The European Union’s Emissions Trading System (EU ETS), launched in 2005 to curb greenhouse gas emissions, is poised for a transformative evolution that could significantly boost carbon dioxide removal on an unprecedented scale. A pioneering study led by the Potsdam Institute for Climate Impact Research (PIK), recently published in the journal Joule, explores a visionary approach to leverage this market-based instrument not only to regulate emissions but also to foster innovative carbon removal technologies. This advancement arrives amid ongoing legislative debates in Brussels regarding the future integration of carbon removals into existing climate frameworks, marking a crucial step toward achieving the EU’s ambitious 2050 climate neutrality goals.
The current EU ETS focuses on regulating emissions from the energy sector and energy-intensive industries by capping their yearly carbon output and allowing companies to trade emission allowances. This system creates an economic incentive for companies to reduce emissions, but as the EU intensifies its climate ambitions, residual emissions from sectors that are difficult to decarbonize remain a critical challenge. The novel proposition lies in incorporating carbon dioxide removal (CDR) technologies into the emissions trading framework, thereby incentivizing “negative emissions”—whereby companies can earn tradable credits not just for reducing emissions but actively removing CO₂ from the atmosphere.
In the PIK-led study, researchers utilize the LIMES-EU model, a sophisticated investment optimization tool designed to map out cost-efficient pathways to decarbonization and carbon removal within the EU, the United Kingdom, and Norway. The study examines two promising CDR pathways: direct air capture (DAC), which deploys advanced air filtering systems to extract CO₂ directly from ambient air, and bioenergy with carbon capture and storage (BECCS), which involves combustion of biomass in power plants coupled with sequestration of the released carbon underground. Both methods could play pivotal roles in achieving net-zero emissions by mid-century.
One of the stand-out findings from the modeling exercise is the substantial annual scale of removals that could be realized by 2050 within the enhanced carbon market framework. Depending on techno-economic advancements, the EU ETS could stimulate companies to remove between 68 and 86 million tonnes of CO₂ annually through these novel methods. This volume represents a significant contribution to offsetting residual emissions, highlighting the system’s untapped potential to simultaneously drive decarbonization and carbon sequestration efforts.
A critical advantage of embedding removals into the ETS lies in the enhanced planning certainty it provides for industries grappling with hard-to-abate emissions. The study reveals that by gradually integrating removals into the trading system, a balanced carbon price signal emerges. This price, projected to rise to about 400 euros per tonne by 2050 before stabilizing, would incentivize companies to invest in removal technologies while maintaining focus on rapid emission reduction. Essentially, it creates a market-based alignment of incentives that encourages both abatement and sequestration while avoiding premature dependency on removal at the expense of emission cuts.
Politically, this proposal promises to enhance the acceptance of climate policy across sectors by offering flexible compliance options. As the EU ETS allowance reduction schedule technically phases out free emissions allowances by 2039, companies currently face a cliff-edge scenario with sharply tightening caps. Introducing removal credits enables a more gradual transition, as firms can offset remaining emissions by purchasing certificates from removal operators. This ensures a cost-effective pathway for both regulators and emitters while upholding environmental integrity.
However, the successful operationalization of removals within the ETS necessitates a carefully designed, stepwise integration pathway to safeguard ecological and economic stability. The research team emphasizes the importance of robust standards for monitoring, reporting, and verification (MRV) to ensure transparency and authenticity of removal claims. Additionally, a phased implementation is recommended, beginning with limited quantities of verified removals entering the system and progressively expanding as technologies mature and risks decline.
The study stresses that bioenergy-based removals must be deployed mindful of their wider environmental impacts, particularly regarding biodiversity and water usage. The phased approach prioritizes emission reductions over removals in early stages to avoid any inadvertent incentives that might encourage unsustainable biomass practices. Only by maintaining this strategic sequencing can the system guarantee that carbon removal complements rather than undermines broader ecological objectives.
By around 2040, the envisioned policy framework would fully integrate all carbon removals and residual emissions under a unified carbon pricing mechanism within the EU ETS. At this stage, a harmonized market price would govern both ends of the carbon equation — emissions released and removals sequestered—offering a seamless and efficient climate policy instrument for the EU and associated countries.
This study arrives at a crucial juncture for EU climate governance. The European Commission is tasked with submitting proposals on the treatment of carbon removals within the ETS framework by 2026, underscoring the timeliness of this scientifically grounded, policy-relevant research. The authors articulate clear rebuttals to common objections concerning market distortions or risks of perverse incentives, strengthening the feasibility of the approach.
Ultimately, the research confirms that the integration of carbon removals into the EU ETS is not only technically sound but strategically advantageous. It unlocks a pathway for cost-effective climate neutrality while providing industry with critical long-term certainty. As the EU pursues ever more ambitious climate targets, linking innovative carbon removal technologies with existing market mechanisms could herald a new era of transformative climate action—one that captures CO₂ at scale while fostering innovation and maintaining environmental stewardship.
The following years will prove decisive, as policymakers, industries, and scientists collaboratively shape this emerging landscape. The study’s stepwise roadmap offers a pragmatic and ambitious vision for harnessing carbon markets to expedite decarbonization and enable large-scale CO₂ removal. With robust governance, technological progress, and market signals aligned, the EU ETS could assert its role as a global model for integrated carbon management, accelerating the transition toward a sustainable, climate-neutral future.
Subject of Research: Not applicable
Article Title: How the EU can utilize its carbon market to scale up Carbon Dioxide Removal
News Publication Date: 31-Mar-2026
Web References:
10.1016/j.joule.2026.102395
Keywords: Climate policy, Europe, Emissions trading, Carbon dioxide removal, Direct air capture, Bioenergy with carbon capture and storage, EU climate targets, Carbon pricing, Carbon market integration, Climate neutrality, Monitoring reporting verification, Carbon sequestration
