What’s happening in the EU?
Under mounting pressure from NGOs and consumers, the European Commission put forward two proposals to tackle greenwashing: the Empowering Consumers Directive and the Green Claims Directive. These two pieces of legislation are closely intertwined and together regulate what claims can be made and how these claims can be substantiated.
The Empowering Consumers Directive, which the European Union institutions agreed on last autumn, banned generic and unsubstantiated environmental claims. Moreover, it banned claims based on GHG emissions offsetting for goods and services. This left the door open for organisation and company-level claims, which will be policed by the Green Claims Directive.
The European Commission’s Green Claims Directive proposal is currently being negotiated by the two other main EU institutions: the Council (made up of the EU Member States) and the European Parliament (the EU’s directly elected body). In the Parliament, there were concerns that allowing companies to use these carbon credits to make net-zero claims could lead to mitigation deterrence, and there were uncertainties over the quality of carbon credits.
This is where the EU’s Carbon Removal Certification Framework (CRCF) comes in. The CRCF is a voluntary EU-wide framework which will certify carbon removals within the EU. The intention is to have high-quality carbon removal credits that are verifiable. Currently, the Green Claims Directive makes no reference to the CRCF so it is unclear how the CRCF certificates can be used to make climate claims. The lack of clarity in how the certificates can be used in the Voluntary Carbon Market and the current absence of a compliance market raises doubts about the fundamental purpose of the CRCF if the certificates cannot be used for anything.
International dimension
Linking CRCF and the Green Claims Directive would significantly enhance transparency and credibility in climate claims. However, current negotiations on the CRCF appear to be going in the direction of limiting the scope of the CRCF to carbon removals taking place within the EU. This raises questions about the treatment of carbon removal credits from outside the EU on the EU market.
Given the global dimension of the Green Claims Directive and other related files, such as the Corporate Sustainability Reporting Directive, the EU could, for example, set up a mechanism to screen carbon removal certificates from outside the EU to ensure that they are also up to the same standard set under the CRCF.
Next Steps
An agreement on the CRCF is anticipated in the coming weeks, with questions remaining over how the certificates can be used. The Green Claims Directive is moving considerably slower with the positions of the other EU institutions (Council and European Parliament) expected in the spring. Within the European Parliament, political groups seem to have reached a consensus to allow climate claims at the company level, provided carbon credits are employed for residual emissions and backed by a CRCF or equivalent certificate. While this represents progress from initial positions, significant questions, particularly concerning the definition of residual emissions, remain unresolved.
The absence of a clear definition poses a potential obstacle for investment. While addressing greenwashing is crucial, policymakers should strike a delicate balance to ensure that policy frameworks do not inadvertently hinder investment and innovation in the carbon removal sector. Balancing stringent standards with a supportive environment for growth and development is essential for the long-term success and impact of the carbon removal sector.
Policymakers will need to address this issue as they enter the next stage of the legislative process. Given the European Parliament elections in June, negotiations between the EU institutions (Parliament, Council and European Commission) on the final text of the Green Claims Directive are unlikely to start before the end of the year, with a final agreement expected at the beginning of 2025.
