The EU Competitiveness Compass: A missed opportunity or a game changer for CDR?
Explore how the EU Competitiveness Compass could shape carbon removal in Europe. From funding and permitting to market incentives, assess whether it can scale CDR and support climate goals.
What is the EU Competitiveness Compass?
Europe’s struggle to keep pace with global competitors in emerging technologies and innovation has been a growing concern for policymakers and industry leaders alike. On 29 January, the European Commission took a first step to address this challenge, launching its Competitiveness Compass, designed to shape EU industrial policy for the next five years with competitiveness as an overarching principle for EU action. The Compass specifically mentions the need for negative emissions to achieve climate neutrality, along with a commitment to develop incentives to build a business case for permanent carbon dioxide removals (CDR).
The Compass is built on several key pillars, most notably closing the innovation gap by fostering a favorable environment for new technologies and establishing a joint roadmap to drive both innovation and competitiveness, with the forthcoming Clean Industrial Deal at its core. Beyond setting a direction of travel, it also serves as a wish list of new EU initiatives or potential changes to existing ones. The benefits it could bring remain only potential, contingent on further policy design and practical implementation. For specific technologies, its impact will depend on whether and how they are addressed.
What does the Compass mean for scaling up CDR?
A compliance market for CDR
While the Compass is not meant to go into detail regarding specific technologies, it does commit to developing incentives to help build a market case for carbon dioxide removal (CDR), including through the review of the ETS Directive in 2026. Indeed, CDR must be fully integrated into EU climate policy. The leading proposal on the table is incorporating permanent CDR into the ETS, but this must be done carefully, with strict conditions to avoid market distortions. An ETS integration carries potential risks such as an unclear and shrinking long-term market size for CDR, and limited opportunities to reach net-negative emissions. That’s why we’re actively analysing a Removal Trading Scheme as a potentially stronger alternative that would offer predictability for both providers and investors while maintaining climate integrity.
Opportunities to close the CDR financing gap
The Compass highlights the need for strong public and private investment to drive innovation, and climate neutrality. As the next initiative following the Compass, the Clean Industrial Deal is expected in February, and its deliverables hold tremendous potential to support the business case for CDR by recognising and making space for targeted carbon removal support, in both market creation and envisioning targeted sectoral plans. The document hinted at other key EU measures including strengthening capital markets, de-risking investments, enhancing the role of IPCEI, and creating a European Competitiveness Fund for Cleantech by leveraging the Multiannual Financial Framework (MFF), the EU’s long-term budget.
The next MFF and Framework Programme for R&I offer a crucial opportunity to address the existing funding gap that hinders the development of a portfolio of CDR methods. To advance CDR research, development, and innovation, the EU must commit at least EUR 2.6 billion over the next seven years. The EU should further consider using the Innovation Fund, The Resilience and Recovery Facility, the LIFE sub-programme and other funding streams to unlock private co-investment by setting up an EU pilot procurement programme that would buy high-quality permanent removals. Other potential incentives the EU should consider are a Carbon Clearing House, carbon contracts for difference, IPCEI, or an EIC Accelerator Challenge.
Fewer administrative burdens, faster permitting and simpler processes to attract investment
Highly administrative, complex, and lengthy permitting processes hinder long-term investment in Europe, and CDR is not an exception. In the next 5 years, the Commission will prioritise simplification. Key initiatives to that end will include the Decarbonisation Accelerator Act to fast-track permitting, a reduction in reporting burdens and the EU Start-up & Scale-up Strategy to ease market entry. These programmes could benefit removals, since the high opportunity costs of launching CDR ventures in Europe, compared to other regions, risk diverting capital elsewhere. Decreasing the administrative burden and easing the regulatory environment should of course not come at the cost of violating sustainability criteria, a middle ground must be found.
Stronger policy coordination between the EU and member states
The EU’s ability to advance CDR would be significantly enhanced through stronger policy coordination between EU institutions, member states and other stakeholders. While the current industrial policy landscape remains fragmented, the upcoming Competitiveness Coordination Tool aimed at addressing this lack of coordination, could offer a useful framework to align member states around shared priorities and facilitate collaboration on cross-border projects such as CO2 infrastructure, if CDR ends up being included in the Tool. Including CDR within this framework would enable more efficient infrastructure development by harmonising planning and implementation across national jurisdictions, while allowing regions to leverage their specific advantages – whether in storage capacity, industrial clusters, or technological expertise. This coordinated approach would create a more predictable environment for both public and private stakeholders, ultimately accelerating the development of a robust European CDR ecosystem that harnesses the collective strengths of member states while maintaining strategic alignment between EU-level objectives and national implementation strategies.
A crucial moment for CDR in Europe
The Clean Industrial Deal, expected on 26 February, will mark the first of several initiatives following the Competitiveness Compass. While past policies such as the Net-Zero Industry Act introduced key provisions like CO₂ storage obligations, they failed to explicitly include CDR. This oversight must not be repeated. CDR should be clearly and explicitly recognised, not omitted or merely bundled with other technologies.
The Compass sets an ambitious agenda that could shape the future of CDR in Europe, but success hinges on implementation. A firm commitment to CDR incentives and policy support is needed; not just a vague pledge for future action. The industry CDR sector needs clarity on when these incentives will be introduced and how substantial they will be. Beyond incentives, the broader actions outlined in the Compass should also integrate CDR.
Failing to act now would sideline a sector critical to both EU climate goals and economic growth. By 2050, CDR could unlock a €220 billion annual market, create 670,000 high-quality jobs, drive innovation, and solidify Europe’s position as a global leader in the green economy. The Clean Industrial Deal is an opportunity to get this right. Europe cannot afford to miss it.
By Eloisa Viloria, Policy Analyst