As the European Union considers to reform its Emissions Trading System (EU ETS) by integrating permanent carbon dioxide removals (CDR), this report by Ecologic Institute researchers Hugh McDonald and Jonathan Gardiner examines safeguards to support the gradual scale-up of permanent removals whilst keeping their quantity under control to manage risks and ensure incentives for reducing emissions remain. Commissioned by the German Environment Agency (UBA), the report identifies and assesses mechanisms for limiting CDR integration.

The report was developed as part of a project supporting the German Environment Agency in assessing options for the structural evolution of the EU ETS beyond 2030.

Managing the role of carbon removals in the EU ETS 1

Permanent carbon removals are expected to play an increasingly important role in achieving the EU's climate neutrality target. However, allowing companies to use removals for compliance within the EU ETS 1 also raises important questions. Without appropriate safeguards, carbon removals could reduce incentives for emissions reductions, create market uncertainty or lead to sustainability concerns.  

The report analyses nine policy approaches for limiting the quantity of carbon removals entering the ETS, ranging from system-wide quantitative limits to eligibility criteria for carbon removal certificates. It assesses these options against key policy objectives, including environmental integrity, cost-effectiveness, market functioning and practical implementation.  

Policy recommendations to support the next phase of EU ETS reform

The analysis concludes that no single CDR limit policy approach addresses all objectives. Different options will be preferred depending on the policymakers' primary objective and on still-to-be-defined CDR integration design choices. Across different scenarios, the report finds that combining quantitative limits with robust quality standards for carbon removal certificates offers the strongest basis for maintaining market integrity while supporting the gradual scale-up of permanent carbon removals.  

With the European Commission expected to present proposals on integrating permanent carbon removals into the EU ETS as part of its July 2026 review, the report provides timely evidence to inform policy discussions on the future design of Europe's flagship carbon pricing instrument.