Unlocking the potential: Expert insights on the long-term compatibility of forest carbon credits with the EU ETS

Abstract

Forest-based carbon credits, primarily domestic, are crucial in many Emissions Trading Schemes as they offer a cost-efficient means of offsetting hard-to-abate emissions. To date, forest-based credits are not accepted in the European Union Emissions Trading Scheme (EU ETS). However, with the Paris Agreement rulebook now largely finalized, a revival of a flexibility mechanism in European climate policy is plausible. Based on 24 expert interviews, we examined the forest potential within the EU ETS across short-, medium-, and long-term time frames. Even though the compliance system remains ineligible for carbon credits until 2030, we found there is a likelihood of transitioning towards the inclusion of forest-based removals and reductions in the long term. Although forestry projects have faced significant reluctance in the EU, there is unanimous agreement on the importance of such initiatives and technological solutions for climate protection. To fully leverage the potential of forest activity in the future, it will be necessary to adopt different methods, tools (e.g., liability regimes), and stricter socio-economic legislation (e.g., land use rights), overcome implementation hurdles (e.g., not compromise deterrence through mitigation), and maintain an open political stance. This study provides a comprehensive perspective on the barriers and potential of forestry projects within the EU compliance system. The research findings could help ensure immediate attention to the barriers when the discussion on future eligibility resumes to be ready for carbon credits in the next phase of the EU ETS from 2030.