UK Crafts Policy to Build a Market for Carbon Removal

The UK government is advancing a dual-policy strategy to produce a domestic market for engineered Greenhouse Gas Removals (GGRs), a move considered pivotal for achieving its legally binding net-zero target by 2050.

The policy framework, as reported by a leading media house, centres on two crucial initiatives: integrating GGRs into the UK Emissions Trading Scheme (ETS) and establishing a new business model grounded in Contracts for Difference (CfD). These measures are designed to provide the investment certainty and financial incentives required to scale up carbon removal technologies and build a functional market for high-integrity carbon credits, which are essential for offsetting the UK’s hardest-to-abate emissions.

Laying the Foundations for a Negative Emissions Market

Engineered GGRs refer to technologies that actively remove carbon dioxide from the atmosphere and store it permanently, such as direct air capture with storage or bioenergy with carbon capture and storage. Despite their recognised significance for addressing residual emissions from sectors like aviation and agriculture, these technologies remain at an early commercial stage. High costs and a lack of clear revenue streams have historically hindered widespread deployment. The UK’s new policy framework aims to overcome these barriers by creating structured, long-term demand.

The government’s approach is deliberately conservative to ensure environmental integrity and market stability. The objective is to nurture a robust negative emissions market that delivers genuine climate benefits while attracting the private investment necessary for technologies to move from pilot phases to large-scale deployment.

Two-Pillar Strategy: The ETS and the Business Model

The UK’s strategy rests on two connected policy pillars designed to work in tandem.

The first pillar involves integrating GGRs into the existing UK Emissions Trading Scheme, the country’s flagship “cap-and-trade” system for reducing emissions. In a crucial decision, the government has stated that the overall emissions cap will not be increased. Instead, traditional emissions allowances will be gradually replaced, one-for-one, with GGR allowances. This mechanism ensures that adding carbon removals does not dilute the incentive for companies to cut their own emissions. Only “highly durable” removals, with a minimum storage period of 200 years, will qualify under strict monitoring and verification rules. Legislation for this integration is targeted for 2028, with the system becoming operational by the end of 2029.

The second pillar is the new GGR Business Model (GGR BM), which draws directly from the successful CfD model used to kick-start the UK’s renewable energy industry. This model offers project developers a guaranteed “strike price” for each tonne of carbon dioxide they verifiably remove. If the market price for a GGR credit is lower than this strike price, the government tops up the difference. If the market price is higher, the developer pays back the excess. This provides developers with essential revenue certainty to secure financing and build projects. The generated GGR credits, compliant with a forthcoming UK GGR Standard, can also be sold into the UK ETS or voluntary carbon markets.

The Road Ahead for Carbon Removal

While the policy direction is now clear, the framework is still evolving. An independent review cited by the source publication has called for faster deployment and stronger collaboration across government departments. Internationally, the UK’s efforts align with growing global initiatives, such as the Coalition to Grow Carbon Markets launched during London Climate Action Week, which aims to scale up high-integrity carbon credit markets worldwide.

For technology developers, investors, and companies, the message is that the UK is building a formal, compliance-driven market for carbon removals. Successfully navigating this emerging landscape will require close attention to developing standards and regulations. The effectiveness of this framework will ultimately be measured by its ability to mobilise capital at the scale and pace required to meet the nation’s climate ambitions.