CDR policy is entering a new phase - Updates from the fall of 2025

Governments are starting to move from talking about carbon removal to establishing the rules that could turn it into a real industry. But the action is shifting away from Washington, where it was initially concentrated, toward California and Europe.

In the United States, the federal government has taken a slate of harmful action. In July, things looked positive when congress did not repeal the 45Q tax credit that pays companies for capturing or removing carbon dioxide. But shortly thereafter, federal environmental regulators proposed weakening the reporting system that the tax credit system depends upon. More recently, the Department of Energy has cancelled billions of dollars in planned climate investments, including funding for major carbon removal projects. These moves make developers and investors nervous. On paper, America still offers the most generous subsidies in the world, but the uncertainty surrounding them is growing.

California, by contrast, has just passed a package of laws that give carbon removal a clear role in the state’s climate policy. It will now be possible to use high-quality carbon removal credits to comply with California’s emissions cap, the state will fund climate innovation through its cap-and-invest program, and they’ve also authorized the development of pipelines and storage infrastructure for captured CO₂. A separate purchasing programme was vetoed, but California has taken significant action to lay down the legal and physical infrastructure needed to build a real market for carbon removal.

The European Commission has published plans for an EU-level scheme to buy permanent carbon removals. This signals that Brussels wants to create its own demand, not just certify projects. Also, Germany has, for the first time, folded carbon capture and storage into its industrial policy, and the UK has set a timeline to bring carbon removals into its carbon trading system by 2029. Next year, the European Commission will publish a report on integrating carbon removals into the EU ETS. Together, these steps show Europe moving toward regulated markets where companies will need to buy durable carbon removals to meet climate targets, rather than relying only on voluntary efforts.

Elsewhere, India is launching a national carbon market that will be linked to international trading systems, Singapore is signing new bilateral deals and the International Maritime Organization may soon adopt a net-zero framework for global shipping.

Dive into the detailed policy updates below:

California

October 13th was the last day for California’s Governor Newsom to sign or veto bills passed by the Legislature on or before September 12 and in the Governor’s possession after September 12. And in the final hours, Governor Newsom decided to halt the Carbon Dioxide Removal Purchasing Program. 

AB 1207 - Chaptered on September 19 AB 1207 extends California’s market-based compliance mechanism to 2045 and renames it “California Cap-and-Invest Program.” It directs the California Air Resources Board (CARB) to align covered‑sector emissions with statutory targets: 40% below 1990 levels by 2030 and net zero GHG emissions by 2045. 

In practical terms for carbon removal, the act instructs CARB to develop compliance offset protocols to include carbon dioxide removal and caps the use of offsets at 6% of an entity’s compliance obligation, requiring that half of those offsets deliver environmental benefits in-state, and permanently retiring an equal number of allowances so that their use effectively translates into a tightening of the overall cap.

SB 840 - Chaptered on September 19 SB 840 amends Greenhouse Gas Reduction Fund (GGRF) governance and directs specific percentages of the revenues from quarterly auctions to individual funds dedicated to funding clean transportation, housing and community investment, clean air and water, wildfire prevention and resilience, agriculture, clean energy, and climate-focused innovation. The bill provides for a continuous appropriation from the GGRF of $85 million per year for climate-focused innovation that may include CDR technologies.

It also directs CARB to update all existing compliance offset protocols by 2029 to reflect the best available science and to review them every five years starting in 2034. CARB’s study of offset usage and compliance offset protocols should allow high-quality carbon removal credits to be used by covered entities to comply with emissions caps. 

SB 614 - Chaptered on October 10 SB 614 authorizes the development of dedicated pipelines to move carbon dioxide captured from emitters or removed from the atmosphere to underground geological formations for permanent storage. Building state capacity to develop transport and storage infrastructure is a necessary step towards the buildout of carbon removal at climate-relevant scales. 

SB 643 - Vetoed by Governor Newsom on October 13 SB 643 was passed by both houses, but was vetoed before the legislative deadline. Legislators could decide to override the veto, but this is unlikely to occur because the California legislature has not overridden a veto since 1979. In his veto letter, the Governor expressed support for the carbon removal industry, but stated that this program would be duplicative of the funding carbon removal projects are eligible to receive as a result of SB 840. 

It directed CARB to establish a Carbon Dioxide Removal Purchase Program with competitive grants for eligible carbon removal projects. The bill required the CARB to fund carbon dioxide removal projects in an amount totaling $50,000,000 with no more than half of that sum granted to projects within one carbon removal pathway and no more than one quarter of the total sum granted to a single project sponsor. Unlike the DOE’s CDR Purchase Pilot Prize, the funding provided by this program will effectively be offtake agreements for carbon removal credits to be delivered by 2035. 

SB 285 - Suspended SB 285, a bill that would have established durability minimums for carbon dioxide removal credits that are used to counterbalance the state’s or an entity’s greenhouse gas emissions did not progress beyond the senate. Seemingly, there was a fundamental misunderstanding that the bill would exclude nature-based carbon removal credits and those in opposition successfully lobbied against the bill. Hopefully the bill will be re-introduced in the next session, as the like-for-like principle must be followed to effectively mitigate fossil emissions.

Market implications AB 1207 and SB 840 improve the likelihood that durable carbon removal sits inside long‑term compliance demand. SB 614 clears CO₂ transport/storage bottlenecks and de-risks delivery for in-state projects, making California a credible anchor market for high-durability tonnes. 

United States Federal Policy

Congress - 45Q preserved The recent budget (H.R. 1) preserved the 45Q tax credit despite proposals to pare back climate spending. However:

Environmental Protection Agency (EPA) - Proposed reconsideration of the GHGRP On September 12, EPA proposed to amend the Greenhouse Gas Reporting Program. The prepublication draft proposes to remove reporting obligations for most categories. It is likely that the dismantling of these reporting obligations would disrupt the data infrastructure the IRS relies upon to verify storage and will undermine access to 45Q for project developers. 

Department of Energy (DOE) - Cancellations and Impoundments

• On October 2, DOE announced termination of $7.56 billion in awards across 223 climate‑related projects, including ten direct air capture hub projects that lost nearly $47.4 million.

• There have been reports that DOE is planning to announce the termination of both TA-3 DAC Hubs: South Texas Direct Air Capture Hub, a facility that Occidental Petroleum’s 1PointFive subsidiary planned to develop in Kleberg County, Texas and Project Cypress in Louisiana, a collaboration between Battelle, Climeworks, and Heirloom. Both projects were eligible to receive more than $500 million in grant funding. 

• In total, DOE is reportedly planning to cut >$15 billion in federal investments. 

• DOE has not administered the Pre-Commercial and Commercial DAC Prizes, as instructed by Congress.

The cancellation of these mandatory grants could be a violation of the The Impoundment Control Act of 1974, which prevents the president from interfering with Congress’s constitutionally defined power over taxing and spending.

Market implications in the U.S. Keeping 45Q intact sustains the core federal revenue driver for engineered removals. The GHGRP proposal, if finalized as written, could complicate verification pathways that tax authorities and financiers use to underwrite storage claims, which would raise diligence costs and increase discount rates for CCS and DACCS projects. 

Overall, the GHGRP reconsideration and DOE award cancellations injects uncertainty into the viability of carbon removal projects in the United States. Increased uncertainty in the industry may shift early‑stage capital outside the U.S., where there may be clearer offtake support.

Europe and the UK

EU - Permanent removals purchasing program design The Commission published a study and design options for an EU purchasing program for permanent carbon removals that would complement the Carbon Removal Certification Framework. The document outlines procurement models and governance for buying durable tonnes, a step that signals future demand formation at EU level.

Germany - Industrial climate plan integrating CCS Germany set out a €6 billion industrial decarbonization program that, for the first time, integrates carbon capture and storage into its industrial decarbonization toolkit, alongside climate‑protection contracts to de‑risk investments. The This expands the policy space for permanent removals integrated in hard‑to‑abate industries.

UK ETS - Integration pathway and timing On July 21, the UK ETS Authority confirmed it will legislate to integrate greenhouse gas removals, with a pathway targeting operational inclusion by 2029. This creates a prospective regulated buyer base for durable carbon removal, which improves bankability for UK projects. 

Market implications in Europe The UK and EU ETS paired with an EU‑level procurement program credibly pulls demand for durable removals into the later 2020s. The policy trajectory reduces demand risk for project finance, though eligibility rules, accounting alignment with CRCF, and ETS interactions remain the decisive variables.

Other global developments

UNFCCC - Article 6.4 mechanism Supervisory Body The UN body tasked with operationalizing the Paris Agreement’s international carbon market has agreed to rules that deal with the risk that emission removals credited under the mechanism might later be reversed. The new rules require the monitoring of risks over a period to be approved by the Supervisory Body and provide incentives for investors to manage risk through monitoring and an insurance pool. They also lay out options to repay the risk early or pass it on to third parties offering robust insurance and guarantees.

Also, the Supervisory Body agreed on a Common Practice Analysis Tool, which helps check whether a type of project is already widespread in a region, ensuring that credits are only given for projects that go beyond what is already happening, a concept known as "additionality".

India - Market infrastructure developments India is standing up a national carbon market portal that will support compliance and voluntary transactions and integrate Paris Agreement Article 6 modules. It is expected to go live in November with cross‑border Article 6.2 trading integration targeted shortly thereafter. 

EU–India: New strategic agenda A Joint Communication from the European Commission highlights the opportunity for the two entities to cooperate on developing a domestic carbon market to cut emissions and generate funds for the clean transition. It mentions the potential EU recognition of India’s carbon pricing within the EU’s CBAM implementation.

Singapore - Bilateral Article 6 agreements October 6, Singapore signed its 10th bilateral implementation agreement under Article 6 (with Mongolia), enabling the Singapore Government and firms that must comply with the Singapore carbon tax to buy eligible carbon credits from Mongolia. 

Looking forward

• The International Maritime Organization (IMO) will decide on a binding net-zero framework for international shipping, this week! (The U.S. is signaling opposition.)

• California SB 253 and SB 261 raise the floor on corporate climate disclosure, with climate‑risk reports due starting January 1, 2026 and Scope 3 reporting beginning in 2027. These rules increase scrutiny of purchased credits and favor durable removals that are auditable, permanent, and transparently accounted for. 

• Watch for CARB workshops as AB 1207 and SB 840 undergo the formal rulemaking processes. Interactions with SB 253 and SB 261 will shape how California corporations treat removals inside their disclosure regimes.

• EU ETS: Policy work since July has focused on whether and how to integrate removals into compliance. By 31 July 2026, the European Commission is required to submit a report to the Parliament and the Council on the possibility of integrating negative emissions technologies into the EU ETS.

• Article 6 at COP 30 (Belém, November 2025): Negotiators are expected to tackle registry interoperability, authorization and corresponding adjustment procedures, and permanence rules for removals.

• FuelEU Maritime’s GHG‑intensity regime began monitoring in 2025. Shipping companies must submit their first report by 31 January 2026 covering 2025 voyages and energy use, using a well‑to‑wake basis for fuel accounting. This will start to show how quickly carriers are moving into lower‑carbon fuels and power‑at‑berth solutions. If the shipping industry is unable to achieve their decarbonization goals using decarbonized fuels, then there may be demand to allow carbon removals to play a role in decarbonizing the shipping industry. 

• U.S. Federal: Final EPA action on GHGRP and any budget or litigation outcomes tied to DOE award cancellations will be decisive for 2026 project pipelines.