Carbon certification: the Commission publishes a stringent certification framework that should also be appealing
Yesterday, 30 november 2022, the European Commission adopted a proposal for a first EU-wide voluntary framework to reliably certify high-quality carbon removals. This proposal provides a framework, broad guiding principles, and the details will be specified in 2023 supported by an expert group on Carbon Removals. “The devil may be in the detail”, but the framing is no less important. Claudine Foucherot of I4CE has analysed it and identified four points on which we must be vigilant. Overall, it can be said that the Commission is submitting an ambitious proposal, which nevertheless presents a risk: not being sufficient incentives to ensure a massive deployment of certified projects.
As a reminder, the European Commission (EC) has decided to create a carbon removals certification framework to facilitate the deployment of high-quality carbon removals, including in the land sector, in order to reach the objective of carbon neutrality in 2050. A reliable framework is a prerequisite to be able to direct private and public funding towards projects with a real impact on the climate. Faced with the multiplication of carbon certification systems with very heterogeneous levels of requirements, this future European framework is an opportunity to sort out the issues and to provide clarity, both to project developers and to buyers. It is hoped that greater clarity will lead to increased financing and thus accelerate carbon storage in forests, wood products and agricultural soils. This future framework will also allow to certify projects throughout the Union, whereas the existing certification systems only target a few countries. These are laudable objectives, but it remains to be seen whether this tool will be a real incentive for farmers and foresters while levelling up the various existing carbon certification schemes.
For the framework to be an incentive for farmers, it is necessary to extend its scope to include N2O and CH4 emissions
The first point of concern in the Commission’s proposal is the scope, which at this stage is too limited. This certification framework was initially designed to meet the objective of enhancing the European carbon sink. It therefore focuses on carbon removals and does not include the reduction of N20 and CH4 emissions that farmers must also implement. This raises the question of the system’s attractiveness to farmers. Indeed, the first projects certified by the French certification system, the Label Bas-Carbone, reveal costs that may exceed 100 euros per tonne of greenhouse gas reduced or sequestered. If only carbon removals can be credited in the European system, it will be even more difficult for farmers to cover the cost of their projects. It therefore seems unlikely that a system that only rewards carbon removals will encourage farmers to commit.
Coordination of the different sources of funding for certified projects will be crucial
The attractiveness of the scheme is crucial. In order to ensure this attractiveness, it is necessary on the one hand to value all the climate benefits generated, and on the other hand, it is necessary to diversify the sources of financing. Ensuring the diversification of funding sources is our second point of vigilance. The European Commission lists various possible sources of funding (voluntary markets, CAP, state aid, low-interest bank loans, low-carbon premiums on products from certified projects, etc.) and this is already very good. But it is not yet clear how these different sources of finance can be used together to provide a reward that is sufficiently attractive to accelerate the deployment of low carbon projects. Again, projects are expensive, may involve risk-taking, require investment in new equipment, training and support for project developers, not to mention the costs of certification. These different costs need to be clarified and it is essential to identify precisely who will fund what to ensure that funding is effective (i.e. does not overfund a project) and covers costs sufficiently to provide an incentive (i.e. does not underfund a project).
Sustainability criteria must be ambitious but realistic
Our third point of attention concerns the sustainability criteria: they must be ambitious but also implementable. The EC proposes guidelines on the quality criteria on additionality, long-term storage and sustainability of carbon removal activities. These guidelines are largely consistent with the recommendations we made in the public consultation.
But the Commission has chosen a definition of additionality that is less rigorous than The French Label Bas-Carbone. Where this French certification scheme encourages going beyond the current situation, whatever it may be, the EC wishes to reward the pioneers by basing itself on comparisons with local averages. The risk of a windfall effect i.e. that only those who are already better than the average will choose to develop projects, is therefore higher. This approach nevertheless has the advantage of encouraging the maintenance of existing carbon stocks in the soil.
Regarding long-term storage, the Commission’s proposal is more complicated to understand at this stage. It states that “the carbon should be assumed to be released into the atmosphere, unless the economic operator proves the maintenance of the carbon storage through uninterrupted monitoring activities”. This suggests the creation of temporary carbon credits, based on the same principle that was put in place under the Kyoto Protocol, but which did not work well. There is no incentive for a buyer to purchase credits that have an expiry date and potentially need to be replaced as and when required. While this is an extremely robust solution to tackle the risk of non-permanence, it seems unrealistic and sometimes the best is the enemy of the good. It would seem preferable to seek to ensure the long-term profitability of stocking practices in order to facilitate their maintenance and to assume in parallel that there will always be a risk of the release of carbon in the atmosphere. To manage this risk, a discount can be provided.
Highly centralised governance, which must not demobilise players already involved in other national certification schemes
The last point of attention concerns the governance of the European certification. Several options, more or less centralised, were considered. They range from a very open system, where the national certifications like the French Label Bas-Carbone would remain central and where the Member States could apply the main European rules and to validate the methodologies proposed by the stakeholders, to a very centralized system where the Commission develops methodologies applicable by all.
In its proposal, the Commission seems to favour a highly centralised approach. This is a relevant approach to sort out the multiplication of certification schemes in Europe and to bring clarity, but it requires that European methodologies be able to take into account the different pedoclimatic contexts. This centralisation should also be done gradually and provide guarantees to the actors already involved in recognised certification processes. Otherwise, it will penalise the pioneers and discourage the deployment of low-carbon projects before the European framework is operational.
The Commission proposal will now be discussed by the European Parliament and the Council, in line with ordinary legislative procedure. The EC will develop tailored certification methodologies for the different types of carbon removal activities, supported by an expert group whose work will be decisive in ensuring the development of carbon certification framework that is both rigorous and clear, but also provides incentives for farmers and foresters.