The upcoming revision EU Emission Trading System (ETS) includes the update of the regulation on monitoring and reporting (MRR)i. In order to ensure the effectiveness of the EU ETS in reducing emissions, the reporting and monitoring of greenhouse gas emissions must remain ‘’robust, transparent, consistent and accurate’’ii.

Some interest groups are advocating for ‘CO2 avoidance’ to be added to the regulationiii. Some interest groups have proposed altering the emissions factor as a “quick fix” to begin including avoided CO2 in the ETS.

’CO2 avoidance’ is an arbitrary accounting concept where one product allegedly avoids fossil emissions without significant proof. It can be used by anyone to claim emission reductions, is not robust and its application and definition are arbitrary. To put it simply, it is a comparison exercise where parties compare their product to the worst possible alternative to make their product seem low-carbon. It is the equivalent of saying that it could be worse than business as usual, thereby making business as usual seem like an acceptable option.

This paper considers the potential consequences of the inclusion of ‘CO2 avoidance’ into the MRR through such structural changes. The arguments given at the beginning of this paper are supported by further analysis in subsequent sections. Overall, the issues related to the inclusion of CO2 avoidance include:
• Preserving linear value chains and current carbon flows contributing to climate change.
• Removing responsibility for emissions from point sources and therefore defeating the purpose of the EU ETS.
• Divorcing the accounting of emissions in the EU ETS from physical carbon flows.
• Introducing unmanageable complexity and precedents which could have consequences well beyond the scope of the ETS.
• Introducing assessments with arbitrary system boundaries, which could lead to any result and hence should not be conducted by parties with vested interest.

Certain stakeholders argue that this ‘CO2 avoidance’ should be recognised in the EU ETS MRR through changes to mechanisms such as the emission factor.

The inclusion of avoided emissions into the MRR could fundamentally change the ETS and the principles that it is based on.