Carbon farming rules are set, the market can’t wait 2034

One week after releasing the Delegated Act of the EU Carbon Removals and Carbon Farming framework, the European Commission has, today, presented its Emissions Trading System revision, committing only to assess — in a 2034 review — the possibility of selling carbon farming credits on the ETS market and allowing Member States to mobilise ETS revenues to support investments to reduce agricultural emissions linked to smart fertilisation, including farmers’ uptake of bio-based, organic and circular fertilisers.

Farm Europe and Eat Europe assess positively those initial steps, but regret the move to re-integrate international carbon credits, which risk diverting demand away from domestic solutions and investment in Europe, and the further delayed recognition of carbon farming credits. We also regret that the ETS revision does not propose to clearly suspend the application of the ETS and CBAM to fertilizers — which would shift the incentive away from penalising production and towards stimulating demand for low-carbon fertilisers. At the very least, the prolongation of free allowances should be paired with a revised CBAM trajectory and with the possibility to sell carbon farming credits into the ETS.

Farm Europe and Eat Europe  urge both the Commission and the co-legislators not to further postpone the possibility to connect Carbon Farming CRCF credits to the ETS, creating a true business model for emission reduction in agriculture, in Europe. Although the proposal anticipates a review in 2034 and subsequent consideration of the inclusion of credits from carbon farming, carbon farming needs a market now. Agriculture is a building block of the defossilisation of a large part of the EU economy, well beyond the food market. The agricultural sector requires large scale investments and policy coherence to be in a position to provide circular, biogenic carbon, essential to lay down the foundation of a competitive carbon neutral economy.

“The adoption of the carbon farming methodologies last week associated with the commitment from the Commission to examine direct links between CRCF and ETS are encouraging developments in the effort to create a true leverage for emission reduction in agriculture”, reacted Luc Vernet, Secretary General of Farm Europe, adding, “now is the time to move from concepts to concrete decisions. Farmers can’t wait 2034 to be fairly rewarded for their emission reduction efforts”.

As for free allocation, we welcome the proposal to slow the reduction of free allowances for CBAM-covered sectors and to extend the phase-out of free allowances until 2038. However, this extension must necessarily be accompanied by a revision of the trajectory of the CBAM for fertilisers.

“The two mechanisms are intrinsically linked and should operate in a coordinated manner. Extending free allocation while maintaining the CBAM for fertilisers would result in divergences between two instruments designed to address the same carbon leakage risk, undermining the coherence and effectiveness of the EU carbon pricing framework,” said Luigi Scordamaglia, President of Eat Europe.

Voluntary carbon markets currently do not offer real and predictable opportunities to allow farmers to trigger investments in emission reduction and carbon removals, including in low carbon fertilisers. The ETS revision is a unique opportunity to close this gap. It sets out how domestic permanent carbon removals could be accounted for within the trading system to help address residual emissions in hard-to-abate sectors. The European Commission will examine how carbon farming and nature-based carbon sequestration units could in future qualify as permanent removals — of which, at this stage, only BioCCS and DACCS are included in the ETS. 

In addition, the Commission proposes to channel part of ETS revenues to investments to reduce agricultural emissions linked to more efficient use of fertilisers and to support farmers in the uptake of bio-based, organic and circular fertilisers. The modernisation fund will also support investments in lead markets for the production of affordable low-carbon and bio-based fertilisers.