Meeting the *Paris Agreement*’s targets of limiting global temperature increase to well below two degrees Celsius requires the upscaling of investment in carbon capture and storage (CCS) applications, including both fossil energy and industrial point-source capture (that is, applications that reduce CO2 emissions by abating its release into the atmosphere—so-called ‘zero’ carbon technologies) and technological carbon dioxide removals (CDR) (that is, CCS applications that remove previously emitted CO2 from the atmosphere—so-called net-negative technologies).<fnref n="1" /> According to the Intergovernmental Panel on Climate Change (IPCC), this is because CCS applications are a prerequisite of reaching net-zero (and ultimately, net-negative) targets, which still allow for residual emissions in hard-to-abate sectors insofar as those are (more than) offset by deeper emission reductions or emission removals elsewhere.<fnref n="2" />

Aa countries gradually assume such targets in the context of their nationally determined contributions (NDCs) and even enshrine them in domestic legislation,<fnref n="3" /> CCS applications are set to play an increasingly important role in their mitigation strategies.<fnref n="4" /> Not surprisingly, multiple jurisdictions including Canada, the European Union (EU), Switzerland, the United Kingdom (UK), the United States (US), Norway and China have either already adopted policies on CO2 management or have indicated their intention to make use of CCS applications in their NDCs or Long-Term Low Greenhouse Gas Emission Development Strategies to meet climate targets.<fnref n="5" /> A common challenge is however how to generate the necessary stream of financing for CCS to be deployed at the pace and scale that is needed, given that most CCS applications have not reached technological maturity and remain extremely costly, making under-delivery “virtually certain” absent dedicated policy accelerating CCS readiness.<fnref n="6" />

Against this backdrop, countries with an emission trading system (ETS) in place have started to explore avenues to integrate CCS into their ETS schemes to support the development and deployment of CCS technologies through their compliance carbon markets. One obvious reason for this is that CCS applications sit at the heart of net-zero strategies for energy and industry sectors such as power generation, cement, steel and chemicals,<fnref n="7" /> which are most often the main sectors covered by ETS schemes.<fnref n="8" /> A few jurisdictions, including the EU, Switzerland and the UK, have already regulated explicitly the interaction between their ETS and fossil energy and industrial point-source capture with the objective to reduce compliance obligations for covered ETS installations engaging in such technologies.<fnref n="9" />

Another reason is that the role of ETS schemes is expected to evolve significantly beyond 2030, when they will be expected to contribute to mid-century net-zero targets via shifting from a net-positive design to a net-zero and possibly even net-negative design.<fnref n="10" /> In this vein, some jurisdictions such as the EU and the UK have launched public consultations on how their respective ETSs could be updated to include CDR technologies.<fnref n="11" /> At the time of writing, no existing ETS scheme has included provisions for enabling technological removals, but various options for accepting CDR credits generated outside the ETS, including in other jurisdictions in the context of national credit programs and/or cooperation mechanisms based on Article 6 of the *Paris Agreement*, are currently being debated.<fnref n="12" /> This could unlock the untapped potential of carbon markets to accelerate progress toward net-zero targets: based on recent studies, for instance, implementing NDCs through cooperation mechanisms based on Article 6 rather than independently could reduce mitigation costs by more than USD $300 billion per year by 2030.<fnref n="13" /> The share of State Parties envisaging the use of Article 6 mechanisms has accordingly almost doubled in latest years, from 44% to 87%, in the new or updated NDC submissions,<fnref n="14" /> but the offset credibility problem continues to deter governments from considering unconditional acceptance of CDR credits.<fnref n="15" />

With the integration of CCS with ETSs is still at its infant stage, policy design options are vibrantly debated in the climate governance community,<fnref n="16" /> but still overlooked within the trade community. Focusing on the example of the EU, this article attempts at mapping the implications of the main among such options under international trade law with the aim to identify new priorities for a trade and climate agenda that aligns with a net-zero future.

<footnote n="1">Importantly, there exists other technological CDR solutions that do not imply CCS applications, such as the planting of forests and increasing the content of carbon in e.g. agricultural soil. Stephanie La Hoz Theuer et al, *ETS, Reloaded? Designing Emission Trading for Net-Zero and Net-Negative Societies* (Berlin: International Carbon Action Partnership, 2025) at 3.</footnote>

<footnote n="2">Intergovernmental Panel on Climate Change, *Summary for Policymakers: A Report of the Intergovernmental Panel on Climate Change* (Geneva: IPCC, 2023) at 21.</footnote>

<footnote n="3">Johannes Bednar et al, “Beyond Emission Trading to a Negative Carbon Economy: A Proposed Carbon Removal Obligation and its Implementation” (2024) 24:4 Climate Pol’y 501 at 502.</footnote>

<footnote n="4">La Hoz Theuer et al,*supra* note 1 at 6—8.</footnote>

<footnote n="5">Global CCS Institute (July 2021), “101 Questions and 101 Answers from the CCS 101 Webinar Series”, online (pdf): <globalccsinstitute.com> [perma.cc/WV2W-QQNM]; United Nations Environment Programme, *Emissions Gap Report 2021: The Heat Is On—A World of Climate Promises Not Yet Delivered*(Nairobi: UNEP, 2021); La Hoz Theuer et al,*supra* note 1 at 7.</footnote>

<footnote n="6">Matthias Honneger et al, “The ABS of Governance Principles for Carbon Dioxide Removal Policy” (2022) 4 Frontiers Climate 1 at 7.</footnote>

<footnote n="7">IEA (2020), “CCUS in Clean Energy Transitions”, online (PDF): <iea.blob.core.windows.net> [perma.cc/D35G-R7Q7].</footnote>

<footnote n="8">La Hoz Theuer et al,*supra* note 1 at 8.</footnote>

<footnote n="9">See below, section I.</footnote>

<footnote n="10">La Hoz Theuer et al,*supra* note 1 at 22—23.</footnote>

<footnote n="11">*Ibid* at 40—1. Discussions are not limited to the inclusion of technological CDR units using CCS applications, such as bioenergy with carbon capture and storage (BEECS) and direct air carbon capture and storage (DACCS), but also nature-based CDRs methods. This article, however, only focuses on CCS.</footnote>

<footnote n="12">EU, *Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 2021/1119 establishing the framework for achieving climate neutrality*, [2025], OJ, COD 2025/0524, online (PDF): <climate.ec.europa.eu> [perma.cc/46E4-AZ8V] [*Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 2021/1119 establishing the framework for achieving climate neutrality*].</footnote>

<footnote n="13">Sha Yu et al, “The Potential Role of Article 6 Compatible Carbon Markets in Reaching Net-Zero” (2021) International Emissions Trading Association and University of Maryland, Working Paper, online (PDF): <ieta.org> [perma.cc/U64T-WR8N] at 8. See also James Edmonds et al, “How Much Could Article 6 Enhance Nationally Determined Contribution Ambition toward Paris Agreement Goals through Economic Efficiency?” Climate Change Econ (2021) 12:1 at 12.</footnote>

<footnote n="14">UNFCCC, *Nationally determined contributions under the Paris Agreement: Synthesis report by the secretariat. Conference of the Parties serving as the meeting of the Parties to the Paris Agreement. Third session Glasgow, 31 October to 12 November 2021* (Bonn, Germany: UNFCCC, 2021). See also Axel Michaelowa et al, *Article 6 Readiness in Updated and Second NDCs* (Freiburg, Germany: Perspectives Climate Group, 27 October 2021).</footnote>

<footnote n="15">Andrew Lang and Greg Messenger, “The Standards-Regulation Nexus: Mapping the Ecosystem of Standardisation” (2024) at 9—11, online: <bsigroup.com> [perma.cc/F8G3-56LC].</footnote>

<footnote n="16">Honneger et al, *supra* note 6; Joshua Burke & Ajay Gambhir, “Policy Incentives for Greenhouse Gas Removal Techniques: The Risks of Premature Inclusion in Carbon Markets and the Need for a Multi-Pronged Policy Framework” (2022) 3 Energy and Climate Change; Stephanie La Hoz Theuer & Andrés Olarte, “Emission Trading Systems and Carbon Capture and Storage: Mapping Possible Interactions, Technical Considerations and Existing Provisions”(Berlin: ICAP, 2023); Johannes Bednar et al, “Beyond Emission Trading to a Negative Carbon Economy: A Proposed Carbon Removal Obligation and its Implementation” (2024) 24:4 Climate Policy 501.</footnote>
# I. Crediting Emission Reductions from CCS in the ETS

As of now, the main option that has been experimented with in the EU ETS consists of absolving regulated installations from the obligation to surrender emission allowances for the amounts of CO2 from fossil origin and from process emissions that are captured and geologically stored in EEA countries in accordance with the *EU CCS Directive*or stored in long-lived products, such as building materials.<fnref n="17" />

Allowing ETS operators to avoid the cost of paying the carbon price provides them with an incentive that corresponds to the value of the absolved emission allowances—whose price is however, at least for now, neither high nor stable enough to guarantee long-term certainty for CCS investors.<fnref n="18" /> The debate is still open on what might be the best instrument to bridge this price differential within the EU ETS mechanics. What is noteworthy, however, is that in the short-term CCS crediting might still lead to reward CO2 emission reductions above those induced by the prevailing carbon price level in the EU ETS as a result of its combination with free allocation of emission allowances.

At the time being, the EU ETS still accommodates for the granting of free allowances to sectors that are exposed to carbon leakage based on trade and emission intensity criteria.<fnref n="19" /> The number of free allowances is determined in accordance with benchmarks that are determined by considering the best performing 10% of EU installations.<fnref n="20" /> This means that, in those cases where acknowledging CCS-induced emission reductions brings actual emissions below the benchmark for free allocation, CCS crediting would lead to over-compensation through free allocation—*de facto* turning free allowances into surplus allowances (that is, allowances that would have to be sold or used to cover for emissions coming from other installations owned by the recipient). This would practically translate into a cash transfer scenario for regulated entities making use of CCS applications, making the regime likely to constitute a “direct transfer of funds” within the meaning of Article 1.1(a)(1)(i) of the *Agreement on Subsidies and Countervailing Measures*<fnref n="21" /> (*ASCM*) and conferring a “benefit” upon installations engaged in CCS activities as per Article 1.1(b) *ASCM*.

The free allocation regime is already considered the most controversial feature of the EU ETS under international trade law.<fnref n="22" /> The US Department of Commerce determined that the EU free allocation regime constituted a countervailable subsidy.<fnref n="23" /> More recently, the Russian Federation filed a WTO complaint against the EU Carbon Border Adjustment Mechanism (CBAM)<fnref n="24" /> and argued, *inter alia*, that the free allocation regime on its own and read together with the relevant provisions of the *EU ETS directive*, as well as implementing acts and other documents is a prohibited subsidy contingent upon export performance as per Article 3.1(a) *ASCM*.<fnref n="25" />

In a similar vein, it could be contended that, as regulated entities start making use of CCS applications while still being granted free allowances—or, arguably, precisely in the attempt to seize the opportunities inherent to the free allocation regime for the purposes of bridging the CCS price differential—the crediting feature may likely face a high level of legal risk under the *SCM Agreement* to the extent that it might be considered to intensify the adverse effects inherent to the free allocation regime. This is because under the current regime, if an installation uses CCS, it may emit much less than the benchmark, but still receive the same number of free allowances because of the specifics of product-based benchmark methods used to determine free allocation levels.<fnref n="26" /> This scenario may materialize even more likely given that operators are aware of the limited window for exploiting the mechanics of the free allocation regime due to gradual phase out trajectory agreed in the context of the latest revision of the *EU ETS directive*.<fnref n="27" /> More generally, such revision aims at strengthening the ETS to generate a stronger carbon price signal (e.g. via tightening of the cap through the increase of the so-called linear reduction factor), which in turn may furthermore increase appetite for surplus allowances holding a higher value.<fnref n="28" /> One might even expect that such prospects might add to the list of motives used by EU businesses to advocate for a reconsideration of the phase out trajectory, whose completion is currently envisaged by 2034.<fnref n="29" /> From a trade law standpoint, however, de-risking instruments such as carbon contracts for difference (CCfDs) arguably constitute a better alternative to reward CO2 emission reductions above those induced by the prevailing carbon price level in the EU ETS. As explained in the next section, this holds true when such instruments are examined from trade and climate lens, as they can more easily be decoupled from free allocation in the short run and thus ensure that ETS installations remain exposed to the full costs of their non-captured carbon emissions.

<footnote n="17">EU, *Directive (EU) 2023/959 of the European Parliament and of the Council of 10 May 2023 amending Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union and Decision (EU) 2015/1814 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading system*, OJ, L 130/134 [*Directive (EU) 2023/959*].</footnote>

<footnote n="18">Ilaria Espa, *Making the Swiss Emission Trading System Work for CSS: A Legal Analysis*, DemoupCARMA Report, Appendix D to the WP5 Final Report, 2023, online (pdf): <aramis.admin.ch> [perma.cc/9UJP-HTFZ] [WP5 Final Report].</footnote>

<footnote n="19">EU, *Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC*, [2003] OJ, L 275/32, arts 10a, 10b.</footnote>

<footnote n="20">EU, *Commission Delegated Regulation (EU) 2019/331 of 19 December 2018 Determining Transitional Union-Wide Rules for Harmonized Free Allocation of Emission Allowances pursuant to Article 10a of the Directive 2003/87/EC of the European Parliament and of the Council*, [2019] OJ, L 59/8; EU, *Commission Delegated Decision (EU) 2019/708 of 15 February 2019 supplementing Directive 2003/87/EC of the European Parliament and of the Council Concerning the Determination of Sectors and Subsectors Deemed at Risk of Carbon Leakage for the Period 2021 to 2030*, [2019] OJ, L 120/20.</footnote>

<footnote n="21">*Agreement on Subsidies and Countervailing Measures*, Annex 1A of *Marrakech Agreement Establishing the World Trade Organization*, 15 April 1994, 1867 UNTS 154 [*ACSM*].</footnote>

<footnote n="22">Roland Ismer et al, “Supporting the Transition to Climate-Neutral Production: An Evaluation Under the Agreement on Subsidies and Countervailing Measures” (2023) 26:2 J Intl Econ L 216; Ilaria Espa et al, “The EU Proposal For A Carbon Border Adjustment Mechanism (CBAM): An Analysis Under WTO And Climate Change Law” (2022) 20:1 Oil Gas Energy L 1 at 7; James Bacchus, “Legal Issues with the European Border Carbon Border Adjustment Mechanism” (Cato Institute: 2021) at 4.</footnote>

<footnote n="23">*Forged Steel Fluid End Blocks from the Federal Republic of Germany and Italy: Final Affirmative Countervailing Duty Determination*, 85 Fed Reg 79856 (2020); Andrei Marcu et al, *Scaling Up and Trading CO2 Storage Units (CSUs) under Article 6 of the Paris Agreement* (Brussels: ERCST, 2021).</footnote>

<footnote n="24">WTO, *European Union and its Member States—Carbon Border Adjustment Mechanism: Request for Consultations by the Russian Federation*, WTO Doc WT/DS639/1, G/L/1573, G/SCM/D142/1, G/LIC/D/55, 19 May 2025.</footnote>

<footnote n="25">*Ibid* at paras 2.2, 3.2.</footnote>

<footnote n="26">Ernst Kuneman et al, *Benchmark-based allocation in emissions trading systems: Experiences to date and insights on design*(Berlin: ICAP, 2022) at 8—12.</footnote>

<footnote n="27">*Directive (EU) 2023/959, supra* note 17 art 10 (b), para. 1(a).</footnote>

<footnote n="28">In the context of the Fit for 55 reform, the revision of the EU ETS is meant to bring emissions in covered sectors down from 43% to 62% by 2030 compared to 2005 levels: *ibid* at recital 39. For more details on the EU ETS revision more generally, Appendix D to the WP5 Final Report, *supra* note 18, Appendix D.</footnote>

<footnote n="29">*Directive (EU) 2023/959, supra* note 17, art 10 (b) at para 1(a).</footnote>
# II. Carbon Contracts for Difference (CCfDs)

Given the price differential that will likely remain in the short- to medium-term between the carbon costs borne by ETS installations based on the price of emission allowances and CCS costs, de-risking instruments such as carbon contracts for difference (CCfDs) could provide for an additional support measure through which the government could contribute to the added costs of CCS incurred by ETS installations.

CCfDs are carbon-connotated versions of contracts for difference (CfDs), which are usually long-term contracts between governments, on the one hand, and economic operators, on the other hand, whereby payments can flow from the former to the latter and vice versa depending on the difference between the reference price and a pre-agreed level (the so-called strike price), which reflects the expected costs (e.g. investment costs, operating costs and/or capital expenditures) for the operators.<fnref n="30" /> The idea is to help hedging against volatile prices in order to stabilize the revenues at a pre-determined level for the duration of the contract. Typically, CfDs have been used to provide incentives for decarbonizing the electricity sector.<fnref n="31" /> *Mutatis mutandis*, CCfDs can be specifically used to address the carbon revenue stream as a means to either support the uptake of a specific technology (e.g. CCS technologies) or to trigger the transformation of entire industries (e.g. the cement sector) more generally.

Reflecting such potential, CCfDs have not only been introduced in a number of the EU member states such as the Netherlands, Germany and the UK;<fnref n="32" /> they have also been explicitly envisaged as a tool for fostering emission reductions in industrial sectors covered by the ETS through the scaling-up of climate-friendly technologies such as CCS within the context of the latest Fit for 55 reform.<fnref n="33" /> Under the new *EU Directive 2023/959*, CCfDs are defined as

> a contract between the Commission and the producer, selected through a competitive bidding mechanism such as an auction, of a low—or zero-carbon product, and under which the producer is provided with support from the Innovation Fund covering the difference between the winning price, also known as the strike price, on the one hand, and a reference price derived from the average price of allowances, on the other hand.<fnref n="34" />

Importantly, the declared goal is to support new technologies by ensuring to ETS installations “a price that rewards CO2 emission reductions *above* those induced by the prevailing carbon price level in the EU ETS”.<fnref n="35" /> The instruments chosen to ensure affordability of CCfDs spending is the Innovation Fund, which is financed with the proceeds coming from the auctioning of EU emission allowances and which has also been significantly strengthened under the EU ETS revision.<fnref n="36" /> The idea is to hedge against fluctuations of the EU ETS allowances’ prices—and therefore increase bankability and financing of projects, while at the same time avoiding excessive spending through a competitive discovery process such as competitive bidding (auctions) informing the award mechanism.<fnref n="37" />

While it is too early to assess lights and shades of the mechanism as it is envisaged in the revised *EU ETS Directive*, the decision of the EU to count on CCfDs signals the awareness of the insufficiency of CCS crediting to trigger the necessary volumes of investment in new technologies needed to meet the Unions’ net-zero targets such as CCS. Accordingly, CCfDs are singled out as targeted instruments for supporting the upscaling of CCS technologies with a view to fully equalize the costs of carbon capture incurred by ETS installations.

One of the issues most often raised with regard to CCfDs is the budgetary uncertainty that this instrument creates for both companies and public institutions due to the difficulties entailed in predicting the exact evolution in the price of emissions allowances.<fnref n="38" /> Most typically, in the short- to mid-term it would be that governments bear the costs of supporting the uptake of new CCS technologies, but only until “a rise in global carbon price improves returns of carbon-neutral installations [so that] the payouts by governments to producers would be lower or even negative.”<fnref n="39" /> A calibrated use of CCfDs could furthermore prevent excessive spending to the extent that (i) the level of support (strike price) would be set by the market through a competitive discovery process such as auctioning; and (ii) the reference price would keep on growing as a result of the incremental strengthening of the EU ETS inducing a stronger carbon price signal. This is not to say that support for CCS through CCfDs would prove unproblematic from a political standpoint, and this is especially considering the relatively scarce resources that could be available as a matter of ETS design through the proceeds of the revenues. When assessing the opportunity to conceive of additional budgetary outlays for funding CCfDs in the short- to mid-term, however, one should bear in main that carefully designed CCfDs not only have the potential to minimize overall funding needs but also carry the opportunity for governments to recuperate assumed costs as the price of ETS allowances rises.<fnref n="40" />

Irrespective of potential difficulties to decide on the allocation of the necessary resources at the political level, from a legal standpoint it is worth noting that the implementation of CCfDs is arguably not very likely to raise hurdles when it comes to its compatibility with World Trade Organization (WTO) rules. This is mainly because, based on existing WTO jurisprudence, a scheme that is based on a competitive discovery process such as auctioning would not be considered to be granting a “benefit” within a meaning of Article 1.1(b) *ASCM*, and therefore it would not qualify as a subsidy captured under the *Agreement*.<fnref n="41" />

<footnote n="30">Andrei Marcu & Antonio A Fernandez, “Reflection Note on Carbon Contracts for Difference (CCfD)” (2023), online: <ercst.org> [perma.cc/Q4U2-QLGY].</footnote>

<footnote n="31">Ismer et al, *supra* note 22 at 229.</footnote>

<footnote n="32">Marcu & Fernandez, *supra* note 30.</footnote>

<footnote n="33">*Directive (EU) 2023/959, supra* note 17, recital 59, art 10a(8).</footnote>

<footnote n="34">*Ibid*. In other words, while the reference price would consist of the average ETS allowances’ price, the strike price would be defined through competitive bidding with a view to determine a pre-agreed level prices based upon the mentioned reference price, the expected costs of capture, avoided carbon costs and expected return for CCS investment; Marcu & Fernandez, *supra* note 30. The Directive does not make any reference to the possibility that free allocation be accounted in the definition of the reference price so that CCfD remain completely separate from the free allocation regime (see Section 2).</footnote>

<footnote n="35">*Directive (EU) 2023/959, supra* note 17, recital 59 [emphasis added].</footnote>

<footnote n="36">*Ibid*, art 10a(8).</footnote>

<footnote n="37">Marcu & Fernandez, *supra* note 30.</footnote>

<footnote n="38">*Ibid*.</footnote>

<footnote n="39">Ismer et al, *supra* note 22 at 230.</footnote>

<footnote n="40">Jörn C. Richstein, “Project-Based Carbon Contracts: A Way to Finance Innovative Low-Carbon Investments Scheme on the Way to a Climate Neutral Energy System” (2017) DIW Discussion Papers, Working Paper No 1714, online (pdf): <econstor.eu> [perma.cc/63XR-2T6E].</footnote>

<footnote n="41">Ismer et al, *supra* note 21 at 230—31.</footnote>
# III. A Carbon Storage Obligation to Support Sink Enhancements

The CCS crediting mechanism places the incentive only at the point of emissions (i.e. the point of capture), and thereby fails to monetize the other components in the value chain of CCS operations (i.e. transport and storage).<fnref n="42" /> With a view to strengthening support for the entire CCS chain rather than just focus on the value of emission reductions at the point of capture, it has been proposed to supplement carbon pricing policies such as the EU ETS with a carbon storage obligation (CSO) (that is, “the obligation to geo-sequester a percentage of carbon embedded in a product […] arriving eventually at 100% for the target date of net carbon neutrality”) to be met exclusively through carbon storage units (CSUs) granted to storage entities per each ton of CO2 that is geo-sequestered.<fnref n="43" /> According to the proponents, the existence of a CSO obligation will create a demand for CSUs, which can trigger new streams of financing for the creation of carbon storage availability and supply consistent with the goal to reach net-zero targets. In other words, a CSO obligation met through CSUs would render geo-sequestration through storage financially viable.<fnref n="44" /> Similar policy options are being discussed in the EU for (technological) CDRs specifically.<fnref n="45" />

Such a framework could be realized unilaterally or within the context of the NDC regime developed under the *Paris Agreement*.<fnref n="46" /> This would imply that the EU establish (an ideally ratcheting) CO2 storage target to be reached at future points in time either as a matter of domestic legislation/policy and/or within its NDC.<fnref n="47" /> Importantly, the target would not need to be reached exclusively domestically but also through trans-national CCS activities.<fnref n="48" /> CCS clubs could also develop among those countries that would include CCS targets in their NDCs for the purposes of piloting the CSU approach.<fnref n="49" /> Under the proposal, what would happen in practice is that regulated entities

> would be subject to a ratcheting obligation to offset the embodied carbon, with CSUs providing the means of compliance. The CSOs would be surrendered to the governments, which in turn could also use it towards fulfilment of a geological CO2 storage target in its NDCs.<fnref n="50" />

Developing a CSUs market under the umbrella of Article 6 of the *Paris Agreement* might likely constitute a promising option to ensure the quality and integrity of CSUs.<fnref n="51" /> Furthermore, to the extent that CSUs would develop as Article 6-aligned credits, prospects for granting them admissibility within the ETS for compliance purposes could be explored. Crediting CSUs under the EU ETS could provide with an additional incentive to those covered installations that already engage with CCS activities without yet getting to the full equalization of incurred costs through CCS crediting.<fnref n="52" /> At the same time, however, it would be extremely important to ensure that accepting CSUs to count towards ETS compliance would not drive down the price of emission allowances—which, in turn, would create mitigation deterrence problems.<fnref n="53" /> A similar trajectory occurred after acceptance of credits from Clean Development Mechanism (CDM) and Joint Implementation (JI) credits during the first phases of the EU ETS, which led the Union to ultimately opt for the non-admissibility of such credits in the fourth phase (2021—2030).<fnref n="54" />

The EU approach might be shifting in the short—to medium term, however. In its legislative proposal to amend the European Climate Law, the Commission proposed a 90% net emission reduction target for 2040 (compared with 1990) as part of the pathway toward climate neutrality by 2050.<fnref n="55" /> The plan is for the 2040 target to be the EU’s next NDC under the *Paris Agreement*. While the 2030 target and the Fit for 55 legal framework to implement it will remain in place, the legal framework for the post-2030 period will be reviewed—possibly starting in late 2026. Among the elements to be reflected in the legislative proposal, the Commission indicates in particular a possible contribution of up to 3% of emissions reductions originating from international carbon credits (with a particular emphasis on BECCS and DACCS projects) under Article 6 of the *Paris Agreement* from 2036 onward, on the one hand,<fnref n="56" /> and the inclusion of domestic permanent removals under the EU ETS to compensate for residual emissions from hard to abate sectors, on the other hand.<fnref n="57" /> This language seems to imply that the EU is considering limiting the acceptance of CDR credits to only removals certified under the *Union certification framework for permanent carbon removals, carbon farming and carbon storage in products*.<fnref n="58" />

While this shift in approach is in principle welcome because it might support the development of CDR technologies, the conditional acceptance of CDR credits might be problematic under trade law since it would favour credits generated by EU-based projects, making credits generated abroad, including those issues under Article 6 of the *Paris Agreement*, less attractive. This would lead to discrimination in violation of the WTO principle of national treatment.<fnref n="59" /> While the EU could seek to justify these violations under the “environmental” exceptions of Article XX of the *General Agreement on Tariffs and Trade*, differentiating between domestic CDR credits and international CDR credits would arguably stand a lower chance to pass the two-tier test to the extent that the latter are issued in alignment with the COP rules adopted in the context of the implementation of Article 6 of the *Paris Agreement*.

<footnote n="42">Andrei Marcu et al, “Scaling Up and Trading CO2 Storage Units (CSUs) under Article 6 of the Paris Agreement”, Roundtable on Climate Change and Sustainable Transition (17 March 2022), online: <ercst.org> [perma.cc/EV9S-7DTK].</footnote>

<footnote n="43">*Ibid*.</footnote>

<footnote n="44">*Ibid*; Johannes Bednar et al, “Beyond Emission Trading to a Negative Carbon Economy: A Proposed Carbon Removal Obligation and its Implementation” (2024) 24:4 Climate Policy 501.</footnote>

<footnote n="45">La Hoz Theuer et al,*supra* note 1 at 40—41.</footnote>

<footnote n="46">*Paris Agreement*, 4 November 2016, 3156 UNTS 79 art 4.</footnote>

<footnote n="47">Marcu et al, *supra* note 23.</footnote>

<footnote n="48">*Ibid*.</footnote>

<footnote n="49">Paul Zakkour & Wolf Heidug, “A Mechanism for CCS in the Post-Paris Era: Piloting Results-Based Finance and Supply Side Policy Under Article 6”, *King Abdullah Petroleum Studies and Research Center* (April 2019); Marcu et al, *supra* note 23.</footnote>

<footnote n="50">Marcu et al, *supra* note 23, also citing Cameron Hepburn et al, *Sensitive intervention points to achieve net-zero emissions: Report of the Policy Advisory Group of the Committee on Climate Change* (Oxford: Climate Change Committee, December 2020) and Margriet Kuijper et al, *Carbon Takeback Obligation: A Producers Responsibility Scheme on the Way to a Climate Neutral Energy System* (Deventer: De Gemeynt, January 2021).</footnote>

<footnote n="51">Marcu et al, *supra* note 23.</footnote>

<footnote n="52">See section II.</footnote>

<footnote n="53">La Hoz Theur et al, *supra* note 1.</footnote>

<footnote n="54">Christoph Riechmann et al, “Levelling up the EU ETS— The EU Fit-For-55 Package and its Implications for Emission Trading in Europe” (2022) 20:1 OGEL Energy LJ.</footnote>

<footnote n="55">*Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 2021/1119 establishing the framework for achieving climate neutrality*,*supra*note 12.</footnote>

<footnote n="56">The Commission is not adamant on the question of admissibility of credits for ETS compliance purposes, but does mention that “These international credits *should* not play a role for compliance in the EU carbon market” (*ibid* at 2, emphasis added). Credits would thus presumably not be linked to the ETS but connected to the EU climate law architecture in some other way.</footnote>

<footnote n="57">*Ibid* at 2.</footnote>

<footnote n="58">EU, *Regulation (EU) 2024/3012 of the European Parliament and of the Council of 27 November 2024 establishing a Union certification framework for permanent carbon removals, carbon farming and carbon storage in products*, [2024] OJ, L 2024/3012.</footnote>

<footnote n="59">Ilaria Espa and Kataryna Holzer, “Trade in Carbon Credits: The Role of WTO Law in the Development of International Carbon Markets” (2025) [forthcoming].</footnote>
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This paper aimed at exploring potential options suitable to make national compliance markets, in particular ETS schemes, instrumental to trigger investment in CCS technologies. To this end, it provided with an analysis of the EU legal landscape governing the EU ETS in general and the integration of CCS in particular. The analysis identified existing challenges arising out of the current configuration of the ETS-CCS interaction and discussed opportunities for further calibrating this interaction in view of further supporting CCS deployment. Accordingly, it discussed a combination of instruments that could altogether contribute encouraging the uptake of CCS technologies among ETS installations in concert with the crediting regime already envisaged in the EU emission trading scheme. It furthermore provided some reflections on how these instruments may fare under international trade law and focused on avenues to improve the most critical design features from a trade and climate change lens for the purposes of increasing WTO compatibility prospects but also, more fundamentally, to harness trade to remove regulatory barriers that still remain for broadening and linking international carbon markets.