Integrating Greenhouse Gas Removals in the UK Emissions Trading Scheme

This blog consists of a response made on behalf of Sylvera in August 2024 to the joint government consultation on integrating Greenhouse Gas Removals (GGRs) into the UK Emissions Trading Scheme (ETS). 

The consultation was conducted by the UK ETS Authority (comprising the UK Government, Scottish Government, Welsh Government and the Department of Agriculture, Environment and Rural Affairs for Northern Ireland).

The consultation proposes options and seeks views on:

• Principles for policy design when integrating GGRs into the UK ETS
• Cap policy options
• Allowance design for GGRs
• Permanence of carbon storage
• Pathways to integration

You can find the consultation document here for reference. 

Sylvera is broadly supportive of the proposals to include GGRs in the UK ETS; we especially applaud the government’s focus on ensuring that GGRs are of high quality, given how the quality of GGR projects can vary significantly. However, we highlighted a few key areas of concern, and recommendations to ensure the scheme’s success.

Key Points from Sylvera's Response:

1. Failure to Acknowledge Credit Quality
   The consultation ignores the fact that two projects using the same methodology can achieve markedly different outcomes for the climate, ranging from no impact at all to high impact. We therefore strongly suggest leveraging carbon ratings to ensure the quality of individual projects, which would enhance the environmental impact and transparency of the system.
   
   
2. Concerns Over Regulatory Complexity
   We also have concerns about the regulatory treatment of GGRs as ‘specified investments’ under existing laws, particularly the Financial Services and Markets Act. The consultation does not fully address the complexities of how GGRs could move between voluntary carbon credits (VCCs) and UK ETS allowances. This could create confusion for market participants and hinder investment in the GGR sector.
   
   
3. Protecting the Voluntary Carbon Market (VCM)
   The government must ensure the integration of GGRs into the UK ETS does not negatively impact the voluntary carbon market. Both markets should work together to accelerate progress towards net zero.
   
   
4. Importance of Clear Policies for Smaller GGR Operators
   Smaller GGR operators, like landowners, could face burdens when navigating the complexity between VCCs and UK ETS allowances. The government needs to make it easier for these operators to balance the issuance and sale of VCCs and GGR allowances, to maximise returns and drive greater climate impact.
   
   
5. Differentiating GGR Allowances
   Sylvera believes GGR allowances should be treated differently from standard UK ETS allowances because GGRs can provide a greater direct climate benefit by removing carbon from the atmosphere. Differentiated allowances could attract higher prices and help incentivise the growth of the GGR sector.
   
   
6. Ensuring Permanence and Accountability
   When it comes to long-term carbon storage, project-specific data and real-time monitoring must be used to assess and manage risks. We also recommend incorporating the emerging carbon insurance sector to handle risks of reversal (i.e. if stored carbon is released back into the atmosphere).
   
   
7. Strengthening the Signal for GGR Operators
   We emphasise the importance of sending a strong demand signal to GGR operators, particularly because the sector is still in its early stages. Maintaining a strong market signal is crucial to support the growth of the GGR ecosystem and to ensure that operators can deliver the high volumes of emission removals they’ve committed to non-ETS participants.
   
   
8. Ex-Post Issuance of GGR Allowances
   Sylvera fully supports issuing GGR allowances after the carbon removal has occurred and been verified. This approach helps prevent over-issuance and ensures that any credits issued reflect actual climate impact. Issuing credits in advance of removals taking place risks over-issuance, and hence overstated climate impact.
   
   
9. Inclusion of Non-UK Based Projects
   We advise that the UK ETS should allow for an international element, meaning GGRs from projects outside of the UK could be included if they meet certain criteria. Supporting a global approach to climate change is essential, particularly since the UK might become a net exporter of GGRs in the future. While removals might not be delivered in the UK, certain projects may have supply chains which are reliant on UK supplies, making a case for a broader international framework.

Overall, Sylvera is supportive of integrating GGRs into the UK ETS, but we emphasise the need for robust project-level quality control, clear regulatory frameworks, and protection of the voluntary carbon market. 

By ignoring the fact that credit quality varies materially at the project level, the consultation misses a crucial facet of the carbon markets, and risks opening the UK ETS up to GGRs of uncertain (or even dubious) quality. Ratings data can help ensure and assure the quality of GGRs within the UK ETS.

Despite our concerns and recommendations, we are hopeful that the Authority acts boldly and ambitiously. This integration will send a hugely needed demand signal, and therefore cannot come soon enough from a climate perspective.

To learn more, read our response in full here.