🔴 [CORRECTION] What the budget for CDR in the ETS really looks like 🔴

📈 Yesterday, I posted about the >€50b compliance market for CDR that the planned integration into the ETS would mean.

💶 The math was simple: the Commission suggested procuring 250Mt of CDR. At an average cost of €200/t, we’d be looking at €50b between 2031-2040.

🤔 The reality - as I understood today - is more complex, and worrying.

🔦 The proposal does not commit the EU to procuring 250Mt of CDR. It commits the EU to selling 250Mt of EUAs (+ an additional 10Mt contingency EUAs) and to spend the resulting funds to buy “an equivalent amount of domestic permanent carbon removal units”.

💡 I took that equivalence to mean 250Mt of CDR. On further inspection, however, the proposal does not bind the EU to any number. Depending on the price gap between CDR and EUA in 2031-2040, the amount could be significantly smaller.

🤑 So what will EUAs cost in the 2030s? That question is almost impossible to answer. Today, they stand at around €80/EUA. Experts such as Luyue Tan from the London Stock Exchange Group had estimated €150-€300/EUA (see comments). An updated number would likely be much lower, especially given how much the ETS is bound to change as a result of this proposal.

🤷‍♂️ The 10Mt of EUAs set aside to bridge this gap may well not be enough.

‼️ If the EU were to purchase less than 250Mt of CDR, it could lead to an inability to meet the EU’s stated need for 75Mt / year of permanent removals by 2040 (as per Climate Law Impact Assessment). I did not see an explanation for this in the proposal.

So where does this leave us / what are the options:

1️⃣ EUAs could go up in price enough to cover a BioCCS/DACCS portfolio 

2️⃣ The EU finds ways to lower the cost of a CDR portfolio by integrating lower cost permanent removals into the ETS starting with biochar carbon removal (BCR) and followed by future CRCF permanent removals

3️⃣ The EU prioritises lowering the cost of BioCCS/DACCS pre-2031 through further investments (e.g. frontloading of ETS revenues)

4️⃣ More funding is unlocked to bridge the gap with, for example, carbon contracts for difference (CCfDs) through the Industrial Decarbonisation Bank (IDB)

 5️⃣ The EU buys less than 250Mt of CDR and does meet its 2040 Climate Target

🙏 At this point, I would like to thank Michael Kril-Mathres for being the first to point this out to me (after 30,000 people had already seen my post and not caught this) and Elisabeth Harding for sparring with me on this on a saturday. 

❤️ This is what I love about LinkedIn: swarm intelligence can shine light so quickly on the important nuances. I encourage all of you to do the same on this post - tell me what I missed or what else we should be thinking about.

👉 Want to stay informed with all the important CDR developments in Europe and beyond? Be sure to subscribe to my monthly newsletter, the GigaTen: https://lnkd.in/d2BKe7gr

🗣️ Over to you - let's keep the analysis going.

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