Mitigation deterrence in emissions trading schemes: Managing low quality demand for carbon removal

This Perspective reviews policy developments in the UK and the EU regarding the integration of carbon dioxide removal into emissions trading schemes, and discusses the risk of mitigation deterrence, i.e. the risk that such integration undermines overall decarbonisation efforts. The Perspective draws on consultation documents and a related advisory report. In both cases, the mitigation deterrence risk is acknowledged and countermeasures are being proposed, including a gross emissions cap for the UK and the need for robust monitoring, reporting and verification. However, there is a lacuna when it comes to policy proposals focussing on the quality of demand for carbon removal, which matters in several ways. Given a limited potential for carbon removal, demand from sectors whose emissions are relatively easy to abate could crowd out those sectors whose emissions are harder to abate. Moreover, decarbonisation can be slow and path dependent, and any reduction in incentives today can mean decarbonisation is not achieved in time for net zero targets to be reached. For hard-to-abate sectors, that may not happen fully anyway, but easy-to-abate sector decarbonisation must not be slowed down. The Perspective sets out policy recommendations regarding differentiated treatment of demand from easy- and hard-to-abate sectors, as well as the need for being transparent regarding residual emissions, and explicit regarding the temporal and political aspects of technologies like carbon removal.