The EU ETS is on a trajectory to reach near-zero emissions allowances by 2039. Meanwhile, debates are intensifying over whether, and to what extent, CDRs should interact with existing emissions abatement policies like the ETS.

The European Commission is tasked with delivering a report to the Parliament and Council by July 2026, exploring how negative emissions could be accounted for and covered by emissions trading.

This policy brief explores:

• How to deal with the ETS ‘endgame’,
• Whether there could be a place for CDR,
• If not, what an appropriate policy framework for developing permanent carbon removals might look like.

• Methods of CDR which could deliver permanent removals (e.g. DACCS, BioCCS) still need to mature.
• Their ability to deliver real ‘net’ removals has yet to be demonstrated at scale, and monitoring, reporting and verification (MRV) methodologies are still very incomplete.
• The CO₂ transport and storage infrastructure they require is also not yet in place.

• The ETS will have a surplus of allowances sufficient to meet demand under the Commission’s base policy scenario until 2040.
• Including permanent removals prematurely could exacerbate longstanding oversupply issues, and undermine market efficiency.
• Allowing removals into the ETS risks abatement deterrence.

• The flow of issued removal units would be hard to estimate before projects are invested in.
• Maintaining a “gross cap” (emissions cap + removal units supply) could have unintended consequences.
• Carbon Contracts for Difference (CCfDs) to balance cost differences between removal units and emissions allowances might exacerbate this issue and further weaken the incentive for covered entities to reduce their emissions.

• Market mechanisms alone cannot drive investment in early-stage development or shared infrastructure under uncertain regulatory conditions.
• Existing funding programs, such as Horizon Europe and the Innovation Fund, are helpful but inadequate on their own.
• A dedicated public investment vehicle is needed to help fund the development of permanent removals.