EU ETS & Voluntary Carbon Market (VCM): Two levers for effective climate action
Why compensation remains a complement — and what matters when it comes to quality, assurance, and transparency.
Climate change is one of the greatest challenges of our time — and expectations for companies are rising: emissions are expected to decrease measurably, progress is expected to be documented transparently, and claims must be robust and credible. In this context, two “levers” often get mentioned in the same breath, yet they serve different functions: the EU Emissions Trading System (EU ETS) and the Voluntary Carbon Market (VCM).
What matters is a clear classification: the VCM and CO₂ compensation are not a substitute for a company’s own emission reductions, but a complement — especially when companies want to address unavoidable residual emissions and, in addition, finance climate action projects.
Advancing harmonization and comparability
This is exactly where a current EU development comes in: with the Carbon Removals and Carbon Farming Certification Framework (CRCF), the EU is creating a framework to assess CO₂ removals (carbon removals), carbon farming, and CO₂ storage in products against harmonized criteria. The aim is greater transparency, comparability, and environmental integrity — precisely the attributes we also described as decisive in the interview discussion on depth of assurance.
This matters for companies because CO₂ removals and climate action projects will increasingly be assessed based on how they are quantified, documented, and independently verified. The CRCF is not a “replacement” for the Voluntary Carbon Market (VCM), but a signal: the market is moving toward harmonized requirements — and thus toward higher standards of evidence and assurance quality.
CRCF at a glance
The EU’s Carbon Removals and Carbon Farming Certification Framework (CRCF) establishes a common approach for certifying:
- carbon removals (i.e., activities that remove CO₂ from the atmosphere),
- carbon farming practices (land and forest management measures that deliver climate benefits), and
- carbon storage in products (where CO₂ is stored in long-lived materials).
Its purpose is to improve consistency, transparency, and comparability across methods — and to strengthen confidence in certified outcomes.
What this means for companies:
Expect a stronger focus on robust methodologies, data quality, and MRV (measurement, reporting and verification), supported by independent third-party validation/verification. In practice, this raises the bar for how removals and project impacts are quantified, documented, and substantiated.
Bringing CRCF into practice: illustrative examples
Carbon removals
- Direct Air Carbon Capture and Storage (DACCS)
- Bioenergy with Carbon Capture and Storage (BECCS)
- Afforestation/reforestation as removal activities (subject to the applicable methodology and defined system boundaries)
Carbon farming
- Cover crops and improved soil management
- Reduced tillage / conservation agriculture practices
- Agroforestry systems
- Rewetting of drained peatlands
- Optimised nutrient and grazing management
Carbon storage in products
- Timber buildings and other bio-based construction materials (carbon stored over decades)
- Carbonated/mineralised construction materials (CO₂ bound in concrete/stone)
- Durable bio-based products (e.g., selected fibre/composite applications)
EU ETS: regulation with a cap-and-trade logic
The EU ETS is a mandatory cap-and-trade system. For certain sectors (including power generation, industry, aviation), a total volume of emissions is capped and gradually reduced. Companies must surrender allowances corresponding to each tonne of CO₂ (equivalent) emitted — either allocated or purchased. This mechanism creates an economic incentive to reduce emissions and invest in climate-friendly technologies.
In short: the EU ETS steers emissions through regulation and scarcity.
VCM: voluntary climate finance — with high expectations for quality
The VCM works differently: companies, organizations, or individuals finance climate action projects that reduce emissions or remove/sequester carbon — for example through afforestation, renewable energy, energy efficiency, or methane avoidance projects.
Those who purchase emission reduction credits (credits) can use them to address unavoidable residual emissions and, additionally, support climate action. Precisely for that reason, expectations regarding credibility, traceability, and transparency are high: the VCM is under particular scrutiny because it is only effective if the underlying projects are robust.
In short: the VCM enables additional climate finance — and the “claim logic” determines the strength of the statement: from “supporting a project” to (partial) compensation claims for defined residual emissions. The stronger the claim, the higher the requirements for evidence, MRV, and independent verification — with direct effects on trust, reputation, and market acceptance. Against this backdrop, initiatives such as the CRCF are an important signal that the European framework will increasingly focus on robust criteria and transparent evidence for greenhouse gas removals and climate impacts.
Quality in the VCM: four core criteria that matter
To ensure that climate action projects genuinely add value for climate protection — and do not merely “sound good” — the following criteria are particularly decisive:
- Additionality: the emission reduction/removal occurs only because of the project — without the project, it would not have occurred (or not in this form).
- Permanence: the impact is safeguarded over the long term (e.g., for afforestation through appropriate protection and management concepts).
- No double counting: each unit must be uniquely attributed and may be claimed only once (including proper retirement).
- MRV (measurement, reporting, and verification): results must be measurable, documented, and independently verifiable — as a basis to prevent misattribution, manipulation, and greenwashing risks.
International standards as a foundation: ISO 14064 & co.
A key building block for robust projects and claims is alignment with internationally recognized standards — in particular the ISO 14064 series:
- ISO 14064-1: requirements for the quantification and reporting of GHG emissions at the organizational level.
- ISO 14064-2: requirements and guidance for GHG projects — i.e., quantification, monitoring, and reporting of emission reductions or removals at the project level (as a robust basis for claims and, where applicable, crediting logics).
The goal: comparable, transparent, and trustworthy results.
Independent verification as a trust enabler
Accredited validation and verification bodies (VVBs) — such as DEKRA Certification GmbH — make a central contribution here: they independently and impartially assess whether climate action projects and reported information meet the requirements of the relevant standards and programmes. Especially in the Voluntary Carbon Market (VCM), this independent validation/verification is an important trust enabler. It demonstrates that methodologies, data, and evidence are robust and helps reduce greenwashing risks.
More transparency through digital registries
A further step toward more transparency is robust global carbon registries. International carbon-crediting programmes and their registries are comparable to digital ledgers: they document exactly when CO₂ credits are issued, transferred, or used (retired). This makes every step along the transaction chain transparently traceable.
Examples of established programmes and registries include Verra (VCS), Gold Standard, Climate Action Reserve (CAR), as well as other international registries (e.g., International Carbon Registry, ICR). The programmes and registries mentioned are examples. Suitability depends on the project type, methodology, and the intended claim context. Some programmes additionally use digital solutions (in part with blockchain elements) to map processes more transparently. Important to know: a registry does not replace project quality or on-the-ground data collection. It helps document as transparently as possible, clearly label credits, and track when CO₂ credits are ultimately used or retired (“retirement”).
- What is being traded?
In most programmes, a single credit corresponds to one metric tonne of CO₂e reduced or removed by a project and issued in line with the programme’s rules and documentation requirements. - Why “retirement” matters
A credit can only support a claim once it has been retired in the registry. Retirement means the unit is permanently taken out of circulation and recorded as used (typically with a unique serial number, retirement date, and the retiring account). This ensures traceability and helps prevent double counting or double selling. - Offsetting as a complement, not a substitute
The priority is always reducing a company’s own emissions. Voluntary carbon credits are most appropriate for unavoidable residual emissions and for providing additional climate finance beyond internal reductions. - Reducing greenwashing risk
The strongest safeguards are clear and specific claims, transparent system boundaries, robust MRV (measurement, reporting and verification), and independent third-party validation/verification—all of which reduce both reputational and technical risk.
Conclusion: EU ETS and VCM are different instruments — together they increase impact
The EU ETS sets the regulatory framework and creates scarcity as a driver for emission reductions. The VCM can — if quality is high — mobilize additional climate finance and help address unavoidable residual emissions responsibly.
The decisive point is: the VCM is only credible when quality criteria, independent verification, and transparent evidence come together. This is where standards, accredited validation/verification bodies, and robust registry processes make the difference.
This is also the core of the discussion on depth of assurance: the higher the requirements for comparability and protection against greenwashing, the more important clean data, clearly defined system boundaries, and impartial validation/verification become — regardless of whether the subject is reporting or climate action projects.