A market in the making: Can the new EU proposal turn carbon removals into bankable projects?

The European Commission’s proposal to integrate permanent carbon removals into the EU Emissions Trading System (ETS) could create a landmark compliance-backed market for permanent carbon removals, but whether capital will follow remains uncertain.

For project developers and lenders, that distinction could determine whether prospective revenues are sufficiently predictable to support investment.

“The EU has adopted a legally binding climate target of 90% reduction in net [greenhouse gas] emissions for 2040,” with the ambition to achieve climate neutrality by 2050.

These commitments are driving the new industrial resolution: to electrify and decarbonize industry. To achieve these ambitions, industry has to go through a significant transformation to modernize, decarbonize and switch to cleaner and more energy-efficient technologies.

On 17 July 2026, the European Commission published a proposed directive amending the EU ETS framework to better align policy with its climate-related targets. In the new proposal, carbon removals would be permanently integrated into the EU Emissions Trading System, delivering a funding mechanism for evolving carbon capture and storage (CCS) technologies.

The proposal could connect certified removals to an established compliance carbon market and make the Commission a purchaser. This would send a credible demand signal. However, uncertainty over allowance values, removal costs and delivery-risk allocation means that demand may not immediately translate into bankable revenue.

A potentially transformational proposal, with important caveats

The proposed legislation would become a major milestone in decarbonization for Europe, creating a framework that could be adapted by other regions to boost decarbonization efforts globally.

Under the new proposal:

• Permanent carbon removals would be integrated into the EU ETS
• The European Commission would become the purchaser, meaning demand would be connected to the world’s largest established compliance carbon market
• Certified carbon removals could create a gateway for bioenergy with carbon capture and storage (BioCCS) and direct air carbon capture and storage (DACCS) to access a more durable compliance-backed demand model

Europe is pushing to create one of the world’s largest compliance-backed markets for permanent carbon removals. But the size of that market will depend less on the headline number of allowances than on what those allowances can ultimately buy.

The headline figures outlined in the proposal are ground-breaking, but translating the concepts into actionable steps for CCS emitters highlights some critical challenges.

The European Commission proposes increasing the EU ETS cap by 250 million allowances which would be auctioned between 2031 and 2040. The proceeds would be used to fund purchases of domestic permanent removal units, and a further 10 million allowances would be available if the original auction proceeds were insufficient.

The key question is whether this mechanism guarantees the procurement of 250 million tons of removals or establishes a variable budget. The distinction matters because the number of removals purchased will depend on both auction revenue and the delivered cost of eligible removals.

Putting the €50 billion assumption to the test

The initial calculation is intuitive: 250 million tons of removals multiplied by an assumed average procurement cost of €200 per ton equals €50 billion. But the proposal does not simply appropriate €50 billion from the EU budget.

The table shows why the implementation detail matters. If the average EUA sale price is below the average cost of eligible removals, 250 million allowances would not, by themselves, generate enough revenue to purchase 250 million tons. The additional 10 million allowances provide a buffer, but their value is also EUA price dependent.

Before projects can rely on the mechanism as a durable revenue source, investors will need clarity on key questions:

• Is procurement volume guaranteed, or does volume adjust to the available budget?
• Who absorbs any difference between EUA auction revenue and the delivered cost of removals?
• Would the new legislation create a market strong enough to grow without the need for contracts for difference (CfDs)?
• How will delay, under-delivery, certification failure, reversal or leakage affect payment?
• Will projects be able to contract against sufficiently predictable volumes, prices and durations?

In bringing these figures into real-world scenarios, the question becomes whether the 10 million-allowance buffer will be a sufficient contingency, and if the contingency makes the program vulnerable to market volatility. This could leave developers struggling to rely on demand beyond individual procurement rounds, and lenders may be forced to discount revenues that depend on future discretionary interventions.

Sizing the prize

The European Commission’s proposal aims to open opportunities to develop innovative and scalable technologies, such as BioCCS, which captures biogenic CO₂ and stores it permanently, and DACCS, which removes CO₂ directly from the atmosphere and permanently stores it.

Both pathways support the proposal’s aims of environmental integrity and durability. But emerging and developing technologies bring intrinsic uncertainties to the table. From high capital exposure, more complex certification protocols, variable costs and lead times, a portfolio concentrated in higher-cost technologies increases the risk that an EUA-backed budget purchases fewer tons than anticipated.

The Commission acting as purchaser could stimulate supply and encourage investment across capture, transport and storage. But policy-backed demand is only one part of the scale-up challenge. Permitting, storage capacity, cross-border agreements, transport access, infrastructure investment, standardization and long-tail liabilities will continue to shape execution.

While commercial questions linked to remuneration structures, volume commitments, contingencies for delays, allocation of risk, certification failure, reversal or leakage, limited shared transport and storage, among many other factors, all create hurdles in taking this proposal from theory to practice, the CCS value chain is developing solutions to tackle these risks.

The answer: A comprehensive solution for the CCS value chain

CCS value chains are highly interdependent. Capture developers need access to transport and storage; storage operators need confidence in contracted volumes; shared infrastructure needs sufficient throughput; and financiers need confidence in the reliability of the complete chain.

“A compliance-backed buyer can strengthen demand, but it does not eliminate construction, delivery, certification or storage risk,” Conor Bays, Broking Strategy Execution Manager, Willis Natural Resources.

The CCS value chain is cyclical, and revenue needs to flow to unlock opportunity at every stage. Enabling the value chain demands a robust risk strategy, which is complicated by the various stakeholders, responsibilities and dependencies across the different stages.

Insurance and risk management alone cannot solve weak or volatile project economics, but under the new proposal, risk solutions can reduce volatility around individual projects and make contracted cash flows more financeable.

A portfolio of risk solutions could include:

• Delivery risk: Construction all risks, delay in start-up, marine cargo and transit, machinery breakdown and operational property damage and business interruption
• Carbon-performance risk: C, leakage, remediation, third-party and environmental liability

Complementary products covering carbon credit risks could include:

• Carbon non-delivery cover, protecting buyers against the failure of pre-purchased carbon credits^[1]
• Carbon post-delivery cover, protecting against losses arising after carbon credits have been delivered^[2]
• Carbon lender credit non-payment insurance, protecting against borrower default^[3]
• Carbon political risk cover, protecting against adverse government events that impede the generation, transfer, delivery or use of carbon credits

Although several parts of the CCS value chain fall within the scope of traditional insurance markets, coverage gaps remain. The insurance industry is working to fill these gaps to build more resilient protection for the CCS value chain.

CCS projects face first‑of‑a‑kind risks, complex contractual structures and evolving regulatory obligations.

Solutions such as Willis’ CCS solution – the first fully integrated insurance suite – are designed specifically for developers and operators of CO₂ capture, transportation and storage infrastructure, adapting property, upstream energy, marine, liability and environmental protections to the unique risks of CCS operations.

The solution supports clearer risk allocation and coverage designed to address bankability considerations, aligned with regulatory and carbon credit requirements and applicable to developers, emitters, operators and investors across every stage of the project lifecycle.

The proposed integration of permanent removals into the EU ETS could be a turning point for Europe’s carbon-management industry. But creating an allowance-funded procurement mechanism is not the same as creating a bankable project pipeline.

“Developers and financiers should test prospective projects against three questions: how price and volume will be determined; who bears delivery and certification risk; and whether the complete capture, transport and storage chain is protected against interruption. Projects that answer these questions clearly are likely to be better positioned to attract capital," Marie Reiter, Global Head of Broking Strategy, Willis Natural Resources.

The next phase of policy design must close the gap between carbon-market ambition and project-level revenue certainty, while developers, financiers and insurers work together to manage the delivery, certification and infrastructure risks that public funding alone cannot remove. As new legislation is put on the table and the parameters of the global CCS value chain continue to move, a tailored solution that enables commercialization will be fundamental to moving forward with confidence.

Find out how a tailored solution can help to drive CCS projects forward, contact:

Conor Bays

Marie Reiter

Footnotes

1. Cover can respond to a broad range of causes, including carbon sequestration underperformance, natural catastrophe, political peril, financial peril, and more, with a few exclusions. Return to article undo
2. Including leakage, invalidation, fraud, and other events that impede the use of credits with the exception of remediation, third-party or EL losses. Return to article undo
3. “Helping banks achieve capital reliver by secure the repayment of loans linked to carbon project. Return to article undo