The Carbon Removal Certification Framework Regulation (“CRCF Regulation” or “Regulation”), which aims to facilitate and promote sustained reductions in greenhouse gas emissions, will enter into force on 26 December 2024. To achieve this goal, the Regulation introduces an EU-wide voluntary framework for the certification of carbon removals and soil emission reductions on the voluntary carbon market. The reliable and harmonised application and enforcement of the quality criteria laid down in the Regulation are intended to help prevent so-called greenwashing and ensure that efforts to reduce greenhouse gases are transparent and credible. This should improve offtaker confidence in carbon removal certificates and stimulate the development of new carbon removal projects, ultimately helping the Union achieve its climate targets.
Which market is affected?
The CRCF Regulation affects the voluntary carbon market. The voluntary carbon market supplements the mandatory EU Emissions Trading System (“EU ETS”) and enables companies and individuals to contribute to climate protection beyond the statutory requirements.
Under the EU ETS, which only applies to certain emission-intensive sectors (e.g. electricity and heat generation, energy-intensive industry sectors), companies receive or purchase the emission allowances needed to cover their emissions in line with EU ETS requirements. This market, which is already highly regulated, is based on a cap-and-trade system in which the total quantity of emissions is limited and market operators can trade their allowances. In contrast to this system of, in effect, issuing allowances for emissions, voluntary carbon certificates are based on the principle of compensating for or avoiding emissions elsewhere.
Voluntary certificate trading is therefore of increasing significance for achieving global climate targets, especially, but not exclusively, in sectors in which greenhouse gas emissions are difficult to avoid or cannot be completely reduced (e.g. agriculture, cement and steel production, aviation or maritime transport).
Accordingly, voluntary certificate trading is characterised by climate protection projects aimed at implementing measures to remove carbon or reduce soil emissions, with the removals or reductions achieved by the project being issued as emission reduction credits (or carbon removal certificates). Offtakers can acquire these certificates by investing in or donating to the climate protection project, in particular to use them in their marketing and promotion efforts to communicate a reduction in their carbon footprint.
What are the shortcomings of voluntary certificate trading?
To date, the certificates used in voluntary trading have been based on standards developed by private providers rather than state-regulated schemes. The standards attest to projects accredited under the scheme having achieved positive climate-related effects in accordance with verifiable quality criteria. However, the quality criteria and their verification are defined by the respective standard itself – without state or regulatory involvement or review. Moreover, there are numerous different private providers specialising in the certification of projects, including well-known names such as Gold Standard and Verra.
These two factors led to voluntary carbon market certificates having previously been seen as less legitimate than certificates from schemes under state regulation. In addition, the offtakers themselves had the task of assessing the trustworthiness of the standards and the projects certified under them.
What is the purpose of the CRCF Regulation?
To address the challenges of the voluntary carbon market and increase the credibility of the certificates, the European Commission drafted the CRCF Regulation. The draft was approved by the Council of the EU on 19 November 2024 and will enter into force on 26 December 2024. The Regulation aims to create a standardised and transparent EU-wide certification framework for the voluntary carbon market, thereby facilitating the sustained reduction of greenhouse gas emissions.
To achieve this, the Regulation sets out comprehensive quality criteria and rules for verifying and certifying carbon removals and soil emission reductions. It also establishes clear rules for the operation of certification schemes, their recognition by the European Commission and the issuance and use of certified units. Certification methodologies are to be established by the Commission in delegated acts.
Under the new framework, carbon removals and soil emission reductions will only be eligible for certification pursuant to the CRCF Regulation if they are:
achieved via an activity that meets the quality criteria in Articles 4 to 7 CRCF Regulation,
- verified by an independent body in accordance with Article 9 CRCF Regulation.
What activities does the CRCF Regulation cover?
The CRCF Regulation is intended to facilitate and promote permanent carbon removals, carbon farming and carbon storage in products across all sectors. This includes carbon removals and soil emission reductions from the following activities:
permanent carbon removal: These activities require atmospheric and biogenic carbon to be captured and stored for several centuries (e.g. bioenergy with carbon capture and storage (“BECCS”) and direct air capture and storage (“DACCS”));
carbon farming: Carbon farming activities include temporary carbon removal and soil emission reductions. The practice or process must be carried out over an activity period of at least five years (e.g. restoration of forests (improved carbon storage) or peatlands (carbon release));
- carbon storage in products: These activities must result in the capture and storage of carbon for at least 35 years in a long-lasting product (e.g. atmospheric carbon, captured by trees or industrial technologies and stored in long-lasting products such as wood-based construction materials or bonded carbonate).
Who does the CRCF Regulation affect and what are the benefits of participating?
The CRCF Regulation is relevant to a variety of market players in carbon removal:
- operators: Persons or organisations that operate or control a carbon removal activity or to whom or which decisive economic power over the functioning of activity has been delegated.
certification schemes: Organisations that certify the compliance of activities and operators with the quality criteria and certification rules.
While participation in the certification framework under the CRCF Regulation is voluntary, it does offer considerable advantages. Legal rules for defining and verifying the quality criteria will mean greater legitimacy and acceptance for the CRCF certificates on the market. This could make it easier for operators to attract customers and investors in future. Therefore operators could specifically choose certification schemes that comply with the standards set out in the CRCF Regulation. Consequently, certification schemes that adhere to CRCF standards may, in turn, benefit from increased market acceptance and competitiveness.
What are the quality criteria?
Certification is only possible if if the four criteria in Articles 4 to 7 CRCF Regulation are fulfilled:
Quantification (Article 4 CRCF Regulation): A permanent carbon removal activity must provide a permanent net carbon removal benefit. For this purpose, the amount of additional carbon removal or soil emission reductions of an activity must be quantified by comparing its total carbon removals to a carbon reference value (carbon removals compared to baseline). All greenhouse gas emissions arising during the lifecycle of the activity and associated with its implementation must then be subtracted. A carbon removal activity will achieve a net benefit if the carbon removals above the baseline outweigh any increase in greenhouse gas emissions associated with carrying out that activity.
- Additionality (Article 5 CRCF Regulation): Any activity must be “additional” within the meaning of the Regulation. This means that the operator must not already be obliged to carry out the removal activity under applicable law and that the activities must be made financially viable through the incentive effect of the certification. An activity whose carbon removals or soil emission reductions exceed a standardised baseline is considered additional.
- Permanent storage (Article 6(1) CRCF Regulation): It must be demonstrated that the activity stores carbon permanently or is aimed at storing carbon over the long term. The Commission will lay down rules for operators on monitoring and mitigating any risks of carbon storage reversal during the monitoring period in the certification methodologies. Operators must also implement appropriate liability mechanisms against reversal of the stored carbon during the monitoring period.
- Sustainability (Article 7 CRCF Regulation): The activity must do no significant harm to the environment and be capable of generating co-benefits for one or more of certain sustainability objectives. The minimum sustainability requirements with which the activity must comply in order to be considered sustainable will also be established by the Commission in the certification methodologies.
What does certification involve?
Compliance with the quality criteria is to be checked by an independent and recognised certification body. The operator must first submit an application for certification to a certification scheme recognised under Article 13(1) CRCF Regulation. Such scheme may be operated by a public or a private body. Once the application has been accepted, the operator must submit the following information and documents to the certification body designated by the certification scheme (Article 9(1), subparagraph 2 CRCF Regulation):
- an activity plan;
- evidence of compliance with Articles 4 to 7 CRCF Regulation;
- the expected net benefit generated by the activity;
- a monitoring plan.
The certification body will conduct an audit to verify whether the information provided is accurate and reliable and, if this is the case, to confirm compliance of the activity with the quality criteria. The result is then documented in a certification audit report and a certificate of compliance is issued if verification has been successful. The certification scheme reviews the certification audit report and the certificate of compliance, and makes the certification audit report – in full or, where necessary to preserve the confidentiality of commercially sensitive information, in summary form – and the certificate of compliance publicly available in its certification registry or, once established, in the Union registry (Article 9(2) CRCF Regulation).
The certification body must also carry out a recertification audit at least every five years in order to reconfirm the activity’s compliance with Articles 4 to 7 CRCF Regulation and to verify its net carbon removal or net soil emission reduction benefit (Article 9(3) CRCF Regulation).
What is the Union registry?
The Commission must establish an electronic Union registry by 27 December 2028 (Article 12(1) CRCF Regulation). The registry’s purpose is to make information related to the certification process publicly available in order to ensure the transparency and traceability of certifications. The published information is to include, for example, the type of activity, the name of the operator, the location and duration of the activity, the name of the certification scheme and a reference to the applicable certification methodology.
Until the Union registry is established, the certification schemes themselves are obliged to maintain their own certification registry.
Relevance in the context of the proposed Green Claims Directive?
The CRCF Regulation ensures that carbon removals are properly certified, creating the basis for a reliable use of carbon certificates on the EU internal market. This is crucial in order to strengthen the confidence of market participants and prevent greenwashing. The proposed Green Claims Directive would strengthen this reliability by ensuring that environmental claims meet specific requirements.
The Directive essentially seeks to prohibit environmental claims which state that a product has a “neutral, reduced or positive impact on the environment” and whose justification is based on carbon offsetting measures such as carbon removals. One proposed exception to this prohibition under the Directive is for residual emissions of a trader, for which claims based on offsets are to remain permissible. The concept of residual emissions is to be further defined in a delegated act. Pursuant to Article 3(3)(b) Green Claims Directive in the draft version of the European Parliament, credits used for emissions must be certified units under the CRCF Regulation or units in accordance with Article 3(3c) Green Claims Directive.
The Council of the EU revised the draft to the effect that climate-related claims based on the offsetting of greenhouse gas emissions and alleging that a trader has a neutral, reduced or positive impact on the environment in terms of greenhouse gas emissions should be permitted, provided that the requirements of the Directive are met. Pursuant to Article 3(1)(a), explicit environmental claims regarding the trader and relating to climate, including claims based on the use of carbon credits, must be clearly and fully assessed and communicated, including specifying whether the carbon credits used relate to emissions reductions or carbon removals, whether they are permanent or temporary, and from which scheme and registry they stem. However, this draft likewise points out in recital (21aa) that it is prohibited to claim that a product has a neutral, reduced or positive impact on the environment in terms of greenhouse gas emissions where such claim is based on the offsetting of greenhouse gas emissions outside the product’s value chain.
As such, the Green Claims Directive could provide a further incentive to participate in the certification framework under the CRCF Regulation in order to be able to credibly and comprehensibly substantiate environmental claims via the strict and recognised standard under the CRCF Regulation.
However, it remains to be seen how the final version of the Green Claims Directive will be structured and what provisions and references to the CRCF Regulation it will contain.
Conclusion
The CRCF Regulation represents significant progress in the global fight against climate change. The introduction of a unified and transparent EU certification framework for the voluntary carbon market will facilitate a sustained reduction of greenhouse gas emissions. At the same time, the credibility and quality of carbon removal certificates will be enhanced by the comprehensive quality criteria and rules for verifying and certifying carbon removals and soil emission reductions. This will strengthen the confidence of participants in the market and provide incentives for the development of new carbon removal projects, which should significantly contribute to achieving Union climate targets.
The new certification framework also offers market players considerable advantages in terms of market acceptance and competitiveness. It is therefore very important for those affected to familiarise themselves with the requirements of the CRCF Regulation as quickly as possible. This is the only way for them to maximise the potential created by the Regulation and ensure their competitiveness on the market. The CRCF Regulation therefore not only provides a framework for reducing greenhouse gas emissions, but also an opportunity for market participants to demonstrate their innovative strength and position themselves as climate protection pioneers.
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