Growing Europe's land carbon sink: Nature-based removals need the right policies to scale
Europe’s land sink is at risk as wildfires and drought rise. Here’s why compliance policy, not voluntary demand alone, is key to scaling nature-based removals.
The heatwaves and wildfires we experienced in Europe this summer have been some of the worst on record, emitting up to 43 MtCO2 a year back into the atmosphere. Restoring and growing the land sink is essential for Europe’s climate strategy in order to compensate for residual emissions by 2050. Yet, every year, instead of sequestering and storing more carbon, Europe’s land carbon sink is at higher and higher risks of going up in flames.
This risk is accentuated by several factors; not only are Europe’s forests aging, they face the increasing scale and frequency of natural disasters, human pressures, and unsustainable land management. As we emphasised already in 2023, at least a quarter of Europe’s soils are currently above recommended thresholds of erosion and at high or very high risk of desertification.
Despite such a bleak outlook, further investment for carbon dioxide removal (CDR) in land sinks has the potential to reverse this trend. Nature-based carbon dioxide removals (nbCDR) –like reforestation, afforestation, blue carbon projects and carbon farming – are among the most mature and proven methods of CDR available, already delivering 2.2 GtCO2/yr of removals globally. They are often also associated with improved ecosystem services in soil fertility and erosion control, water provision and quality, as well as improvements in habitats for biodiversity. Nature-based removals can also combine carbon sequestration and climate adaptation through flood protection in coastal restoration, temperature regulation in forests, or wildfire prevention in peatland rewetting.
These benefits have yet to be fully realised and 6.6 GtCO2/yr of removals are still needed to reach Paris Agreement targets. With the right policies however, Europe could increase investment in nbCDR, strengthen its land sector, and scale-up negative emissions to stay the course towards durable net-zero.
The costs of a deteriorated land sink and the lack of funding to strengthen it
Nature restoration is not just beneficial for climate change mitigation, but taken together, could add up to EUR 1.4 billion a year to Europe’s economy by 2050. Without it however, ecosystem deterioration will only become more and more costly. In fact, the European Central Bank has shown that at least 15% of European economic output is at risk from the degradation of Europe’s land sinks, with soil erosion alone costing European farmers EUR 1.25 billion a year in loss of agricultural productivity.
Despite the obvious benefits of investing in nbCDR, there is still a EUR 37.4 bn funding gap for biodiversity and ecosystems restoration in Europe. Without the necessary investment, present volumes of nbCDR remain 9 times too small to compensate for current biogenic emissions globally.
The role of the voluntary carbon market (VCM) for nature-based removals
Voluntary initiatives, like the EU’s Buyer’s Coalition, are a crucial source of investment in nbCDR currently. They build trust and momentum in the market and also serve as sounding boards for identifying the best financing, insurance, and contractual structures for the kinds of climate benefits different nbCDR methods offer. Public policies should continue to support these initiatives to strengthen the nbCDR market.
However, voluntary demand has shown signs of saturating and, in the long-term, the VCM remains unlikely to scale nbCDR to the extent required for Europe to reach durable net-zero. It therefore falls to policymakers to fill the gaps in the current framework and ensure the right tools are in place to scale nbCDR.
Compliance policy is the bottleneck for scaling nature-based cdr
Whereas fossil emissions are regulated by the Emissions Trading System (ETS), no such compliance market exists in the land-sector to allocate resources to the most efficient climate mitigation activities according to the polluter-pays principle. Crucially, through its cap and trade mechanism, the ETS generates stable and scalable demand for fossil emissions reductions – exactly the kind of demand that is missing for nbCDR.
However, unlike with fossil emissions, national accounting attributes biogenic emissions (i.e. emissions from the biosphere) only to primary sectors in land-use, land-use change, and forestry (LULUCF) while secondary sectors (e.g. wood products, bioenergy) that drive demand for biomass extraction are not held accountable for their biogenic emissions. On the flipside, secondary processing sectors capture a much larger share of the economic value added in these value chains compared to primary sectors.
Without a compliance instrument like an ETS, actors in the secondary sector, with more financial headroom, are not systematically incentivised to compensate for their impact on the land-sink. To address this gap, the EU could reorganise the polluter-pays principle in line with actors’ ability-to-pay in the land sector. Such a policy could unlock investment and scalable business models for nature-based solutions.
Complexities in land-sink compliance
But creating a compliance system for biogenic emissions is not so simple; examples like New Zealand’s inclusion of forestry in its ETS or Australia’s attempt to launch an ETS with carbon farming in 2012 demonstrate the care with which such a reorganisation must unfold.
In New Zealand, climate additionality is measured through the single proxy of forest age, and forestry removals generate an uncapped number of allowances, thus disincentivising and slowing down emission abatement elsewhere in the economy (i.e. mitigation deterrence). The Australian case offers a cautionary tale where ambition without sufficient buy-in is fragile and vulnerable to political backlash, which is what prevented the Australian compliance experiment from launching at the time, and pushed the government to set up reverse auctions from 2015-2023 to scale nbCDR.
The trepidation over a potential agricultural ETS in Europe attests to the sensitivity needed when reorganising the polluter-pays principle in the land-sector. Indeed, sectors like agriculture are already strained by regulatory and inflationary pressures and are therefore fragile to emissions pricing.
Furthermore, ecosystems have their own particularities which a land sink compliance instrument would have to manage. Climate change is intensifying natural disasters and reversal risks to such an extent that entire buffer pools supposed to guarantee the permanence of natural carbon storage are themselves at risk. In a 3˚C warmer world, the likelihood of widespread reversals would be much greater, as would the cost of their remediation, especially over century-long timeframes.
The path ahead
With a bit more than two decades left to achieve climate neutrality, a precise roadmap is needed to incentivise, invest in, and deploy nbCDR at scale. Increasing policy support for nbCDR and the land-sector is not only necessary to reach climate neutrality, it is an opportunity for Europe to earn and save billions of euros while restoring nature.
To capitalise on this opportunity and break through the current demand bottleneck in nbCDR, Europe should progressively reorganise the polluter-pays principle in its land sector through increased support to voluntary initiatives and by phasing-in a compliance instrument. Doing so effectively will require innovative mechanisms which balance mitigation deterrence risks, the ability to pay of polluters, as well as reversal risks and remediation costs.
Continuing on from our engagement with actors in the land-sector for our work on soil governance, Carbon Gap has mapped different policy options and is now gathering inputs from the nature-based ecosystem to help identify which ones are capable of unlocking nbCDR delivery at scale, and how they can be best designed to meet nbCDR actors' needs.
If you are interested in contributing to our research, feel free to contact us by email.