Six things the UK should consider when integrating greenhouse gas removals into its emissions trading scheme
In 2021, the United Kingdom (UK) took a bold step in its climate strategy and debuted the UK Emissions Trading Scheme (ETS), replacing its participation in the European Union’s (EU) ETS, a cap-and-trade system designed to curb greenhouse gas (GHG) emissions by setting strict limits on emissions across key economic sectors.
The UK Government recently consulted on proposals to integrate greenhouse gas removals (GGRs) into its emissions trading scheme. Whether this move can help the UK achieve its decarbonisation goals while also advancing currently expensive removal technologies remains uncertain and hinges on several key factors.
In response to the UK Government’s consultation, Clean Air Task Force (CATF) expressed its support for integrating GGRs into the UK ETS. Technologies and practices that actively remove greenhouse gas pollution from the atmosphere will be needed at scale to counterbalance ongoing emissions that cannot otherwise be eliminated to achieve net zero and ultimately net negative emissions. However, this integration must be approached with caution and GGRs should be phased in gradually to avoid potential negative impacts on emissions allowance prices and prevent market volatility. Successful implementation will also depend on integrating GGRs with robust standards for monitoring, reporting, and verification (MRV). To lay a foundation for success, a UK GGR certification scheme should be developed, as the UK ETS should not be used as the mechanism for verifying and certifying GGRs.
The integration of GGRs into the UK ETS alone will likely not prove to be a sufficient driver of innovation and cost reductions for durable GGR pathways in the near term. To scale durable GGRs to the volume required for attaining net zero and eventually net negative emissions, a suite of complementary policy mechanisms alongside a carbon price, will need to be considered. These could the take the form of policy incentives and/or mandates requiring certain entities to purchase GGRs.
By combining such complementary mechanisms with the integration of GGRs into the UK’s ETS compliance market, the UK could create a powerful demand driver to catalyse an industry essential for reaching the UK’s net zero and future net negative emissions targets.
Six things the UK Government should consider when incorporating greenhouse gas removals
1. Emissions reductions must be prioritised over removals.
While GGRs are an essential part of reaching net zero, they should complement, not replace, efforts to reduce emissions. Their integration should be managed carefully to avoid any potential shift away from this core objective. As such, CATF supports the approach laid out to implement controls on the supply of GGRs into the UK ETS, allowing for a phased process of integration.
2. Additional principles should be incorporated into the Authority’s policy design to further strengthen the existing ETS framework, including:
- Transparency and accountability
- Stakeholder engagement and inclusivity
- Innovation and continuous improvement
- International compatibility
3. The UK needs additional policies to ensure the long-term deployment of GGR technologies so that GGRs can fulfill their critical role in achieving net zero and eventually net negative emissions.
Establishing policy mechanisms that sustain long-term demand for these technologies, in addition to integration into the compliance market is crucial. This may entail examining tools outside, or in conjunction with the UK ETS, such as the proposed carbon contracts for difference (CCfD) scheme, a carbon takeback obligation (CTBO) or net zero mandates.
4. The UK should maintain the gross cap on emissions during the initial integration of GGRs into the UK ETS to ensure the system continues to drive emissions reductions towards net zero.
Keeping the gross cap, rather than inflating it to acommodate GGRs, ensures that the total number of emissions allowances remains unchanged in line with the net zero trajectory, preventing an increase in emissions and preserving the integrity of the UK ETS. However, the gross cap alone may not be enough to sustain decarbonisation incentives, which will likely necessitate supply and potentially demand controls on GGRs. If GGR allowances, particularly those from less durable methods, are significantly cheaper than traditional allowances, they could flood the market, lower carbon prices, and diminish incentives for reducing emissions.
5. The proposed permanence framework should be strengthened to account for variable durability GGRs.
Key elements for implementation of the permanence framework include sufficiently long minimum storage periods, robust liability measures, and conservative fungibility metrics, if tonnes of carbon stored in forests are to be reasonably claimed as equivalent to tonnes of carbon in geological storage. But even with strong implementation of the framework, variable durability GGRs cannot be guaranteed beyond their minimum storage period. To minimise reliance on variable durability GGRs, CATF recommends setting limits on the percentage of emissions that can be offset with such allowances and having these limits decline over time.
6. If UK Government moves to issue GGR allowances for credits issued under the UK Woodland Carbon Code, the methodology should be strengthened first.
Revisions should strengthen its approach to non-permanence risk reduction, additionality and baseline setting, and accounting for indirect emissions from market and activity leakage that occur when demand for products produced or activities previously occurring at the site of a reforestation project, for example, from agriculture or forestry, are shifted elsewhere.
The road ahead to COP29: Emissions trading systems and Article 6
Scaling up high-quality, durable GGRs and appropriately deploying them in emissions accounting is critical to long-lasting and achievable net-zero strategies.
At the 29th Conference of Parties (COP29) in Baku, countries will continue negotiations around Article 6 of the Paris Agreement, which sets out how countries can voluntarily cooperate to achieve the emissions reduction targets outlined in their nationally determined contributions (NDCs) and trade outcomes, such as carbon credits, toward those targets among nations.
Specifically, progress is needed on developing the MRV requirements and processes to operationalize the Article 6.4 Crediting Mechanism that will allow the exchange of GGRs between nations. Negotiations are ongoing and include developing and/or approving methodologies, registering activities, accrediting third-party verification bodies, and managing the Article 6.4 Registry. It is crucial for long-term success that the MRV requirements for the UK ETS align with the ultimate outcomes for the Article 6.4 Mechanism.
For the UK to meet its net zero and future net negative emissions targets, prioritizing emissions reductions over removals, maintaining the gross emissions cap, and setting limits on the use of variable durability of GGRs to meet targets will be vital. CATF looks forward to the final ETS framework from the UK Government and remains committed to advocating for high-quality, durable GGRs.
