Offtake agreements with developers of CO2 removal (CDR) projects is the key mechanism that the European Commission is considering to employ for the centralised purchases of at least 250mn CDR credits under the EU emissions trading system (ETS) in 2031-40, the commission's carbon removal lead Fabien Ramos said at the Carbon Unbound conference on Tuesday. The agreements will probably need to be signed before the purchasing programme begins in 2031.
As part of its broader EU ETS review proposal in July, the commission proposed auctioning 250mn ETS allowances in phase five — between 2031-40 — to raise revenues for the purchasing of an equivalent amount of domestic and permanent CDR units. The proposal only includes biogenic CO2 with carbon capture and storage (BioCCS) and direct air capture with carbon capture and storage (Daccs) credits, and includes a reserve of 10mn additional allowances, should funding gaps emerge.
Offtake agreements need to be signed "quite in advance", five years or more before the credits are delivered. But the commission cannot fund the purchases before 2031 because ETS revenues earmarked for the programme will only begin flowing into the budget from then, Ramos said.
Such agreements could "unlock financing at scale" and "totally change the [CDR] market", chief executive of carbon crediting standard Rainbow Ludovic Chatoux said. If the commission waits until 2031 to sign its first offtakes, it risks losing the necessary years needed to scale the market sufficiently to deliver 250mn credits by 2040, he added.
The commission can anticipate and prepare the programme in advance, Ramos said, although some questions on how the purchasing will work remain to be answered.
"We still need to define some elements," Ramos said. The commission is still balancing the frequency of the purchases and the type of contracts to be signed with project developers, but offtake agreements would make "much sense", he said.
Purchases will likely be scaled up gradually towards 2040. The idea in 2040 is to have around 40mn-50mn CDR credits to be supplied in the context of this purchasing programme, Ramos said.
The commission will publish a delegated act setting out the different aspects of this programme, which could also include other options other than offtake agreements, Ramos said.
Ramos also said the commission is considering credits issued within the CRCF framework before 2031 to be eligible for the centralised purchases. This would support investment and scaling from now to the formal start of purchases in the next decade.
The commission is also looking at how it can combine the purchasing of such credits with other sources of finance, Ramos said, given the premium removals hold over the EU ETS price. The gap could be filled by combining funds with other public finance, state aid, subsidies and private funds.
The commission's impact assessment projects BioCCS costs at €214/t CO2 equivalent (CO2e) in 2030 and €176/t CO2e in 2040, while Daccs is estimated at €428/t CO2e in 2030 and €278/t CO2e in 2040.
Separately, the commission on Monday announced it has selected its first Daccs project for support under the Innovation Fund, in a bid to scale the CDR sector in the region. It is also working to launch a call for carbon removal projects "later this year" through the European Innovation Council, with funding likely to total around €50mn, Ramos said.
