How the EU Green Claims Directive can fix corporate climate claims and drive demand for high-quality carbon removal

Europe’s climate goals depend not only on deep emissions cuts, but also on scaling up high-quality carbon dioxide removal (CDR). Yet corporate investment in permanent CDR remains marginal, and public trust in voluntary climate claims is eroding. With trilogue negotiations on the Green Claims Directive underway, the EU has a unique chance to tackle both problems at once.

The Voluntary Carbon Market (VCM) is currently facing three major challenges. First, claims made by companies based on the use of carbon credits are very often misleading or poorly substantiated, as demonstrated recently by a ruling against Adidas in Germany. This issue occurs when these claims are based on vague promises of reaching “net-zero” or “climate neutrality”, without providing sufficiently clear or comprehensive information on how the company concretely plans to achieve such an ambitious goal.

Second, voluntary demand for permanent CDR in the medium to long term is highly uncertain, with CDR representing only 10% of the credits sold on the VCM in 2022. This uncertainty poses a significant problem since in the absence of state-level subsidies or compliance mechanisms, CDR suppliers heavily rely on the VCM as their main source of revenue. With the EU’s removal needs expected to be between 544-558 Mt CO₂e annually by 2050, including 233-256 Mt CO₂e of permanent removals, delays in the scale-up of the CDR sector will jeopardise Europe’s ability to reach its climate goals.

Third, private actors with a genuine desire to invest in climate change mitigation activities have reduced or delayed their purchases of carbon credits due to a lack of clear guidance and reputational risks. Among the key issues preventing businesses from investing in carbon credits are a lack of transparency, varying carbon credit quality, and the current complex web of standards.

The trilogue negotiations on the Green Claims Directive (GCD) are thus happening at a critical time for restoring trust in corporate climate action, protecting consumers and unlocking demand for high-quality CDR. If no action is taken, Europe will miss the unique opportunity to scale a strategic industry which could represent up to €220 billion and 670,000 jobs by mid-century.

Coupled with the EU Carbon Removal and Carbon Farming certification (CRCF), a robust GCD can boost investments towards CDR to support compensation claims by ensuring that the credits purchased have delivered a verified climate benefit and that the claims provide the needed clarity to consumers who wish to encourage sustainable corporate practices.

To achieve this goal, the GCD must enshrine three core principles for transparent and credible climate claims.

First, the GCD must allow compensation claims before net-zero, provided companies are actively reducing their emissions in line with recognised decarbonisation pathways. The European Parliament’s position goes in the right direction by recognising the role of CDR in compensation claims. However, it adds excessive rigidity by only allowing companies to neutralise their residual emissions at the point of net-zero. Such a restriction risks delaying corporate investment in permanent CDR and stalling market development. The GCD must allow companies to compensate the current hard-to-abate part of their emissions with CDR as long as they make verifiable progress toward net-zero and keep their emissions reduction targets separate from carbon credits. This approach would deflect the greenwashing risk while channelling finance into qualitative carbon credits.

Second, the GCD must provide for the gradual implementation of the Like-for-Like principle of carbon flows. The Like-for-Like (LfL) principle requires matching the type of carbon removals to the carbon emission source to reach a state of “durable net-zero” that can be sustained over time. According to this principle, fossil emissions can only be compensated through permanent CDR, while biogenic carbon can be balanced out by nature-based removals.

The Parliament’s report positively integrates this principle, which was missing in the Commission’s proposal. Given the current supply constraints on permanent removals, however, an immediate implementation of this principle would be very challenging. Therefore, EU co-legislators must enshrine the LfL principle in the GCD with a phased implementation, empowering the Commission to define implementation guidelines through secondary legislation. This addition would increase the integrity of climate claims and accompany the growth of the permanent CDR industry along the way.

Third, to guarantee quality in the CDR credits underpinning climate claims, the GCD should ensure that companies can only use ex-post credits that meet stringent quality standards. The CRCF – provided the methodologies the Commission is currently developing for the different CDR methods live up to expectations – could act as this quality standard for EU-based activities. International credits meeting standards equivalent to those of the CRCF should also be eligible. Thus, the GCD text must explicitly allow for the use of all credits compatible with CRCF quality requirements to substantiate climate claims.

The GCD must ensure that the three principles outlined above are enshrined in the final text. However, this directive will not answer all outstanding questions around the substantiation of climate claims and the role of the VCM in scaling up CDR.

There is ongoing uncertainty on the rules for compensation before net-zero. It is increasingly critical to establish an international framework that defines how companies can credibly claim compensation while progressing towards full decarbonisation. The Science Based Targets initiative (SBTi) is supposed to address these questions as part of the revision of their Corporate Net-Zero Standard, with a consultation on their draft 2.0 standard currently open to stakeholders.

At the EU level, outlining decarbonisation pathways for hard-to-abate sectors would provide much-needed clarity to both companies and civil society on the amount of emissions that should be compensated over time and the sectoral trajectories required to reach net-zero. As part of the GCD implementation, the EU should provide guidelines for how companies can express transitional climate claims going beyond the most common, aspirational “net-zero” claims.

Finally, more clarity is needed on how to govern the accounting of credits between the company and country level. The current CRCF rules establish that CRCF-certified credits can only account for the EU NDC, which opens the question of their correct use by a private purchaser on a voluntary market. Overall, the issue of double claiming arises when a company and a country are both claiming the same climate benefit stemming from a carbon credit. This matter is particularly complex in the case of large projects for permanent CDR, which often rely on financial contributions from both the VCM and the host country to succeed. Guidelines are needed to avoid the risk that double claiming lead to mitigation deterrence, both on the government and company side, and to avoid confusion on the accounting of GHG emissions at the country and corporate level.

EU co-legislators must find the right balance between preventing greenwashing and fostering investments in qualitative carbon credits, increasing the focus on permanent removals.

A robust Green Claims Directive will not only protect European consumers, allowing them to make more informed choices, but also make a difference in the EU’s chances to reach net-zero by unlocking investments in high-quality CDR.

By Matteo Guidi and Thibault Aubert