How will the Carbon Removal Certificate Framework affect the carbon markets?

Provisional agreement reached on the Carbon Removals and Carbon Framework (CRCF) marked a significant milestone in the further development of the Voluntary Carbon Market. This regulation aims to establish rigorous quality criteria for certifying carbon removals, carbon farming, and carbon storage within products across the European Union. It comes in recognition of the pressing need for enhanced efforts to achieve net-zero emissions.

The proposed regulation acknowledges that current policies are insufficient to meet the necessary carbon removal targets. Thus, its primary objective is to develop a voluntary Union certification framework for permanent carbon removal activities and soil emission reductions. This framework will complement sustained emissions reductions across all sectors.

Within this framework, carbon farming encompasses activities that reduce carbon emissions from soil carbon pools or increase carbon removals in biogenic carbon pools. The Union shall prioritise the development of certain methodologies for activities like sustainable agricultural land management among others.

An analysis of the regulation underscores its alignment with existing methodologies, such as the VM0042 methodology proposed by VERRA and the soil enrichment methodology proposed by Climate Action Reserve. Key concepts like robust carbon accounting methodologies, third-party verification processes, and the establishment of baseline scenarios mirror those found in established methodologies.

At HeavyFinance, we applaud the European Union’s initiative to introduce the first official regulation worldwide to govern carbon removal and soil emission reduction activities. This regulatory framework is poised to enhance market credibility, as official recognition underscores the critical role of carbon offsetting in achieving the objectives set forth in the Paris Agreement.

Nevertheless, certain risks accompany this regulation. One such risk is the potential geographical fragmentation of the market. Local limitations within the regulation may deter recognition of offshore projects, thus discouraging local demand for offshore carbon removals and soil emission reductions. Furthermore, the regulation’s focus on EU-generated carbon removals and soil emission reductions for National Determination Contributions (NDCs) may hinder offshore demand for EU-based initiatives.

To effectively fulfil the Paris Agreement goals, international collaboration is paramount. Geographical fragmentation threatens to impede this collaboration by restricting resource flows towards climate action projects. Therefore, at HeavyFinance, we propose that the European Parliament and Union consider mechanisms to validate carbon removals or soil emission reductions from projects outside the Union. Additionally, establishing a clear mechanism for Contributing Adjustments for NDCs will facilitate broader international cooperation and alignment with global climate objectives.