EU climate regulation architecture has greatly improved with Fit For 55-package – notably with the establishment of a new emissions trading system for sectors not covered by the pre-existing trading scheme.

Yet, a number of important challenges remain, if the EU is to attain a net-0 target for 2050 in a cost-efficient way, as GHG emissions of important sectors and activities still have inadequate regulatory set-ups with few if any reduction incentives both on the EU level and nationally. The main problems and risks are:

1. Agriculture has no common EU climate regulations.
   
2. Wood-based energy is not carbon neutral, and the significant climate impact of EU wood-energy use has been left without effective EU regulation.  
   
3. Negative emissions will be crucial to ensure a net-zero society, and it is crucial to get EU targets and incentives right.
   
4. Market introduction of non-fossil chemicals and raw materials for plastics suffers from a lack of carbon pricing of fossil raw materials.

Solutions
The main recommendation is to extend emissions trading to as many emissions as technically and economically feasible. Other potential solutions for the four main problems.

1. The agricultural sector should preferably be included into the two ETS-systems – with non-CO2 emissions and emissions from peat soils covered by ETS1 and energy for agricultural machinery and heating by ETS2.
   
   A) Common EU pricing of agricultural emissions on par with other sectors will be key to incentivize mitigation and technology development and to inform consumers of the relative climate impacts of different foods. This will also help promote low-carbon diets and new low-carbon food products.
   
   B) Regulating agricultural emissions within a common EU emissions trading scheme will hinder intra EU carbon leakage in the sector. Joint EU-carbon border adjustment schemes could be established to counter carbon leakage towards third countries.
   
   
2. The climate impact of bioenergy must be included into both ETS1 for large users and the ETS2 for small consumers. Overall ETS-caps must be changed accordingly. Subsidies for wood-energy use should be phased out.
   
   A) Inclusion into the ETS must be based on emission factors – emissions per unit of energy produced. Emission factors must take into account natural decay in case the biomass had not been combusted and/or future growth on harvested forest land in case of stem-wood being combusted. Consequently, the calculated emission factors will be lower than the instant emissions from combustion of bioenergy.
   
   B) The Commission must prioritize the development of standard emission factors for the main fractions of woody biomass used for energy in the EU – taking a pragmatic approach in spite of the scientific uncertainties involved.
   
   
3. The incentives for negative emissions – in particular biogenic carbon storage must be done right. Temporary and reversible storage in forests and agricultural soils should not become tradable, negative emissions in the two ETS-systems. The best regulatory set-up will be separate targets for: 1) emission reductions, 2) nature based and temporary carbon removals and 3) a target for permanent storage from industrial removals. In addition, the future framework should ensure that EU incentives for technical carbon removals based on biogenic carbon properly reflect the loss of carbon stored in the biomass used for the process and conversion losses.
   
   
4. Fossil raw materials for chemicals and plastic should be included into the ETS1, and inclusion of fossil raw materials in the ETS1 should change the overall ETS cap. Up-front pricing of ensuing CO2 emissions from incineration or other forms of oxidation of plastics and chemicals should be considered in order to provide a level playing field for non-fossil alternatives. If introduced the carbon pricing of the fossil content of waste incineration may be phased out in order to avoid double taxation.