Build Carbon Removal Reserve to Secure Future of EU Emissions Trading

• A carbon central bank (CCB) that translates carbon removals into allowances would transform the European Union Emissions Trading System (EU ETS) from a fiat allowance to a gold standard system, ensuring unchanged net emissions on the path to net-zero greenhouse gas (GHG) targets.

• Meeting such expectations would require a CCB with a clear commitment to a net-zero GHG target, but also with the capacity to manage the market on the path to that target.

• This requires a strong institutional framework, which could be achieved by integrating the CCB into the European Central Bank (ECB), building on its reputation and capacity.

• Given the long lead time to set up such an institution, the European Commission should already take the first steps to fulfil the other requirement, namely building up a large carbon removal certificate (CRC) reserve, which would provide the CCB with the credibility to stabilize the market in the future.

• To fill the CRC reserve, the EU should emulate the US approach by immediately initiating resultbased carbon removal procurement as a first key step of a sequential approach to integrated carbon removal into climate policy.

• This could be achieved by developing a centralized procurement program, supporting existing procurement programs, such as Sweden’s or Denmark’s, and incentivizing additional EU member states to initiate procurement.

• An important prerequisite for this is the ability to bank CRCs that are not yet eligible for compliance with near-term EU climate targets and use them in later crediting periods.