EU Carbon Removal Certification
End of October, the EU Council and the EU Parliament adopted their positions on the European Carbon Removal Certificates Framework (CRCF). Trilogue negotiations will now begin. In my view the carbon removals should eventually be accepted under the EU Emissions Trading System and help the meet the negative emission target after 2040 (see blog here).
The European Parliament proposes 4 types of carbon credit units, with distinct lifetimes and crediting periods:
- Carbon Removal Unit: (>100yr). 1 ton carbon permanently stored: activity that stores atmospheric or biogenic carbon for several centuries through geological storage or permanently bound carbon mineralisation, but not stored for Enhanced Hydrocarbon Recovery (i.e. BECCS, DAC, Biochar, Mineralisation, Enhanced Weathering)
- Carbon Farming Sequestration Unit (>5 yr): 1 ton of certified net carbon farming sequestration benefit (for example forest, peatland, seagrass, marshland)
- Carbon Farming Emission Reduction Unit (>5 yr): for Carbon, Nitrogen, or Methane
- Carbon Storage Product Unit (>50 yr): 1 ton certified net carbon product sequestration benefit (chemically bound carbon in a product or stored atmospheric and biogenic carbon for several decades in long-lasting products or materials).
We need to prevent “greenwashing”; that is not reducing the emissions and using bad offsets. But we also need to avoid “greenhushing”; that is that companies are afraid to go public with their climate action, due to fear of criticism in the media.
Empowering Green Consumers
Mid September The EU Council Parliament made a deal on the European Commission’s proposal for a Directive on “Empowering Consumers for the Green Transition (ECGT). The EU Parliament adopted it, January 17th. This proposal amends two existing directives, the Consumer Rights Directive (CRD) and the Unfair Commercial Practices Directive (UCPD). When published in the Official Journal of the EU member states have 24 Months to implement it in into national laws.
This ‘Empowering Consumers’ text focuses on what absolute claims can be put on the label of a product for consumers. They decided that the carbon footprint of a product should be separated from information on the residual offsets to neutralize the remaining impact of the product to the climate. That is the whole objective of offsetting! Very unfortunate; it will take away the incentive for companies to invest in offsetting at all, which leads to more greenhouse emissions in the atmosphere. The Text says”
- It is not allowed not put “climate neutral” on the package for consumer if based on offsetting, but it should be on the “actual lifecycle impacts”
- It seems insetting is possible in the supply chain as the text goes:”Such claims can only be allowed when they are based on the actual lifecycle impacts of the product in question, and not based on greenhouse gas emissions offsetting outside the product’s value chain, as the former and the latter are not equivalent.”
- It is in my view also allowed potentially that a “sustainability label which is based on a specific scheme established by public authorities” includes offsetting for residual emissions, hence not solely based on offsetting.
- And you need to:“demonstrate recognised excellent environmental performance relevant to the claim”
- Claims should also be“verified by a third party expert”
- Nevertheless, a trader can put information on the amount and quality of offsetting on the package as the text says:“This should not prevent companies from advertising their investments in environmental initiatives, including carbon credit projects, as long as they provide such information in a way that is not misleading and also complies with the requirements laid down in Union legislation.”
- Moreover, in line with the CSRD and ESRS (see below) it is also allowed to report and publish at company level the use of certified carbon credits preferably carbon removals as part of net zero committent if there is a path that is in line with 1.5 target.
Green Claims Directive
Linked to this, the joint committees responsible for the Green Claims Directive, the Environment Committee and the Internal Market Committee, have submitted their more than 800 amendments to the proposal. It requires that all green claims, such as climate neutral, must be fully substantiated and verified by EU-approved verifiers. This also means that the content must be transparent and public. Essentially, this means that any green claim must be fully explained and proven, ie. sharing the footprint, the reduction performance, and so on. Trilogue negotiations will now begin. Once a provisional political agreement is reached, they have to endorse and formally adopt the text. Only then will the text be published in the Official Journal of the EU and enter into force 20 days thereafter.
If these amendments are adopted, the Green Claims will block companies from investing in offsetting remaining emissions of a product or ticket. The initial proposal of the European Commission allowed offsets for climate neutrality, but these amendments copy the empowering consumers directive provisions and seem to forbid offsetting for claims and only allow:
- ‘balancing’ information on credits for residual fossil fuel emissions, not offsetting
- only with EU removal carbon removals
- consider like for like (permanent storage)
- no offsets from supply chain (insetting)
- on as additional information on the label
Companies need flexibility of the carbon market to increase climate ambition
Many companies, across industries – from cheese and coffee, to holiday travel and festivals – which have no obligations themselves yet, start to reduce their greenhouse gas emissions and want to be able to fully offset the remaining emissions, and doing so, tackle their overall climate impact with carbon credits from reduction projects elsewhere. And by investing in projects, the voluntary CO2 market helps other countries to achieve their CO2 targets.
There has been a lot of discussion lately about whether you can call a company or product “climate neutral” and about the quality of the carbon credits used. Internationally, there is a push to use “contribution” as claim. But that seems not sufficient: the climate problem requires the that the climate impact NEEDS to be neutralized. And that must be made possible with reductions and high quality offsets for the remainder. So it’s good that something is being arranged for that.
As said, these developments on claims are unfortunate as it will not lead to more action, but inaction. The aim of the Empowering Consumers directive is to involve consumers more in the implementation of the Green Deal (buying green products) and to force companies to improve the information on the labels of the products and services they sell. Consumers must be able to gain insight into the climate impact of the products they buy. This means understanding the product’s greenhouse gas footprint, the greenhouse gas reductions achieved over time, and how remaining greenhouse gas emissions were offset through verified offsets. All this information can be verified by EU-approved verifiers to prevent greenwashing and must be made public in clear terms.
I believe consumers understand and welcome and a lower carbon footprint AND additional investments in high quality offsets, as they understand that cows that give milk still burp methane. In my view some NGOs keep on blocking any flexibility companies can have by using the carbon market. Now we also see international initiatives (see below) to improve the quality, transparency and governance of carbon credit programmes, it is time we make good use of offsets to neutralize remaining emission that still go into the atmosphere.
Coherence with European regulations and voluntary carbon market developments~
Compensation is one of the recognized instruments needed to achieve global climate goals. Companies across sectors can be confident that their efforts to reduce and offset carbon emissions through verified carbon projects are consistent with taking full responsibility for their climate impact and mitigation and that this claim can be on their product. The fact that CO2 compensation has been accepted, in addition to the absolute reduction of greenhouse gas emissions to 0, is also in line with other European and international rules. Standards Organization ECOS therefore calls on them to speed up their adoption:
1. The Corporate Sustainability Reporting Directive (CSRD), valid from 2024, regulates how large and listed companies must report their climate impact and their “plan to adapt to the Union’s climate neutrality target by 2050” and report : “The level and magnitude of greenhouse gas emissions and removals attributed to the company, including the extent to which the company uses offsets and the source of those offsets. To achieve a climate-neutral economy, greenhouse gas accounting and compensation standards must be aligned. Users need reliable compensation information that addresses concerns about potential double counting and overestimations.”
2. The European Sustainability Reporting Standards (ESRS) specifies the sustainability information that a company must disclose in accordance with the CSRD. There is:
- “If as an organization you compensate and have to report according to CSRD, then it is mandatory that you are on track with your reduction. You can choose to compensate voluntarily, but it must be clear that you are not compensating for reasons of footprint reduction. And if you as an organization are going to compensate, it is strongly recommended to invest in technical CO2 removals.”
- If the company discloses a “net-zero” target, it must “explain how residual greenhouse gas emissions (approximately 5-10% of greenhouse gas emissions, unless there is justified sectoral variation) will be neutralized by, for example, removing greenhouse gases in its own activities and value chain.”
- Where the company has made public claims of “greenhouse gas neutrality resulting from the use of carbon credits, it must explain the credibility and integrity of the credits used, including by reference to recognized quality standards.
3. The Sustainable Finance Disclosure Regulation (SFDR), applies to all financial market participants and financial advisors in the EU and sets out clear disclosure requirements. The aim is to improve the information to investors on the sustainability impacts of the investment policy and investment decisions of financial market participants, reduce greenwashing and direct capital towards the shift to a net-zero economy. Though the SFDR was not intended to create labels, it is being used as a labelling regime.
The SFDR classifies the sustainability of investments (Art 6 grey, Art 8 light green, Art 9 dark green). The class just defines the detail of reporting but is in practice used as a green label, but the investment itself has not been certified as green or net zero. The European Commission is therefore currently carrying out a comprehensive assessment of this framework, looking at issues such as legal certainty, usability and how the Regulation can play its part in tackling green-washing.
4. Also relevant is the work of the international Integrity Council for the Voluntary Carbon Market (IC-VCM) and the Voluntary Carbon Markets Integrity Initiative (VCMI), endorsed by governments, companies and NGOs, to improve the quality and transparency of global voluntary carbon market.
The IC-VCM published criteria for assessing categories of carbon credits and methodologies: the so-called ‘Core Carbon Principles Label’ (CCP) for carbon credits that can be used.The VCMI launched their VCMI Claims Code of Practice for organizations in June 2023. For products this will be published in November.