In early June the European Commission is expected to present a long-awaited legislative proposal for a European climate target for 2040. The new objective will serve as a bridge between the existing targets for 2030 and 2050. It will determine the decarbonisation pathway for the entire European economy over the next decade, encompassing sectors covered under ETS1 (fossil power generation, heavy industry, aviation, and maritime) and ETS2 (road transport and heating). Back in February 2024, the Commission presented a ‘communication’ suggesting a 90% target, but the actual legislative proposal has been delayed due to persistent opposition among member states and in the European Parliament. The Commission’s response is to allow for a degree of ‘flexibility’ in the form of carbon removal units and/or carbon credits issued from abatement projects outside of Europe.
Update 14:45: Politico quotes ‘diplomats’ saying the proposal will appear on 2 July and envisage amendments to allow international credits.
On 23 May, Carbon Pulse quoted a Commission official saying the plan is to present the target proposal in early June so it can be discussed by environment ministers on 17 June and by heads of government in late June. On 28 May, Politico quoted two Commission officials saying it is slated for 4 June or the week thereafter.
A Commission website shows items awaiting adoption at the forthcoming College of Commissioners meetings. Currently, the update from 26 May does not list the 2040 target for any of the coming sessions (4, 17, and 26 June). To give the member states some time to digest ahead of the Environment Council on 17 June, the Commission would need to adopt its 2040 target proposal on 4 June.
The target will appear as a draft legislative proposal for amending the European Climate Law, to insert a 2040 emission reduction target. We expect it to be 90% down from 1990 levels, as recommended by a scientific advisory board in 2023 and confirmed by the Commission in its “communication to the European Parliament and Council” in February 2024. Since taking office in the von der Leyen 2 Commission in late 2024, climate commissioner Wopke Hoekstra has responded to calls for a weaker target by reiterating his commitment to 90%.
The proposal will probably be accompanied by an impact assessment that explains and justifies the Commission’s choices and presents a greenhouse gas budget for 2030-2050, as stipulated in Article 4 of the Climate Law.
The 2024 communication featured a 600-page impact assessment in five parts, describing various scenarios, of which the Commission’s preferred option was the one leading to a 90% reduction. It entailed a GHG budget of up to 16 Gt CO2e for the 20-year period. That translated into a yearly reduction rate of -3.3% in the 2030s, before flattening out to -1% p.a. in the 2040s.
All scenarios relied heavily on carbon capture and storage or utilization as well as negative emissions through carbon removals. For 2040, scenario 3, the Commission’s preference, envisaged gross emissions of 748 Mt and removals of 391 Mt, of which 75 Mt would come from industrial removals, and the other 317 Mt from LULUCF. This would be a huge scale-up from today’s level and require massive investments.
The 2024 ‘communication’ and impact assessment did not address the question of importing international credits. If the Commission now wants to enhance flexibility by accepting international climate credits (see below), we can almost certainly expect a new impact assessment to explain the reasoning and to present an adjusted GHG budget.
If the Commission sticks to the domestic-abatement-only approach and sees no need to adjust its assumptions on cleantech uptake rates (hydrogen, batteries, electric vehicles, etc..) it could possibly decide to simply refer to last year’s impact assessment, but we see that as unlikely.
Article 2 of the Climate Law states that the emissions and removals shall be balanced within the Union (our italicization). De facto, this restricts flexibility to emissions (positive and negative) within EU territory and excludes climate credits imported from outside through the Paris Agreement’s Article 6 or other international mechanisms.
Recital 20 of the Climate Law states that the Union should aim to achieve a balance between anthropogenic economy-wide emissions by sources and removals by sinks of greenhouse gases domestically within the Union by 2050 and, as appropriate, achieve negative emissions thereafter.
When opening the Climate Law for review, the Commission might propose changes beyond the mere insertion of a 2040 climate target. The most obvious way to meet the calls for more flexibility would be to amend Article 2, to allow for imported credit units. If it chooses not to, the lawmakers – the European Parliament and the member states in the Council – might decide to do so on their own initiative.
It should be noted that so far, the question of flexibilities relates to the overarching 2040 climate target, which will be binding for the EU, but not for the individual member states or companies. Once the headline target is set, the next step will be to distribute the abatement burden. A breakdown will be decided between sectors covered by ETS1 (fossil power generation, heavy industry, aviation and maritime), ETS2 (road transport and buildings), and the remaining sectors such as agriculture.
For the ETS sectors, the final responsibility then lies with the individual companies, they all share the limited pool of available emission allowances.
Abatement in non-ETS sectors is delegated to the member states under the Effort Sharing Regulation. This law assigns a specific target for each country, based on its economic capacity. The member state government then decides on a mix of taxes, subsidies, or other instruments to trigger abatement in the selected sector(s).
It is certainly possible to imagine the use of international credits for member states’ governments to help them reach their climate target. Sweden and Norway have previously used UN-approved credits issued under the Kyoto Protocol to reach pre-Paris Agreement targets.
The recent push from Germany, France, Poland and others to allow imported climate credits suggests these countries want to use them to help reach their share (yet to be decided) of the non-ETS 2040 abatement effort.
Most of the recent calls for flexibility have failed to specify if they relate to national targets or the ETS. We might certainly envisage a limited use of international credit units in the EU ETS, again following the example of the period pre-2021.
That said, the sequencing of that discussion is important. First, lawmakers need to agree on an overall 2040 target with or without credits. If the Climate Law is amended to drop the condition of internal balance (“within the Union”), the next step will be to discuss if the credit units should be available for the private companies that are subject to ETS1 (and theoretically also for ETS2).
The EU ETS Directive is now in an early stage of review, with a deadline for stakeholder feedback set for 8 July. We can surely expect arguments will be submitted both in favour and against the inclusion of international climate credits. We will need to wait until July 2026 to see what the European Commission wants.
In the European Parliament, the Greens and the Social Democrats have criticised climate Commissioner Hoekstra for pondering the inclusion of international climate credits in the 2040 climate target. They point to the use of Kyoto Protocol units in the early years of the EU ETS and say this damaged the system’s reputation and helped create the oversupply that weighed on prices in the years before and after 2015. For them, opening this door anew would pose a serious threat to Europe’s credibility on the global climate policy stage.
Proponents, on the other hand, reject that parallel, and point to the fact that the credit units to be issued under the Paris Agreement’s Article 6 will be checked against corresponding adjustments in the project host country’s climate balance, effectively ensuring there will be no double counting of abatement both in seller-state and buyer-state.
As mentioned, a review to recalibrate the ETS1 and the Market Stability Reserve for the period post-2030 is underway and will run in parallel to the discussions on the 2040 overall target. Stakeholders are now preparing feedback to the Commission, and we expect some will touch on the inclusion of international climate credits into the ETS.
Furthermore, the resistance to ETS2 seems to be hardening, with several heavy-weight countries calling for a delayed start and/or for reinforcing the price-curbing mechanisms. With the system set to come into full operation in 2027, the Commission is opposed to reviewing it ex-ante. That said, once the directive is opened for review with a proposal scheduled for July 2026, lawmakers might take the chance to also address the ETS2 parameters. Even so, that leaves too little time to implement changes before the start of ETS2 compliance obligations in January 2027.
4 June: College of Commissioners meeting. Possible occasion for the Commission to adopt its draft legislative proposal on a 2040 climate target.
17 June: College of Commissioners. Possible occasion for the Commission to adopt its draft legislative proposal on a 2040 climate target.
17 June: Environment Council. Possible occasion for member states’ environment ministers to discuss the 2040 target proposal, if they have received it in advance.
26 June: College of Commissioners. Possible occasion for the Commission to adopt its draft legislative proposal on a 2040 climate target.
26-27 June: European Council. Possible occasion for heads of government to discuss the 2040 target proposal, if the environment ministers have discussed it on 17 June.
1 July: Denmark takes over the presidency of the European Council. The presidency will steer discussion among the member states.
8 July: Feedback on upcoming ETS and MSR revision. Deadline for stakeholders to provide input. The Commission will analyse and prepare a draft legislative proposal for July 2026.
August: Summer recess in the European institutions.
10-21 November: global climate summit in Belém, Brazil (COP 30). The Commission hopes lawmakers will politically endorse a 2040 target in time for this summit.
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