Friedrich Dürrenmatt’s play The Visit of the Old Lady takes place in the impoverished town of Güllen, where former resident turned billionaire Claire Zachanassian returns. The billionaire offers one billion marks to revitalize the town under one condition: that someone kills her former lover, who impregnated, abandoned, and humiliated her in their youth. Although the citizens initially reject the immoral proposal with indignation, the promise of material prosperity ultimately overrides their moral principles. The work serves as a critique of modern society, demonstrating how the power of financial interests can completely reshape societal operation. Let us see how this parallel holds up when viewing the EU ETS review through the lens of the voluntary carbon market.
EU ETS Reform and the Electrification Act
On July 17, 2027, the European Commission introduced a landmark legislative package that fundamentally redraws the map of EU climate and industrial policy. The package rests on two complementary pillars: a draft comprehensive revision of the EU ETS Directive (2003/87/EC) and the newly debuting European Electrification Act. The proposal aims to address the industrial challenges posed by increasingly stringent post-2030 emissions caps and to ensure the achievement of the EU’s 2040 climate target (a net 90% reduction in greenhouse gas emissions).
The primary mission of the proposed European Electrification Act is to accelerate the direct and indirect electrification of European heavy industry and transport. The draft bill provides targeted administrative simplifications, priority grid connection rights, and network tariff discounts for clean-tech industrial operators replacing their fossil-based thermal and energy demand with electricity. Concurrently, the EU ETS revision creates a legal bridge between the compliance market and carbon dioxide removal (CDR) technologies.
The expected adoption timeline for the draft follows the standard EU legislative process. According to expert analysis by the industry outlet Carbon Pulse, the negotiations are expected to be exceptionally intense and anticipated to conclude by the end of 2028, allowing the revised Directive and the new Regulation to enter into force in 2029. This timing is critical, as the operational implementation of the EU ETS–CRCF link is scheduled for the 2031–2035 trading phase.
What Does the Linking of the EU ETS and the CRCF Mean in Practice?
The most critical element of the new regulatory draft for the carbon market is the formal linking of the Carbon Removal Certification Framework (EU CRCF 2024/3012) with the EU ETS compliance market. This move fundamentally alters the structure of the European carbon market: heavy industrial and power sector entities will now be permitted to fulfill a specified portion of their compliance obligations not only with EU Allowance (EUA) units issued within the ETS, but also with CRCF-certified carbon removal units.
In practice, this establishes a strictly regulated surrender and substitution mechanism. To avoid eroding the EU ETS decarbonization incentives, the European Commission’s draft does not permit uncapped offset usage. Instead, it establishes a Removal Flexibility Cap defined by the following core rules:
A market report by the analyst firm Allied Offsets highlights that this link instantly creates interoperability between the previously voluntary technological CDR market and the world’s largest compliance carbon market. The regulation offers project developers a guarantee of sustained, legally grounded, high-value demand for their credits starting at the turn of the decade.
Which Sectors Benefit from the Proposed Regulation?
The ETS–CRCF link does not grant access to the compliance market—and the associated valuation premium—to all carbon removal technologies. The Commission strictly restricted ETS eligibility to permanent storage technologies, clearly picking the winners of the regulatory environment. The primary beneficiaries of the regulation are developers in two main sectors:
It is critical to emphasize that the formal linking of the EU ETS and the CRCF applies exclusively to the two technologies listed above that feature physical geological storage. Although biochar carbon removal (BCR) also attained a permanent classification under the CRCF framework, the EU ETS draft does not allow biochar-based CRCF credits to be surrendered directly against fossil emissions compliance liabilities. This exclusion stems from the longer-term reversal risks associated with soil-based biochar storage.
How Does the Integration Work?
CRCF certification for projects relies on compliance with strict QU.A.L.ITY criteria. Quantification requires proof of net-negative climate impact, subtracting emissions generated from biomass harvesting and transportation. The additionality requirement excludes projects that are otherwise legally mandated. Long-term storage provisions assign legal liability in cases of leakage, while sustainability criteria ensure that biomass sourcing does not drive deforestation or biodiversity loss pursuant to the Renewable Energy Directive (RED).
For CRCF projects meeting the integration criteria, EU ETS integration serves as a massive financial bridge. Currently, high-op cost technologies suffer from market failure due to revenue shortfalls. Introduced under the revised ETS rules, a massive 250 million metric ton (Mt) aggregate permanent removal quota, which the EU commits to purchasing and converting into surrenderable compliance allowances starting in 2031, provides a lifeline for heavy emitters in the steel, cement, and chemical industries.
Beyond accounting for their own compliant internal projects, industrial operators facing tightening emissions caps can directly purchase compliance units converted from CRCF-certified removal credits to hedge their hardest-to-abate residual emissions. Consequently, these industries gain a fixed, legally recognized alternative to cover non-avoidable or prohibitively expensive residual emissions, generating a supply buffer expected to shield against extreme EUA price spikes.
Why Was Carbon Farming Excluded from Integration?
One of the most fiercely debated points of the draft legislation is the exclusion of Carbon Farming projects, such as soil carbon sequestration, afforestation, and peatland restoration, from EU ETS integration, despite their recognition under the CRCF regime. The exclusion of agri-carbon credits was deliberate, grounded in fundamental scientific and legal considerations. The primary driver is the risk of non-permanence and reversal of carbon storage. While geological storage locks gas away for millennia, biological carbon sequestration (soil, forest biomass) remains inherently temporary due to:
EU lawmakers drew a line in the sand that carbon farming simply fails to cross: within the fossil-based industrial EU ETS market, only permanent, geological, or equivalent storage forms are eligible for compliance use.
What Is the Future of Carbon Farming Credits?
The exclusion of carbon farming from the EU ETS does not mean the sector is being completely abandoned. The European Commission recognized that without decarbonization incentives for agriculture and forestry, the 2050 climate neutrality objective remains unreachable. Therefore, the Commission explicitly supports carbon farming within the CRCF regulation and proposed a comprehensive support and market framework for credits excluded from EU ETS integration, built around several key pillars:
The absence of a central EU ETS procurement guarantee fundamentally dictates the pricing outlook for carbon farming credits, creating a distinctly bifurcated, two-speed European carbon market featuring the following segments:
Conclusion
The European Commission's new regulatory package marks a historic milestone: by linking the EU ETS with the CRCF, it paves the way for industrial-scale capital allocation into permanent technological carbon removal. This restructuring puts high-integrity removal technologies at the heart of the EU's decarbonization strategy while guaranteeing predictable long-term returns for investors in this segment.
At the same time, intentionally keeping carbon farming out of the fossil compliance market preserves the environmental integrity of the EU ETS. Through the synergy of the EU Buyers Club and CAP funding, the agricultural sector will eventually receive its own support infrastructure. However, for carbon farming, this yields a voluntary-driven - and thus substantially more modest - market price, albeit one that can be supplemented by agricultural subsidies. European carbon market participants must now build their long-term strategies around this clearly bifurcated regulatory and pricing structure.
The Commission's proposal served a sobering blow to overinflated market illusions that envisioned a comprehensive EU ETS–CRCF integration. The EU granted the golden key of compliance linking exclusively to industrially backed, geologically stored, strictly permanent technologies (DACCS, BioCCS)—narrowly favoring heavy industry and energy sectors while omitting the broad-based integration many hoped for. For excluded sectors, particularly agriculture, the painful reality remains: the Union is not acting as a social benefactor, but rather distributing real capital under strict conditions to shield its fossil-reliant heavy industry.
In the end, the old lady did not visit after all, leaving the citizens disappointed despite their early celebrations that everyone would share in the wealth. But she did send a letter, outlining the narrowly defined strategic beneficiaries of her fortune and explaining the motives behind her decision. The issue is that for sectors excluded from compliance integration, the CRCF amounts to little more than yet another, albeit very expensive quality assurance stamp for the voluntary carbon market. Until regulators back this supply with sustained, mandate-driven demand, I fear a true breakthrough for carbon farming remains a long way off.