number of certificates to be surrendered if they can prove that a carbon price has already been paid during the production of the imported goods and this price will then be deducted from the overall obligation. Applicability The CBAM will initially apply to the following imports of certain goods and selected precursors that are carbon intensive and at significant risk of carbon leakage: cement; iron and steel; aluminium; fertilisers; electricity; and hydrogen. The EC noted that…

The European Parliament today approved the deals reached with EU member countries in late 2022 on several key pieces of legislation that are part of the “Fit for 55 in 2030 package”, the EU’s plan to reduce greenhouse gas (GHG) emissions by at least 55% by 2030 compared to 1990 levels in line with the European Climate Law. The 27 EU countries are collectively the third largest emitter of GHGs globally. The legislation now requires final approval from EU member countries over the course of the next few weeks. This bulletin summarizes key highlights from the legislation adopted today: EU ETS strengthened. Members of the European Parliament (MEPs) voted to reform the EU Emissions Trading System (ETS), which will now require GHG emissions in covered sectors to be reduced by 62% by 2030 compared to 2005 levels. The reforms also phase out free allowances starting in 2026 and place a price on GHG emissions from road transport and buildings starting in 2027 or 2028 (termed ETS II).  Moreover, the ETS will be expanded to cover GHG emissions from the maritime sector, and revised for aviation, phasing out free allowances for the sector by 2026 and promoting the use of sustainable aviation fuels (SAF).  CBAM rules adopted. MEPs adopted the rules for the new EU Carbon Border Adjustment Mechanism (CBAM), which aims to incentivize non-EU countries to increase their climate ambition while ensuring that EU and global climate efforts are not undermined by carbon leakage (production being relocated from the EU to countries with less ambitious policies). The goods covered by CBAM are iron, steel, cement, aluminium, fertilizers, electricity, hydrogen, and indirect emissions under certain conditions. Importers of these goods would have to pay any price difference between the carbon price paid in the country of production and the price of carbon allowances in the EU…