Carbon-removal technology may be crucial in addressing the growing demand for carbon allowances within the EU emissions trading system (ETS) in the coming decade.
While gas demand in the EU power sector is expected to remain consistent between 2022 and 2040, the increasing electrification of road transport, home heating and industrial heating will escalate overall electricity demand. Although renewable capacity will grow, seasonal solar power generation poses challenges in meeting winter heating demands.
As the EU ETS’s emissions cap approaches zero by around 2040, there will be a substantial requirement for carbon removals, potentially driving the carbon price above €450/t CO2e by 2040. To alleviate this pressure, analysts suggest cross-financing carbon removal technology through a legislative framework to encourage its development.
Failing to make necessary changes promptly could lead to a gap in emissions reductions and liquidity, creating a challenging situation. The EU is working on a framework for quantifying carbon removal in industrial activities, including direct air capture (DAC), storage, and bioenergy-based carbon capture and storage (CCS).