EU ETS + CDR Simulator

• CDR integration is not necessary for the ETS to function during the 2030s, as a small surplus of 157m EUAs in 2040 is still foreseen if the S3 emission reduction scenario from the 2040 target Impact Assessment is followed 

• If CDR enters the ETS earlier, while a net cap is maintained, CDR would displace essential near-term abatement, especially if introduced without quantity limits, with emission reduction deterrence up to 1.8 GtCO2 with the current cap 

• With a ‘one in-one out’ gross cap, cheaper removal options, particularly those relying on biomass, are likely to be over-incentivised, leading to unintended impacts on land-use, biodiversity, and food security. We estimate up to 22 EJ of biomass demand could be created by CDR credits entering the ETS under a gross cap 

• Key CDR technologies (i.e. DACCS) are not expected to be cost-competitive throughout the 2030s so would either not be incentivised or would require separate subsidy frameworks (e.g. CCfDs), which the ETS is not designed to support, would be very costly (up to €11 bln between 2031-40 with the current cap) and would distort price signals in the ETS. 

• A centralised intermediary institution attempting to manage CDR supply into the ETS would have an extremely challenging remit, and could become an administrative and political liability, lacking in accountability, or open to undue influence from vested interests. 

Select the buttons on the left-hand side to create different scenarios. The simulator and horizontal bar graph in the centre update based on these selections. 

The read-outs in the table on the right-hand side show the impact of the selections on allowance surplus, carbon price, deterred emissions abatement, demand for biomass and, where applicable, the cost to EU taxpayers of carbon contracts for difference (CCfDs). 

Cap: The “Current” cap follows a trajectory that reaches near zero by 2039, as per current ETS design. In the “Reduced ambition” scenario, however, the cap reaches 209Mt in 2040 – equivalent to the central emissions level in 2040 from Scenarios 2 of the Impact Assessment. 

CDR Options: In the “No CDR” scenario, no CDR enters the ETS, in the “Net cap” scenario, each CDR credit entering the ETS means emissions can increase by 1 tCO2. The “Gross” cap represents a ‘one in, one out’ cap in which an allowance is cancelled for each CDR credit entering the ETS, so emissions do not increase. 

CDR Methods: Only CDR methods which will be, or could in the future be, certified as permanent under the Carbon Removals and Carbon Farming Regulation (CRCF) are included. “BioCCS & DACCS” are the default permanent removal methods allowed to enter the ETS. BioCCS includes both BECCS and CCS on biogas upgrading. We also include scenarios in which biochar carbon removals (“+BCR”) and, in addition to BCR, enhanced rock weathering (“+BCR + ERW”) are able to enter the ETS, which is contingent on these methods being considered as permanent CDR methods under the CRCF. 

Integration Method: In the “Price-based” integration method, the full potential of the cheapest options are utilised first, with higher limits on potential deployment imposed (see assumptions in Appendices of the accompanying report). In contrast, under the “Quantity limits” scenario, the potential of the CDR methods is capped at central estimates of their deployment potential.  

In both the price-based and quantity limits scenarios, only the volume of CDR that is more cost-effective than emission reductions is integrated into the system. However, in the Carbon Contract for Difference scenario, “CCfD scenario”, all available CDR (central estimate) is included, regardless of whether it is cheaper than emission reductions, with the cost difference made up by a CCfD. 

1. Emission reduction compared to 2005 

This is the emissions reductions achieved as a percentage of emissions compared to 2005. Note, carbon removals are not included in this figure. This allows a clear assessment of the extent to which emissions are reduced at source, rather than compensated for with CDR. It provides a consistent benchmark to compare the ambition level of emission reductions across scenarios. 

1. Surplus EUA and CDR credits remaining after 2040 (incl MSR): 

This is the total surplus EUAs, either already in circulation or still available under certain conditions, and CDR credits. This includes: 

• The Market Stability Reserve (MSR), which releases EUAs when the number in circulation are low 

• The New Entrants Reserve (NER), which releases EUAs when 2-year industry activity levels are high 

• Unallocated EUAs under Article 10a(5), which are released when 5-year activity levels are high 

1. Deterred emissions abatement 

This figure represents the emissions reductions (expressed in MtCO2) which have been deterred by the introduction of CDR credits into the ETS. Note, emissions are only deterred with a net cap, as allowances are cancelled when CDR credits enter the ETS under a gross cap. 

1. Estimated biomass demand 

This is an estimate of the demand for biomass (in EJ) created by CDR in the selected scenarios over the period 2031-2040. This is an indicative figure (see assumptions below), intended to highlight the strain that biogenic CDR methods could place on the land sector. 

1. CCfD cost 

Only relevant for the “CCfD scenario”, the Carbon Contracts for Difference (CCfD) cost is defined as the cumulative subsidy required to bridge the gap between the carbon price and the cost of CDR technologies. It is calculated as the difference between the technology-specific cost and the carbon price, multiplied by the amount of CDR used each year, and summed across all CDR deployment between 2031 and 2040. 

The annual balance of the EU ETS is based on data from the European Commission up to 2024 and Sandbag’s forecasts from 2025 until 2030. Emissions reductions beyond 2030 (S3 scenario) and estimated potentials for BECCS and DACCS (average of S2-S3 scenarios) are taken from the European Commission’s 2040 Impact Assessment. 

Data on the potential of other CDR methods and costs for all CDR methods are taken from literature highlighted in the ESABCC’s 2025 report “Scaling up carbon dioxide removals – Recommendations for navigating opportunities and risks in the EU”. See Appendices of the accompanying report for further detail. 

The model assumes perfect foresight, so the carbon price from 2031-2040 remains constant and is based on the carbon price in 2040. 

CDR credits enter the ETS based on the price (“Price-based”), with limits imposed, (“Quantity limits”), or through a CCfD mechanism (“CCfD scenario”). In the price-based integration method, a maximum upper limit is imposed. For BECCS, the maximum potential from the POTEnCIA modelling is used, as biomass availability constraints are relaxed in that model. For biochar and enhanced rock weathering this is the 2050 potential taken from the ESABCC report, based on the assumption that full potential is already available in 2040. For DACCS, the high potential estimates from ESABCC would be used as an upper limit (though this is not an issue as the high cost of DACCS means it is not cost-competitive with emissions reductions). For both, the quantity-limited integration and the CCfD integration, the central potential estimates are used. 

Constraints related to storage of CO2 are implicitly considered in the projected potentials. While the technical potential of biogas CCS exceeds the 2040 value used here, we adopt a linear scale-up from 0.089 Mt in 2030 to the central estimate (or maximum limit in the case of “Price-based integration”) in 2040, reflecting anticipated limitations in access to CO₂ storage infrastructure around 2030, but easing over the following decade. 

This version of the simulator is intended to focus purely on the integration of CDR and does not model different decarbonisation pathways of sectors already covered by the ETS, unlike the 2030 simulator.