On July 17, the European Commission presented its proposal to revise the European Union Emissions Trading System (EU ETS), the world’s largest carbon market. For the carbon removal sector, this is a key milestone: for the first time, credits for permanent CO₂ removal would be integrated into Europe’s main carbon pricing mechanism. AFEN welcomes this proposal and recognizes its considerable potential, while also identifying key issues that will need to be addressed in upcoming negotiations. Carbon-intensive industries—such as steel, cement, and aviation—will have unavoidable residual emissions, and the IPCC estimates that up to 10 Gt of carbon removal will be needed annually worldwide to stay below 1.5°C.
What the Proposal Envisages
The Commission’s proposal calls for incorporating up to 250 million metric tons of permanent CO₂ removals into the EU ETS between 2031 and 2040, representing a gradual ramp-up of up to approximately 50 million metric tons per year by 2040. This volume would be procured centrally by the Commission through a competitive auction mechanism, using a portfolio approach and on a payment-upon-delivery basis. The mechanism entails a corresponding increase in the ETS cap, with the additional allowances generated serving specifically to finance the purchases of removals.
Initially, only removals certified under the CRCF regulation would be eligible, and among these, only biogenic CO₂ capture and storage (BioCCS) and direct air capture with storage (DACCS). A delegated act will specify the implementing rules.
The proposal also calls for the creation of a European Industrial Decarbonization Bank, endowed with 400 million allowances over the 2028–2031 period to support decarbonization technologies, including carbon removal. Member States will also be required to invest at least 50 % of their revenues in decarbonization, with the option to include both natural and technological carbon removal approaches.
Why This Is a Major Breakthrough
The scale envisaged is unprecedented. If the targets are met, the annual carbon removal market in 2040 would be 2,000 times larger than it is today. This is the first time that a European compliance mechanism has formally recognized the role of permanent removals in the EU’s climate strategy, thereby giving them a structural place in long-term climate policy. The structured demand guaranteed by a compliance mechanism makes these projects bankable.
For project developers, investors, and buyers, this signal is crucial. The visibility provided by a structured demand forecast through 2040 is precisely what was needed to unlock the financing required to scale up these projects. It also serves as recognition of the CRCF framework as a benchmark for quality, thereby strengthening the market’s credibility and transparency.
Points to Note
AFEN shares the enthusiasm of its European partners, while also identifying several challenges that must be addressed for the proposal to deliver on its promises.
The first challenge is that of the immediate market signal. The proposal sends a strong signal looking ahead to 2031–2040, but carbon removal projects need visibility today to raise capital and begin deployment. It is essential that the first purchase commitments be made before 2030.
The second challenge is the price gap. The cost of permanent carbon removal remains higher than the current price of ETS allowances. The proposal partially addresses this by setting aside an additional 10 million allowances and through the Industrial Decarbonization Bank’s instruments. However, these measures will need to be strengthened to ensure that the targeted volumes are delivered, regardless of fluctuations in the carbon market. Additional risk-mitigation mechanisms will be essential to attract private investment during the start-up phase.
The third challenge concerns the diversity of approaches. The initial restriction to BioCCS and DACCS alone is understandable as part of a phased rollout, but it must not become permanent. The evaluation report scheduled for 2034 should pave the way for the integration of a broader portfolio of certified methods, in accordance with all CRCF delegated acts that have already been adopted or are currently under consideration. The goal—which we share—is to build a diversified, resilient industry spread across the entire European territory.
Finally, if international credits were to be incorporated in the long term, AFEN advocates that they should primarily correspond to permanent removals and that they should meet quality standards at least equivalent to those of the CRCF: environmental integrity, permanence, additionality, and traceability.
What This Means for France
France occupies a strategic position in this emerging market, which has the potential to generate 50 billion euros and create 130,000 jobs by 2050, according to a BCG x AFEN Study. As Europe’s leading agricultural power, the fourth-largest forestry nation, the world’s second-largest maritime power, and with a largely decarbonized electricity mix, these strengths make France a particularly favorable environment for the deployment of a wide range of carbon removal solutions, from the most natural to the most technologically advanced.
France SNBC 3, adopted on July 16, sets a target of 66 million metric tons of CO₂ to be neutralized annually by 2050, one-third of which will be achieved through technological carbon sinks. The integration of carbon removal into the EU ETS creates the conditions for structured European demand that can support the deployment of French projects. More than 50 stakeholders—ranging from startups to major industrial companies—are already involved in this sector through AFEN.
France has also expressed its support for the Commission’s proposal. The Ministry of Ecological Transition welcomed the proposal, particularly the creation of the European Industrial Decarbonization Bank, the extension of the trajectory through 2040, and the decision not to directly integrate international carbon credits into the ETS market. Paris is calling for several improvements, notably funding for industrial innovation commensurate with the challenges at hand and mechanisms to ensure that the new instruments primarily benefit the most effective decarbonization projects.
French companies are well positioned to capitalize on this new European market. For them to be fully competitive against their European counterparts, targeted national support will be crucial: government contracts, funding for demonstration projects, and a robust certification framework. Only then will France be able to transform its scientific and regional strengths into recognized industrial capabilities in European tenders.
The Next Steps in the Negotiations
The proposal will now be reviewed by the European Parliament and the Council. The Irish Presidency of the Council aims to reach a common position among the environment ministers by December 11, 2026. A trilogue agreement could be reached in the first quarter of 2027.
It is during this negotiation period that the key amendments will be decided. AFEN will work closely with French officials to ensure that France brings all its influence to bear in these negotiations and that the interests of the national industry are fully represented in the final text.
We are ready to discuss this with all French stakeholders—both public and private—who wish to engage with this issue. If you have any questions, feedback, or ideas on how France can make an impact in these negotiations, we would be delighted to discuss them with you.
