Carbon storage technologies could boost revenues for pulp and paper producers: Fastmarkets research

As European pulp mills continue to face tight margins and structural overcapacity, the report examines how producers will face future regulatory challenges related to compliance costs under the EU Emissions Trading System (ETS).

Carbon economists at Fastmarkets noted how free allocations and a low reliance on fossil fuels had largely benefited Europe’s pulp mills until now. Between 2008 and 2024, the top ten recipients of free allocations captured around €6 billion in surplus allowance value, while the sector overall had a net surplus of €4.5 billion.

But analysts are now expecting declining allocations and rising EU ETS compliance costs over the next five years. Furthermore, a directive, effective from 1 January 2026, is set to remove free allocations for mills with more than 95% biogenic CO2 emissions, resulting in around 40% of mills losing free allowances entirely, Fastmarkets estimates show.

The situation poses a paradox, where fossil emission-conscious mills are effectively the most affected.

Selling CO2, either as carbon removal credits (CCS) or for industrial use, could provide an additional revenue stream while reducing EU ETS obligations.

Why pulp mills are best suited for CCS retrofits and where they may not work

The report focuses on the deployment of CCS technologies in market pulp mills.

According to Fastmarkets carbon analysts, they are among the best positioned industrial sites for carbon capture due to the facilities’ structurally large amount of untaxed biogenic CO2 emissions — derived from burning biomass and their self-sufficiency — compared with integrated pulp mills.

Because integrated mills use most of the on-site generated steam to run paper drying processes, CCS technology would require additional steps.

While pulp mills are technically well-suited to CCS, the economics vary widely, with mills located far away from storage hubs, such as saline aquifers or depleted oil and gas reservoirs, facing relatively prohibitive costs, making CCS technologies only viable in the presence of nearby physical CO2 outlets, such as food and beverage facilities.

But for most of the facilities studied, CCS retrofits result in lower production costs when short transport distances are combined with rising EU ETS obligations.

Contact carbonsupport@fastmarkets.com for more information on Fastmarkets’ report. Or register to read a teaser sample of the report here.