ETS needs carbon removals

The EU Emissions Trading System (ETS) will increasingly require the integration of permanent carbon removals to remain effective as it approaches net-zero emissions. Under the current cap-and-trade design, the supply of EU Allowances (EUAs) steadily declines over time, with the cap expected to approach near zero in the coming decades.
As allowance scarcity increases, carbon prices are expected to rise significantly, reflecting the tightening emissions constraint. While higher prices strengthen incentives for emissions reductions, an extremely constrained allowance supply may reduce market liquidity, increase price volatility, and make compliance disproportionately expensive for sectors with limited technological alternatives.
Integrating permanent carbon removals into the ETS would help maintain a well-functioning and efficient carbon market beyond 2030 while preserving strong incentives for decarbonisation. Allowing a carefully governed supply of verified permanent removals into the ETS would create additional flexibility for compliance, reduce the risk of excessive price spikes, and improve long-term market stability without weakening the declining emissions cap.
Integrating carbon removal into the ETS could help stabilise carbon prices by easing allowance scarcity while preserving the overall ambition of the cap. Because market participants anticipate future CDR availability, the price-stabilising effect begins even before removals enter the system, reducing price volatility and avoiding sharp price increases driven by infrastructure delays or slower-than-expected deployment of key decarbonisation technologies. This creates valuable flexibility for hard-to-abate industries such as cement and chemicals, where decarbonisation depends on technologies like CCS and hydrogen that may not be available at the required pace. Rather than weakening climate ambition, limited CDR integration can provide a safety valve that makes the transition more manageable, reducing compliance cost pressures while maintaining strong incentives for emissions reductions.