EU Climate Law Position Paper

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Executive summary

The revision of the EU Climate Law marks a significant step forward in putting the EU on a path for carbon neutrality by 2050. However, it falls short in providing the regulatory certainty and incentives needed for the permanent carbon removal industry, key to the EU achieving carbon neutrality, to invest, innovate, and scale climate solutions.

As the legislation enters the next stage of the legislative process, we urge the European Parliament and Member States to:

  • 2040 climate target: Support 90% net-emission reduction target as proposed by the European Commission;

  • Carbon removal targets: Establish separate targets for gross-emissions reductions, permanent carbon dioxide removal (CDR), and LULUCF, to address concerns around mitigation deterrence and to establish a strong demand signal for the carbon removal sector;

  • Instruments to scale permanent CDR: Ensure that support for permanent CDR goes beyond ETS integration, by adopting a holistic package of additional instruments and funding measures;

  • International credits: Ensure that any inclusion of international credits includes robust safeguards on the quality (including on permanence), quantity and a clear purpose of the carbon credits;

  • Portfolio approach: Support a diverse, portfolio approach to CDR to ensure EU's climate goals are met. A robust portfolio approach spreads risk, enhances resilience, fosters innovation, and ensures regional and sectoral relevance.

A clear, ambitious, and well-defined framework, backed by separate and credible targets, will be essential for delivering on the EU's climate commitments and unlocking the full potential of competitive European permanent CDR industry.

2040 climate targets

The EU Climate Law serves as the legal backbone of the EU's climate policy, anchoring its long-term ambition in law. Robust and ambitious climate targets are essential not only for providing a clear sense of direction but also for aligning all future policies, investments, and innovations towards common objectives.

To effectively combat the escalating climate crisis and ensure the EU remains on a credible pathway to climate neutrality by 2050, the proposed target of a 90% net greenhouse gas emissions reduction by 2040 offers a strong and science-based interim milestone.

Separate targets

While the role of CDR is implicitly acknowledged in the EU's net-zero (by 2050) and eventual net-negative targets, it still lacks an explicit trajectory akin to the one in place for emissions reductions.

To ensure that the EU's Climate Framework remains robust and to also give greater security for the carbon removal sector, NEP calls on the EU to set separate targets for gross-emissions reductions, permanent carbon removals and LULUCF.

The establishment of such targets has been strongly supported by the European Scientific Advisory Board¹, the European Parliament in its Resolution on COP29², NGOs and industry.

The reasons for needing separate targets are as follows:

  1. Preventing mitigation deterrence: Separate targets for emissions reduction and CDR will provide a clear foundation for their parallel development, preventing conflation and ensuring CDR complements, rather than substitutes for, deep and sustained emissions reduction efforts.

  2. Creating a clear demand signal: Separate targets provide the regulatory certainty needed for CDR companies to operate and expand in Europe. They will attract investment, enable scaling, and reinforce Europe's position as a leader in this critical sector.

  3. Act as a foundation for EU policy: Clear CDR targets will anchor its role in the EU Climate Framework, acting as a foundational piece for further development of EU policy to stimulate permanent CDR, including ETS-integration and other support mechanisms, e.g. purchasing programmes, targeted CAPEX and OPEX support.

Financing for permanent CDR

NEP is pleased to see greater certainty on the inclusion of permanent CDR in the EU ETS. The ETS can serve as an important demand signal and a source of funding for the sector. However, the ETS should not be viewed as a silver bullet for deploying permanent CDR. To ensure the successful scale-up of the sector, the EU must adopt a comprehensive package of complementary support measures, including:

  • Earmarking 5% of the Industrial Decarbonisation Bank for permanent CDR;

  • Increased R&I funding for a portfolio of permanent CDR methods;

  • Launching public-private purchase programmes for permanent CDR (including direct procurement);

  • Supporting Member States' national incentive schemes (e.g. carbon contracts for difference, grants, and loan guarantees).

Only through a diversified and coordinated policy approach can the EU unlock the full potential of permanent CDR in achieving its climate goals.

International credits

NEP welcomes the inclusion of international credits in the EU Climate Law. However, it is essential to establish a clear distinction between different types of credits, specifically between emission reduction and carbon removal credits, and to maintain strict safeguards in order to ensure the integrity of the EU's climate framework.

In the context of carbon removals, these include:

  1. Establish clear EU criteria for high-quality credits: The EU must define stringent standards for what constitutes high-quality carbon removals. This should include clear requirements for permanence, additionality, net negativity, robust monitoring and verification, and transparent liability frameworks in the case of reversal or non-performance.

    In this context, the European Commission should use the 2026 revision of the EU Carbon Removal and Carbon Farming Certification Framework (CRCF) to clarify how the methodologies can be approved under the Paris Agreement Crediting Mechanism (PACM).

  2. Clarify use of international credits: The European Commission must clarify what purpose and under what instruments international credits can be used for, e.g. inclusion under CBAM, Effort Sharing Regulation.

  3. Prioritise domestic CDR development: The inclusion of international credits must not come at the expense of fostering a strong and self-sustaining EU CDR industry. Priority must be given to scaling up domestic carbon removal activities by ensuring regulatory clarity, and through sustained public and private investment. Building EU-based capacity is vital for climate resilience, innovation leadership, and industrial competitiveness. The EU should seek to maintain its current global leadership position in CDR.

Portfolio approach

With its diverse geological, sustainable biomass availability and natural resources, and broad industrial base, the EU is well-positioned to support a wide range of permanent CDR technologies. At the same time, each method will eventually face a limit of its scalability, whether due to land use, feedstock availability, energy demand, or storage capacity.

To ensure resilience and effectiveness, the EU must adopt a portfolio approach to permanent CDR. This is not only essential to mitigate technological, environmental, and economic risks, but also critical for ensuring the scaling and deployment needed to meet its 2040 and 2050 climate targets.

Whilst the legislative proposal recognises the importance of tech neutrality, this commitment is not consistently upheld in the treatment of permanent CDR in the legislative proposal.

In the context of CDR's potential future linkage to the EU ETS, for example, the European Commission appears of the legislative proposal to only consider the inclusion of DACCS and BioCCS in the recitals. While both technologies have a critical role to play in achieving the EU's 2040 climate targets, limiting the definition of permanent CDR to these two approaches overlooks other viable solutions that may also be ready to scale in the near term.

This unnecessarily narrow framing fails to future-proof the EU's climate policy architecture. A range of additional methods are currently under consideration for certification under the permanent CDR unit category of the CRCF. To ensure coherence across EU legislation and support a robust, innovation-friendly policy environment, the ETS and other EU support instruments for permanent CDR must remain aligned with the CRCF's broader, technology-open approach. Moreover, given the enormous diversity of conditions across the EU, focusing on only two permanent CDR risks locking a large number of the EU's Member States out of the early development of CDR activities, and of the economic and social benefits they will bring.

Terminology

The legislative proposal lacks consistency in its terminology around permanent carbon removals, frequently referring to "industrial carbon removals" without providing a clear definition. This contributes to confusion and undermines coherence across EU legislation. Notably, the CRCF introduces a clear definition of permanent CDR. NEP urges EU institutions to align with this definition to ensure consistency and legal clarity across relevant policy instruments.