European certification framework: a high-quality outline that does not guarantee the value of the final picture

The European co-legislators have just reached an agreement on the content of the future European Carbon Removal Certification Framework (CRCF). Negotiations were swift and fruitful, against a backdrop of a general step back in the adoption of the various Green Deal texts. While today sees environmental issues played off against farmer’s livelihoods, this draft regulation brings these two elements together to create the conditions for investment in the transition of agriculture and forestry sectors. However, several details still need to be clarified to ensure that this framework actually enables effective and ambitious climate financing.

 

A focus on carbon removals and emission reductions related to soils.

While the Commission’s initial proposal only focused on removals in the strict sense, the co-legislators have decided to broaden the scope to include emission reductions related to agricultural soils, whether they concern CO2 or N2O. This extension makes sense regarding the interconnected nature of the cycles of these two gases, but the negotiations were not a foregone conclusion. The experience of the Label bas-carbone in France has shown that this integrated GHG assessment approach at farm level ― combining emission reductions and removals ― is more effective in ensuring the transition. It also avoids perverse effects where CO2 sequestration in soils improves, despite a concomitant increase in N2O emissions, for example through nitrogen fertilisation of grasslands.

 

But we are only halfway there, as methane emissions, mainly linked to livestock, are not included, even though they account for 65% of European agricultural emissions. The provisional agreement between the European Parliament and the Council sets a review clause in 2026 for their possible inclusion and calls on the Commission to produce a pilot methodology by then. Let’s hope that the scope will be extended, so that livestock farming can also benefit from the funding provided by the CRCF to kick-start the necessary transition.

 

Lastly, the distinction of emission reductions and removals into separate units is to be welcomed, as it will ensure transparency in the funders’ communications and claims.

 

Any economic model for temporary credits?

Discussions on the risk of reversal (also known as risk of non-permanence) in soils and biomass took centre stage during the initial debates of the expert group supporting the European Commission in drafting certification methodologies. The risk of reversal may be the responsibility of the project developer, if practices are discontinued for example, or simply the result of natural hazards, enhanced by climate change (forest diebacks or fires, for instance). Various tools, here referred to as “liability mechanisms”, already exist to prevent these risks at global level: discount on the number of credits generated, buffer, up-front insurance, etc.

 

In addition to these mechanisms, Europe -in the different provisional versions of the regulation- also considers the use of temporary certificates to deal with the risk of reversal. This raises a number of questions:

 

 

The methodological translation of this temporary certificate concept will therefore be crucial if we do not want to discourage private stakeholders to finance carbon farming.

 

Safeguards for environmental integrity.

The provisionally adopted regulation requires carbon farming projects to generate at least a biodiversity co-benefit. This is an interesting concept to improve the environmental integrity of the scheme, but its practical implementation will be complex given the lack of consensual and operational indicators for measuring biodiversity.

 

On another issue, the legislators claim that they want to encourage practice changes, while rewarding the front runners of carbon farming. These are two laudable objectives, which might however be difficult to reconcile within the same instrument for the same uses. Unless Europe tolerates the creation of windfall effects, which would then be incompatible with the additionality criteria required by carbon markets.

 

Pragmatic view for the double counting between country and company

The outcome of the trilogue clearly indicates that the certificates will contribute to European Nationally Determined Contributions (NDCs) and not to those of any other state. This is in line with the proposals made by I4CE over the last ten years, which considers that contributions to national or European mitigation targets are legitimate and necessary, and do not prevent voluntary buyers from claiming funding. There is no double-counting as there are only compliant climate targets for the States in the Paris agreement. This principle has been applied for the last 5 years for the Label bas-carbone without altering the environmental integrity of the carbon contributors or of the French State.

 

Towards a variety of uses for the certificates?

Europe has chosen to leave the question of the certificates’ uses outside of this Regulation. The framework for their use is provided by other texts, notably the Green Claims Directive. Regulation of climate claims will have to be an important part of dedicated European legislation to avoid greenwashing scandals. While carbon certification tools have mostly been used in voluntary carbon markets until now, this European framework can be extremely useful to help direct other types of funding towards projects which guarantee their positive climate impact. Europe is opening up this promising avenue by explaining that certificates can be used in a variety of ways: public subsidies, voluntary carbon markets and, in the future, compliance markets. This openness is essential because the need to finance the transition of agriculture and forestry is so great that it will be necessary to combine sources. But the rules of the game will have to be clearly set out so that this different funding types can be combined effectively. A pragmatic vision will therefore be needed so that both value chain actors and actors outside the value chain can contribute and finance the transition. I4CE‘s proposals, based on the experience of the Label bas-carbone, provide answers that could be useful at European level.

 

The work has just begun.

The provisional regulation provides an ambitious framework that is unique at a continental scale. However, many methodological issues have been left to the Commission and the expert group to be released in delegated acts. As the devil lies in the details, the relevance and integrity of the system will be in the hands of the Commission, which will have to strike the right balance between ambition and operationality. The next few months will be crucial in determining which methodologies are prioritised in the Commission’s calendar. I4CE will be keen to show that methodologies from the land sector should be at the top of the pile, particularly if they are no-regrets, rich in environmental co-benefits or relevant for adaptation to climate change. In this respect, the Horizon Europe INFORMA project will provide technical recommendations for the certification of forestry projects. At a time when national standards continue to gain momentum (Label bas-carbone in France) or are being developed (Ireland, Portugal), the new European framework will also need to seek complementarity with these schemes and give stakeholders a clearer idea of how the different levels fit together.

 

The Carbon Farming Summit in Valencia and the Spring expert group meeting will be two key moments in the coming months to make progress on the methodological implementation of this new framework.

To learn more
  • 07/05/2024 Foreword of the week
    After 5 years of the Green Deal, where is Europe on the road to decarbonisation?

    Following the European elections on June 9, the EU is adapting to a new, more conservative, political reality. Yet despite changing political tides, a new EU leadership will still need to find a credible answer to how the continent is to reach climate neutrality by 2050. To understand how to get there, we need a clear understanding of the progress already made. This is where the European Climate Neutrality Observatory (ECNO) comes in.

  • 07/02/2024
    State of EU progress to climate neutrality

    Assessing the state of progress to inform next steps in policy-making. The European Union (EU) is on its journey to become climate neutral by 2050. This multigenerational project holds many societal, economic, and environmental opportunities. At the same time, it is of unprecedented scale and implies considerable changes to the current systems, which need to be anticipated and addressed for the transition to be fair and acceptable to all. Regular progress checking is the key to understanding where the EU stands on the journey. It allows to identify challenges and opportunities and take targeted policy action guiding investment, supply, consumption, and societal development. There is still no official, comprehensive, and regular EU-wide progress monitoring to achieve this. This second ECNO progress check aims to close the current information gap. It provides a comprehensive view on the state of EU progress towards climate neutrality and identifies key areas of action for the next policy cycle.

  • 06/28/2024
    From Stranded Assets to Assets-at-Risk: Reframing the narrative for European private financial institutions

    Private financial institutions must rethink their approach to managing stranded asset risks. The current narrative on quantifying fossil fuel sector exposures within a limited scope of financial portfolios (mostly loans) largely underestimates potential stranding losses. As the low-carbon transition impacts all economic sectors, private financial institutions (FIs) must consider material transition-driven stranding risks within their overall transition risk management framework using a ‘whole of economy’ lens. Traditional risk management approaches are ill-suited to the methodological and quantification challenges of transition-driven stranding risks, so a flexible, dynamic, forward-looking approach is necessary. Strong, incentivising public policy coordinated with financial regulatory and supervisory impetus is necessary to preemptively identify, monitor and manage stranding losses on ‘assets-at-risk’ (i.e., potential stranded assets). The ECB finds that 40% of the total loan portfolio of euro area banks is exposed to energy-intensive sectors*, making them vulnerable to transition risks, including stranding. It is time for an urgent reframing of the stranded asset narrative to avoid significant financial losses (endangering financial stability) and direct orderly transition finance flows to retire or transform assets-at-risk before they become fully stranded.

See all publications
Press contact Amélie FRITZ Head of Communication and press relations Email
Subscribe to our mailing list :
I register !
Subscribe to our newsletter
Once a week, receive all the information on climate economics
I register !
Fermer