What the EU ETS Proposal Means for Direct Air Capture

23 July 2026

The EU ETS review proposal brought positive news for Direct Air Capture (DAC) companies as the EU Commission is set to become a major buyer of permanent carbon dioxide removal (CDR) credits.

If domestic permanent carbon removals become part of the EU Emissions Trading System (ETS) in 2031 as proposed in the document released on 17 July 2026, it would create a large market for CDR credits based on compliance, a world-first for the EU.

The move sends a clear signal to investors and shows how strong policies can be demand drivers for CDR and can de-risked investment in first-of-a-kind climate technology solutions.

How DACCS Fits in the Proposed EU ETS Framework

Under the proposed new EU ETS framework, DACCS (direct atmospheric CO₂ capture with permanent storage) would be one of only two named permanent carbon removal technologies eligible for integration, alongside BioCCS (biogenic CO₂ capture with permanent storage). Nature-based removals will be re-examined in 2034 for eligibility under the the Carbon Removal Certification Framework (CRCF) qualifications.

DACCS is recognised as a negative emissions activity, provided the removal is certified and not counted twice. DAC-derived CO₂ used for eSAF or other products would also receive defined ETS accounting treatment as net zero emissions, but it can only be a permanent removal unit if the CO₂ is permanently stored.

The proposal does not initially allow every ETS operator to purchase DACCS units and submit them like ordinary allowances. Instead, the initial system would be managed centrally by a Removals Authority in the Commission. However, in 2034 the Commission will review whether emitters can buy removals directly.

The EU Commission would:

Add an additional 250 million ETS allowances on top of the EU cap
(A further 10 million allowances would be made available if the first pool does not raise enough revenue.)
Auction these allowances between 2031 and 2040.
Use the revenue to purchase an equivalent amount of certified domestic DACCS removals
Cancel the purchased removal units to prevent double counting

What does this Mean for Direct Air Capture?

This model is intended to create a predictable buyer and market for DACCS and BioCCS while controlling price, quantity and environmental integrity. Bear in mind, though, actual purchases would depend on supply, unit prices and the delegated rules ultimately adopted by the Commission.

Investment in DAC Technology

Two main opportunities are created:

Permanent-removal revenue
DACCS units would be purchased by the Commission.
Project funding
DACCS installations could receive support through the Innovation Fund. The new Industrial Decarbonisation Bank (post-2031) and an Investment Booster (pre-2031) are other avenues, although according to Carbonfuture, “the way it is currently phrased (tied to Annex 1 ETS facilities only), would de facto only allow BioCCS/BECCS projects to be eligible.” (EU Commission: About the EU ETS).
Strengthens incentives for investors
With the EU Commission guaranteed as a DACCS carbon credit buyer, along with the above-mentioned project funding, investing in DAC becomes more secure.

These measures will set DAC up to scale.

An often-cited complaint against the ETS is that most of the revenue is not re-invested into decarbonising the industries that paid for the ETS allowances. Now, 50% of the Member States’ national ETS revenue would be earmarked for developing industrial decarbonisation solutions.

How Big is the EU ETS CDR Market?

The EU ETS CDR maraket is potentially worth €50 billion from 2031 to 2040. To work this out, we need to refer to carbon price assumptions found in the European Commission’s Impact Assessment accompanying the 17 July 2026 EU ETS proposed revision.

To fund the purchase of 250 million tonnes of domestic CDR between 2031 and 2040, the Commission proposes auctioning 250 million EU Allowances (EUAs).

Total Budget Range: The Commission’s Impact Assessment estimates that selling these 250 million EUAs will generate €35.7 billion to €55.5 billion.
Implied Carbon Price: Dividing this total budget by 250 million allowances yields an assumed average EUA carbon price of €143 to €222 per tonne over the 2031–2040 period.
Late 2030s Target: The Commission explicitly projects that EUA prices will cross €200/t in the late 2030s, which is thought to be an optimistic price.
Portfolio Removal Cost: Under its “one in, one out” climate accounting framework (1 EUA sold = 1 tonne of CDR purchased), the Commission assumes that technology costs for eligible permanent removals will fall to a portfolio average of sub-€200/tonne by 2036.

So, taking €200/tonne:

€200 x 250 million = €50 billion

If the assumptions prove correct, that means there will be a €50 billion market in the EU for permanent CDR (BioCCS and DACCS at the moment). This excludes any non-EU CDR credits that may be allowed into the EU ETS system. Analysis by Sebastian Manhart of Carbonfuture concludes that these cost assumptions are overly optimistic and that they may be off by a factor of two.

We Still have Questions

Although the EU ETS proposal outlines the way forward, we don’t know all the answers yet.

The carbon price gap

Currently, the cost of permanent carbon removals remains higher than the cost of ETS carbon allowances (EUAs). With this in mind, the EU Commission is to be the buyer and an additional €10 million EUAs may be allocated whose sale revenue will go towards bridging this gap. However, will the carbon price at the time be within the range that the Commission is counting on?

The DACCS supply gap

Currently, there are very few DACCS credits available for purchase which means there has to be ramped up investment into building DAC technology ready for scaling.

International credits

Pending a review in 2033, there is a chance that credits generated outside the EU may be used (260 Mt from 2036 to 2040). However, there is uncertainty around how this would affect EU CDR projects and assurance for their investors.

Own-use credits

In the case of BioCCS, industry operators, aircraft operators and shipping companies could use certified BioCCS removals generated through their own activities to compensate their own fossil emissions. On the other hand, the proposal document does not provide an equivalent direct own-use mechanism for DACCS, which is brought into the initial ETS arrangement through Commission purchases alone.

Final Thoughts

Let’s not forget the purpose behind the EU ETS which is to bring the EU to net zero emissions and to decarbonise industries.

Direct Air Capture is the technology that can deal with the residual emissions that switching to renewables or reducing emissions cannot eliminate. With this proposal, the integrity of the EU ETS is maintained, and this will also open a way for heavy emitters to decarbonise while still remaining competitive.

The proposal is a positive policy development for DACCS, moving from voluntary carbon credit buying to compliance buying.

In summary, the ETS as proposed would provide DACCS with:

Formal recognition as an ETS-compatible permanent removal
A Commission-backed purchase programme beginning in 2031
Access to Innovation Fund support
A possible future route towards direct use by ETS operators after review

However, it does not yet create an unrestricted DACCS credit market within the EU ETS. Initial demand would be controlled by the Commission, with detailed eligibility and purchasing rules to be adopted later.

Furthermore, this legislative draft still has to go through debates and scrutiny in the EU Parliament and Council before being set in law which could take between 12 and 18 months, with full implementation expected in 2028.

We’ll look at what impact the EU ETS review on aviation and shipping has on DAC in later articles.

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