The Commission put forward its legislative proposal for a Certification Framework for Carbon Removals (CFCR) in November 2022. The Regulation has the two broad objectives to define quality criteria for carbon removal activities to ensure only high-quality removals are certified, and to define rules for the verification and certification of carbon removals, including rules for the functioning and recognition by the Commission of certification schemes. The main innovation in the Regulation is that it defines Certified Removal Units (CRUs) that can be used in national or corporate GHG inventories or exchanged through voluntary carbon markets.
In a previous post last September, I discussed the amendments to the Commission’s proposal being discussed by the Council and European Parliament at that time. Last month, both institutions finalized their mandate for negotiations (the Council) and first reading position (the Parliament). I summarise in this post the main changes proposed by the two institutions to the Commission’s proposal, using the framework developed in the previous post. Readers interested in this topic are recommended to read the previous post as relevant background. As in the previous post, I concentrate on what carbon removals should qualify for certification and the criteria they should fulfil, leaving issues to do with the governance of the certification process to one side.
Definition of carbon removals
The Commission proposed to define carbon removal as ‘‘either the storage of atmospheric or biogenic carbon within geological carbon pools, biogenic carbon pools, long-lasting products and materials, and the marine environment, or the reduction of carbon release from a biogenic carbon pool to the atmosphere”. Following from this definition, the Commission proposal would define carbon removal activities as “one or more practices or processes carried out by an operator resulting in permanent carbon storage, enhancing carbon capture in a biogenic carbon pool, reducing the release of carbon from a biogenic carbon pool to the atmosphere, or storing atmospheric or biogenic carbon in long-lasting products or materials”. Notable in this definition is that carbon removal activities both include permanent carbon storage but also other activities such as enhancing carbon capture in a biogenic carbon pools, reducing the release of carbon from a biogenic carbon poor, or storing carbon in long-lasting products or materials. Carbon removals would also cover the storage of carbon in sustainable biomass that is zero-rated for the purpose of the Emissions Trading Scheme Directive.
Both the Council and Parliament propose to extend this definition in different ways. The Parliament would extend the title of the Regulation to refer to a certification framework for carbon removals, ‘carbon farming and carbon storage in products’, while the Council would include the phrase ‘and soil emission reductions’ in the title (bolding added to reflect amendments).
The Parliament’s addition reflects its desire that the Regulation should clearly distinguish between permanent storage removals and land management activities that result in carbon sequestration but not necessarily permanently. Furthermore, its reference to carbon farming includes not only sequestration but also “activities that result in biogenic emission reductions, such as methane reductions from feed changes or manure management, or nitrous oxide reductions from fertiliser reductions or manure management, for a minimum period of at least five years.”
The Council stays closer to the Commission proposal by defining carbon farming as including sequestration and carbon storage but also including practices or processes that reduce emissions of GHGs from soils. It would extend this, however, to include reductions of emissions of nitrous oxide from agricultural soils, corresponding to the emissions from the IPCC source category of agricultural soils, as reported in Table 3.D of the Common Reporting Format tables under the UNFCCC reporting guidelines on annual inventories. It also covers carbon storage in marine reservoirs including oceans. It would exclude from the scope of the certification framework activities such as avoided deforestation, reduction of livestock emissions or renewable energy projects, which do not result in either carbon removals or soil emission reductions. Whether other agricultural emission reductions should be included within the scope of carbon farming is clearly one of the major bones of contention between the two institutions.
Voluntary framework
The voluntary nature of the certification framework is underlined by a Council amendment to the effect that “The voluntary nature of the Union certification framework means that existing and new public and private certification schemes can apply for recognition by the Commission under this Regulation but are not obliged to do so in order to operate in the Union.” In my previous post, I noted that this voluntary nature could put at risk the Commission’s ambition to create a transparent and level playing field for carbon removals.
Permanent vs temporary carbon removals
Here the Parliament has taken the initiative by amending Recital 5 and Articles 2 and 3 to make clear that “Activities regarding carbon removal, carbon farming and carbon storage in products have different characteristics as regards the storage process, the storage medium and the expected duration of the storage, which can vary from decades to centuries for certain carbon farming activities or storage in certain products, to permanent storage in geological formations if the site for geological storage of CO2 is appropriately selected and managed”.
It would thus insert a requirement in Recital 5 that “the Union certification framework should clearly distinguish the different types of activities, their specificities and related environmental impacts. Therefore, this Regulation should clearly separate the definitions, the quality criteria and the rules on the use related to activities regarding carbon removals, carbon farming and carbon storage in products in the Union certification framework”. It envisages these different types of removals and their certificates would remain distinct from each other as set out in its amendments to Articles 2 and 3.
Use of certificates
As noted above, the Commission proposal envisaged that CRUs would be used in the compilation of national and corporate GHG inventories or be exchanged on voluntary carbon markets. The Commission view was that the use of CRUs should be determined in the relevant Regulations (e.g., the ETS or LULUCF Regulations) and not in this CRFR.
The Parliament’s position is that the different end-uses of CRUs should be regulated in the CFCR though it tends to specify what they cannot be used for rather than what they can be used for. It specifies that, in line with the Green Claims Regulation, CRUs cannot be used to claim, based on offsetting, that a product has a neutral, reduced or positive impact on its carbon emissions. It also refers to the provision in the revised ETS Directive that the Commission should assess how permanent carbon storage might be accounted for in the emissions trading system by July 2026 but insists that, to this end, “carbon farming sequestration units, carbon farming emission reduction units and carbon storage in product units should remain distinct from each other…”
The Parliament also addresses the fear that the use of CRUs could lead to double counting by expressly including as an addition to Article 3 that “A certified unit shall not be used or claimed by more than one legal or natural person at any point in time, and shall not be counted towards more than one Member State’s greenhouse gas inventory at any point in time.”
Quantifying the net CO2 benefit
The Commission proposed a two-step quantification method. In the first step, the amount of carbon removals would be quantified relative to a standardized baseline. In the second step, any increase in GHG emissions related to the implementation of the carbon removal activity would be subtracted.
The Parliament’s position is that the calculation of the net benefit should be differentiated for permanent carbon removals, carbon farming sequestration, carbon farming, carbon, nitrogen or methane emission reductions, and carbon storage in products, in order to take into account their fundamentally different characteristics.
This differs from the Commission’s proposal that specifically excluded any reduction in greenhouse gas emissions resulting from the removal activity when quantifying the net carbon removal benefit. It proposed instead that any such emission reductions should be considered as a co-benefit towards the sustainability objective of climate change mitigation. It recognized that reporting such reductions as a co-benefit could increase the value of certified carbon removals.
In calculating the second step to quantify net carbon removals, the Commission proposed to subtract both direct emissions resulting from the use of more fertilizers, fuel or energy, but also indirect emissions resulting from land use change due to displacement of agricultural production. The Parliament’s amendment would require that these impacts should cover impacts within and outside the Union. Whereas both the Commission proposal and the Council mandate would subtract GHG increases in the second step, the Parliament proposal changes GHG increase to associated GHGs in the relevant equations (thus allowing reductions in GHG emissions to be included as part of the net benefit of the carbon removal activity).
It is worth highlighting that the carbon removals certification framework is results-based (meaning that the quantification of net removals should be based on a calculation of actual carbon removed from the atmosphere) and not practice-based (which is currently the way the CAP rewards practices that lead to carbon sequestration). The Parliament would go further by specifying that “Carbon sequestration and emission reductions generated by carbon farming should be quantified with a high level of accuracy to assure the highest quality and minimise uncertainties, based on the use of Tier 3 methodologies in accordance with the 2006 IPCC guidelines for National Greenhouse Gas inventories” (EP amendments in bold). The Parliament is clearly assuming that there will be rapid development of the field observational data and modelling frameworks to permit the use of Tier 3 methodologies, given that few Member States are using these currently for land management practices.
Both the Council and Parliament also strengthen the language that requires carbon removal activities to result in co-benefits for other sustainability objectives. For example, both institutions want to avoid that carbon farming leads to land being acquired for speculative purposes resulting in negative effects on rural communities.
Additionality – defining the baseline
The Commission’s proposal was that, to be additional, carbon removal activities should go beyond statutory requirements and should be the result of the incentive effect provided by the certification. The Parliament has added that the statutory requirements should include the statutory management requirements and good agricultural and environment conditions standards established in the CAP Strategic Plans Regulation. This means these practices would be considered part of the standard baseline when calculating net removals. The Council mandate would include that carbon farming activities should generate one or more co-benefits for sustainability.
Assigning liability
The Commission’s proposal included liability mechanisms to account for the risk of carbon release during the monitoring period, but left unclear if there was a liability on operators to make up for such carbon release. The Parliament has proposed to cover this gap by specifying that “a liable natural or legal person should be designated to be responsible for addressing cases of reversal…. for carbon farming activities, the liability mechanism should be set out and approved as part of the applicable certification methodology and ensure that equivalent carbon sequestration is generated as compensation for the reversal.” Its amendment goes on to specify that CRUs affected by carbon reversals should be suspended and, if not addressed through the liability mechanism, should be eliminated and the operator subject to a corrective penalty reflecting the carbon cost of the amount of carbon released.
Role and composition of the expert group
Surprisingly, although the construction of the certification methodologies for different types of removals will be made by the Commission in close cooperation with an expert group, the composition and role of this group is not explicitly mentioned in the draft Regulation. The Parliament has proposed to introduce an additional Article 8(a) to rectify this entitled ‘Platform on Carbon Removal, Carbon Farming and Carbon Storage in Product Activities’.
Similarly to the way the Commission has composed the existing expert group, the Parliament’s proposal identifies different groups of interested parties that should be represented on the Platform. In addition to experts from academia and others appointed in a personal capacity, it includes experts representing civil society as well as experts representing relevant private stakeholders, including farmers and forest owners and business sectors involved in the areas covered by the Regulation. Thus, the issues I refer to in my previous post regarding the independence of the work of the Platform remain open, though I also referred there to the very high level of transparency around the work of the current expert group as an antidote to fears around this issue.
Conclusions
The Commission’s proposed Certification Framework for Carbon Removals has now entered the trilogue process, following the adoption by the Council and Parliament of their respective positions last month. The main substantive issue at stake is whether the definition of carbon removals in connection with carbon farming should include only sequestration or carbon removals, or should also include the reduction of agricultural emissions of methane and nitrous oxide. The Council position moves some way in the latter direction by proposing to include soil emission reductions of nitrous oxide from spreading fertilizer and animal manure on agricultural soils. The Parliament position would go much further and also include methane reductions, as well as nitrous oxide reductions from manure management, provided these reductions are maintained for a period of five years at least.
The Parliament’s position builds on the methodology currently used for the French Label Bas Carbone which has been in place since 2018 (Minist?re de la transition Écologique et Solidaire, 2020; Favrel et al, 2022; Carbon Label, 2023; see also this critical review of the livestock carbon standard by a group of NGOs, 2020). This certification framework covers both GHG reduction and sequestration projects carried out on the French territory, based on emissions reduction or removal methodologies approved by the Ministry. Purchasers of credits include mandatory requirements for airlines to offset emissions from internal flights solely within France as well as from two remaining coal-fired electricity plants whose lives were prolonged as a result of the energy crisis.
During the French Council Presidency in the first half of 2022, the French Minister for Agriculture used the opportunity of an informal agriculture ministers’ meeting that he hosted to present the French system of carbon credits to his European counterparts. Despite this charm offensive, it seems he did not persuade his fellow Ministers to broaden the scope of carbon farming to cover reductions in all agricultural emissions and it was left to the Parliament to carry this flag.
At first sight, combining both emissions reductions and sequestration in the certification framework for carbon removals is in breach of the ‘polluter pays, provider gets’ principle and could be seen as reducing the incentive for emissions reductions. But it may be worth pausing before dismissing the idea out of hand. Clearly, any suggestion that CRUs generated by reducing agricultural emissions could be used to offset the need for emissions reductions in other sectors in the compliance market would thrash the integrity of the compliance market and should never be considered.
But considering CRUs solely as a financing instrument, a way to incentivize climate action, opens a broader perspective. Targets for emissions reductions and sequestration can be set elsewhere and separately, leaving open the policy design to achieve these targets. Policy instruments can include regulation, subsidies (such as through the CAP), market-based instruments such as an emissions trading scheme, or voluntary carbon markets. The use of one policy instrument does not necessarily exclude the use of others. If we are prepared to countenance the use of public subsidy to incentivize climate action by farmers under the CAP, why oppose private funding for certified emission reductions provided these CRUs are seen as a contribution to mitigation by the purchaser and are not used to offset their own emissions (for example, some companies are now interested to purchase CRUs to offset their historical emissions and not just their current ones)? Here it is important to underline the Parliament’s position that CRUs generated by permanent storage (which will have a role to offset emissions on the path to net zero) should be seen as distinct from CRUs generated by carbon farming or in long-lived products.
As this seems to me to be the crucial issue to be decided in the CFCR trilogues, it would be interesting to hear other views on this issue.
This post was written by Alan Matthews.
Photo credit. European Wilderness Society, used under a CC BY-NC-SA 4.0 Deed licence.
O artigo foi publicado originalmente em CAP Reform.
