The EU Emissions Trading System directly drives Carbon Capture and Utilization adoption by making CO₂ emissions progressively more expensive to ignore. When the cost of holding emission allowances exceeds the cost of deploying CCU technology, industrial operators have a clear financial case to act. This article unpacks the specific mechanisms, price thresholds, sector pressures, and regulatory developments that define the ETS-CCU relationship in 2026.

How does the EU ETS create a financial incentive for CCU?

The EU Emissions Trading System creates a financial incentive for CCU by attaching a direct monetary cost to each tonne of CO₂ emitted. Covered installations must surrender one allowance per tonne of CO₂ they release. When the carbon price rises above the cost of capturing and converting that CO₂ into usable feedstock, CCU transitions from an environmental option into an economically rational business decision.

The mechanism works through scarcity. The EU caps the total number of allowances in circulation and reduces that cap annually, so the cost of compliance rises over time. For heavy industrial operators, this creates a compounding pressure: either invest in abatement technology or face steadily increasing allowance expenditure. CCU offers something carbon capture and storage does not: a revenue stream. Instead of paying to store captured CO₂, operators can convert it into carbon monoxide or syngas and sell it as industrial feedstock, offsetting the cost of the conversion technology itself.

This is the economic logic that makes plasma-based CO₂ recycling commercially attractive. When a facility converts its captured CO₂ into carbon monoxide using renewable electricity, it simultaneously reduces the number of allowances it must purchase and generates a product with market value. The ETS effectively subsidizes the business case by penalizing the alternative: doing nothing.

Does CO₂ converted through CCU count as an avoided emission under ETS rules?

Under current EU ETS rules, CO₂ that is permanently stored is credited as an avoided emission, but CO₂ that is chemically converted and later re-emitted is generally not treated as a permanent removal. This means CCU does not automatically generate carbon credits in the same way carbon capture and storage does. However, the regulatory picture is more nuanced than a simple yes or no.

The key distinction is permanence. CCS receives full credit because the CO₂ is geologically stored and does not re-enter the atmosphere. CCU converts CO₂ into products that may eventually release that carbon again, which complicates accounting. That said, the ETS still rewards CCU indirectly: if a facility captures CO₂ that would otherwise have been emitted and converts it into feedstock, it does not surrender allowances for that captured volume. The avoided allowance cost is real, even if it does not appear as a formal carbon credit.

There is also a lifecycle dimension worth noting. When CCU produces feedstocks that displace fossil-derived equivalents, the avoided upstream emissions from not extracting or processing fossil inputs represent an additional climate benefit. Lifecycle assessments of plasma-based CO₂ conversion, for example, show that using renewable electricity and biogenic CO₂ can achieve net carbon-negative outcomes across the full value chain. Regulatory frameworks are beginning to recognize this broader accounting, and future ETS revisions may formalize CCU’s contribution more explicitly.

What ETS carbon price level makes CCU economically viable?

CCU becomes economically viable when the ETS carbon price exceeds the levelized cost of converting CO₂ into usable feedstock. For advanced plasma-based conversion technologies, that threshold is reached at carbon prices in the range of €60 to €100 per tonne of CO₂, depending on the specific process, energy costs, and the market value of the output feedstock. At prices above this range, CCU is not just viable but actively profitable.

The energy efficiency of the conversion technology is the dominant variable in this calculation. A process that requires 3,000 kWh to convert a tonne of CO₂ faces a very different cost structure than one requiring 1,100 kWh. D-CRBN’s Plasma ARC™ platform, for instance, operates at approximately 1,100 kWh per tonne of CO₂, which is roughly five times more efficient than competing conversion routes. At that energy intensity, the cost of conversion is low enough to compete with fossil-derived carbon monoxide even at moderate carbon prices, and the economics strengthen further as the ETS price rises.

Two additional factors shift the viability threshold downward. First, the market value of the output matters: carbon monoxide and syngas are industrial commodities with established pricing, and their value offsets conversion costs directly. Second, energy sourcing matters. Operators who can access surplus renewable electricity at low or near-zero marginal cost, for example during periods of high wind or solar generation, can run conversion processes at significantly reduced operating expenditure. Technologies with fast on/off switching capability, like plasma reactors, are specifically designed to exploit these windows.

Which industries face the strongest ETS pressure to adopt CCU?

Steel, chemicals, and petrochemicals face the strongest ETS pressure to adopt CCU because they are among the largest emitters covered by the scheme and have limited low-cost alternatives for deep decarbonization. These sectors generate large volumes of CO₂-rich process gases, making them natural candidates for on-site carbon capture and conversion rather than allowance purchasing.

Steel producers

Steel manufacturing generates substantial CO₂ from blast furnace operations, where carbon is used as a chemical reducing agent, not just as fuel. This makes electrification alone insufficient for full decarbonization. CCU addresses this directly: CO₂-rich off-gases can be captured and converted back into carbon monoxide, which re-enters the blast furnace as a reducing agent, replacing coal and cutting both emissions and allowance costs. The first industrial trial of plasma-based CO₂ conversion took place at a major European steel plant, demonstrating safe operation and record-low electricity consumption at a major-hazard industrial site.

Chemical and petrochemical producers

Chemical producers rely on carbon monoxide and syngas as foundational feedstocks for products including acetic acid, polycarbonates, methanol, and synthetic fuels. These inputs are currently sourced from fossil-based processes. As ETS allowance costs rise and the Carbon Border Adjustment Mechanism extends carbon pricing to imports, the economic case for switching to CCU-derived feedstocks strengthens. Electrified CO production from captured CO₂ allows chemical operators to maintain feedstock supply while reducing their carbon liability under the ETS.

Biogas and wastewater operators

Operators managing biogas from anaerobic digestion or wastewater treatment face a different but equally compelling ETS dynamic. Their CO₂ streams are biogenic, meaning conversion to syngas can yield carbon-negative outputs when powered by renewable electricity. This creates an opportunity to generate green syngas that commands premium pricing in downstream markets for sustainable fuels and chemicals, while simultaneously reducing the operator’s compliance burden.

How does the Carbon Border Adjustment Mechanism interact with CCU adoption?

The Carbon Border Adjustment Mechanism reinforces the ETS by extending carbon pricing to imports of carbon-intensive goods entering the EU. For European industrial producers, CBAM reduces the competitive disadvantage of paying for ETS allowances, since non-EU competitors now face an equivalent carbon cost at the border. This makes CCU investments more strategically attractive because they reduce the embedded carbon in European products, lowering both ETS compliance costs and the carbon price exposure of downstream customers.

CBAM covers sectors including steel, cement, aluminium, fertilizers, hydrogen, and electricity. For steel and chemical producers, this is directly relevant. A European steelmaker that converts its CO₂ emissions into carbon monoxide feedstock through CCU reduces the carbon intensity of its output, which strengthens its competitive position relative to both ETS allowance costs and the CBAM-adjusted cost of importing competing products.

There is also a supply chain dimension. European manufacturers who purchase carbon-intensive intermediates from outside the EU will increasingly face CBAM costs on those inputs. Sourcing carbon monoxide and syngas from domestic CCU operations, produced from captured industrial CO₂ using renewable electricity, removes that exposure entirely. This supply chain resilience argument is becoming a significant driver of CCU adoption alongside the direct ETS compliance logic. Operators interested in electrifying their feedstock supply gain both regulatory protection and greater independence from volatile import markets.

What regulatory changes could accelerate CCU uptake under the ETS framework?

Several regulatory developments have the potential to significantly accelerate CCU adoption within the ETS framework. The most impactful would be explicit recognition of CCU-derived feedstocks in carbon accounting rules, allowing operators to claim credit not just for avoided emissions but for the lifecycle displacement of fossil-based alternatives. Current rules undervalue CCU relative to its full climate contribution.

Key regulatory changes that would strengthen the CCU business case include:

• Lifecycle-based emission accounting: Updating ETS methodology to credit the full chain of avoided emissions when CCU displaces fossil feedstocks, not only the point-source capture event.
• Formal CCU recognition in the ETS Directive: Establishing a clear legal framework for how converted CO₂ is treated across different product lifetimes, reducing regulatory uncertainty for investors.
• Innovation Fund and EIC support continuity: Sustained public funding for CCU demonstration projects, such as the EIC Accelerator grants already supporting early-stage deployments, bridges the gap between pilot scale and commercial operation.
• Renewable fuel and feedstock mandates: Obligations requiring industrial buyers to source a defined share of feedstocks from low-carbon or recycled sources would create guaranteed demand for CCU outputs, improving project bankability.
• Carbon Contracts for Difference: Instruments that guarantee a minimum carbon price for CCU investments would reduce the financial risk of long-lived capital commitments in a market where allowance prices fluctuate.

The direction of EU industrial policy in 2026 is broadly supportive of CCU, with the European Green Deal, the Net-Zero Industry Act, and the revised ETS all pointing toward a tightening carbon market and greater recognition of circular carbon solutions. The remaining gap is in the specificity of CCU accounting rules, which still lag behind the pace of technology deployment. As demonstration projects at industrial scale multiply and lifecycle data accumulates, the regulatory framework is expected to evolve to reflect CCU’s full contribution to industrial decarbonization.

For industrial operators evaluating their position under the ETS, the question is not whether carbon pricing will make CCU viable, but whether their organization will move early enough to capture the competitive advantage. Plasma-based CO₂ recycling, deployable as a modular, plug-and-play addition to existing infrastructure, offers a practical entry point that does not require facility-wide redesign. Operators looking to assess their specific site conditions and feedstock options can get in touch with D-CRBN to explore what on-site CO₂ conversion could look like at their facility.

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