The European Commission’s unambitious proposed climate target for 2040 risks becoming riddled with loopholes and delaying urgent climate action. This in-depth analysis explains how and why.

Europe is currently the fastest-warming continent, with escalating climate risks already endangering its energy and food security, ecosystems, infrastructure, water supplies, financial systems, and public health. This situation demands immediate and decisive action. 

The European Commission’s proposed 2040 target represents a critical opportunity to set the EU on a clear path to climate neutrality and ensure climate action over the coming decades. Yet the current text is woefully inadequate.

The proposed net 90% emissions reduction target for 2040 compared with 1990 levels today sits at the lower end of what the European Scientific Advisory Board on Climate Change recommends. For Carbon Market Watch and EU environmental NGOs, the net 90% still remains a full 10% off the climate neutrality the EU could and should achieve by 2040 to equitably contribute to the Paris Agreement goals. 

Furthermore, the proposal opts for a single, net emissions reduction target, thus ignoring the calls from civil society, businesses, academics and the EU’s own appointed scientific advisors to separate and spell out the different contributions of gross emissions reduction, land-based sequestration and permanent removals. By so doing, the EU executive has failed to make the target truly accountable. Even worse, a basic safeguard to ensure focus on emission reductions (setting a cap on the maximum contribution of the land sector to the overall target) that is in the current Climate Law has been dropped.

Last but definitely not least, the European Commission’s misguided move to use a smorgasbord of “flexibilities” to facilitate the achievement of the 2040 target, including through international carbon credits and carbon removals, once again going against scientific recommendations, is a punch thrown at the EU’s domestic climate ambition and international credibility. And it makes climate neutrality by 2050 harder to achieve. Moreover, the international credits loophole did not feature in the European Commission’s earlier communication and impact assessment on the 2040 target, setting a worrying precedent for scientifically ungrounded climate policy proposals.  The European Parliament and Council now have the responsibility to rethink and reshape this proposal and remove the unhelpful and problematic “flexibilities” the Commission has introduced.

When 3% is 30%

Opening the door to international carbon credits goes against the domestic nature of the EU’s 2040 climate target. The EU’s own scientific advisors warned against using Article 6 carbon credits. Moreover, the European Commission has departed from its own impact assessment, which included no analysis of the possible role of international carbon credits. This means the EU is prematurely opening up this possibility, and it appears driven by hopes of accessing cheap credits rather than being grounded in concrete analysis.

The proposal is light on details regarding the inclusion of international carbon credits, leaving most of the hard work for the future. 

Regarding the quantity of carbon credits potentially eligible under the 2040 target, the proposal specifies a “possible limited use of international credits, so that 3% of 1990 EU net emissions could be counted towards the 2040 target”. This implies 144 million carbon credits may be used in 2040 (own calculations). While 3% may seem like a small figure, in reality, this means the EU’s 2040 net emissions would be a whopping 30% higher than if the EU achieved its target domestically, according to an analysis by the Oeko Institute.

Moreover, it’s not clear whether the 3% refers to total credits eligible between the years 2036 and 2040, or rather on an annual basis. In the latter case, over 700 million carbon credits could be used by 2040 (own calculations). Finally, the explanatory memorandum states that the 3% threshold can be revised, based on the upcoming co-legislation process, introducing further uncertainty on the exact quantity that could be eligible, which could potentially even increase (France has even proposed a 5-10% threshold).

Regarding the quality of carbon credits, the proposal provides only a vague commitment that credits will be of high quality, without defining specific criteria. It says that in the future the EU will put down in law robust, high-integrity standards and conditions governing the origin, timing, and use of such credits. 

Should we have faith in such an exercise? 

Probably not, considering the worrying precedent set by the EU’s current underwhelming efforts to establish a monitoring, reporting and verification process: the carbon removal and carbon farming framework.

Among many key safeguards, it would be necessary to require only permanent carbon removal credits that deliver long-term climate mitigation for centuries-to-millennia. The Commission’s accompanying Q&A to the 2040 proposal indicates potential permanence criteria, stating that international credits must come from “credible and transformative activities, such as direct air carbon capture and storage (DACCS) and bioenergy with carbon capture and storage (BioCCS) in partner countries whose climate targets and action align with the Paris Agreement temperature goal.” 

While a limitation to DACCS and BECCS projects would be far more likely to deliver long-term climate impact compared to most other carbon crediting projects, this would not be sufficient. Additional environmental and social safeguards are needed, for example on monitoring and liability for reversals and especially on the sustainability of biomass used for BECCS. If the EU ends up funding the burning of trees ostensibly for the climate by buying unsustainable international BECCS units, something will have gone horribly wrong with this safeguard. 

The EU’s intended use of international carbon credits clearly lacks rigorous environmental and social criteria and fails to uphold the permanence enshrined in the Climate Law as a minimum requirement for these credits. There is a significant risk these will be inadequate due to carbon credit quality shortcomings and human rights infringements that persist to this day. 

If sufficiently strict criteria were eventually developed, there is a chance that no credits would qualify for use. This creates a perverse incentive. Truly high-quality credits are scarce or prohibitively expensive (buying 142 million higher quality credits may cost as much as €46 billion annually). Faced with this reality, policymakers may be tempted to shift the goalposts by purposefully under-regulating and weakening eligibility criteria. Given that achieving the 90% target domestically is feasible, this flexibility risks only adding administrative burden, undermining domestic climate action and exposing the EU to unnecessary reputational risk.

Regarding the EU ETS, the Commission’s documents are confusing on the critical question of whether international carbon credits will remain banned from the EU’s carbon market (currently the case since 2021). The explanatory memorandum importantly states that “these international credits should not play a role for compliance in the EU carbon market”. While this is a welcome sign that the European Commission is aware of the significant risks of reopening the ETS to international credits, which proved disastrous in the past, there is no comparable statement in the proposal’s binding amendments, or even in the recitals. In addition, the language is limited to an encouragement – “should not play a role” – meaning that inclusion of credits in the EU ETS has troublingly not been completely ruled out.

If there is any silver lining, it is that the Commission’s proposal does not commit the EU to counting international carbon credits towards the 2040 target. In the proposed amendments to the European Climate Law, international credits are indicated as “a possible limited contribution towards the 2040 target”, based on a “detailed impact assessment.” This indicates that international carbon credits may never ultimately feature in the 2040 target and that further analysis is needed for the Commission to consider opening the 2040 target to carbon credits. On the other hand,  remarks made by the European Commission appear to pre-empt the need for that analysis, which would be a grave error.

Combo deal

The net 90% reduction proposal is also a missed opportunity to enshrine separate targets for emission reductions (the most important target), carbon sequestration in nature (such as forests and soil) and permanent removals into law. Separate climate targets enhance the transparency and accountability of the EU’s pathway to climate neutrality, provide clarity on emission reduction plans, determine the role of removals and natural sinks, and avoid an unrealistic reliance on storing carbon from the atmosphere (naturally or through technical processes). 

It is crystal clear that significantly and urgently reducing emissions across all sectors is inevitable if the world is to meet the Paris Agreement’s temperature goal and limit the damage climate change is already causing. However, there is a need to build up sustainable permanent removal capacity that will balance out those emissions we collectively deem both necessary and too hard to abate, and help us, thereafter, reach net-negative emissions so that we can start cleaning the atmosphere of legacy pollution. At the same time, natural ecosystems must be protected and restored, as they are vital to repair and enhance biodiversity, assist the planet’s adaptation to climate change, and remain a critical carbon sink.

Overrelying on natural sinks and permanent removals to achieve climate targets undermines efforts to accelerate emissions reductions. Moreover, sustainable removal capacity is finite, limited and likely to remain expensive. The separate targets approach allows governments to work on all three. 

Instead of going in this direction, the Commission took a step back by deleting the principle of a maximum contribution of the land sector towards the 2040 target, even though it is enshrined in the 2030 target. In a similar way, the EU’s executive also avoided adding a residual emissions limit by 2040, despite the fact that this was quantified in last year’s Communication and impact assessment.

Polluters off the hook

The use of permanent removals generated in the European Union under the EU Emissions Trading System to compensate for residual emissions from what the Commission describes as hard-to-abate sectors is presented as one of the potential ‘flexibility’ options to facilitate reaching a political agreement on the 2040 target. While the language on this is too vague to take the integration of permanent removals in the EU ETS for granted, the explanatory memorandum and the recitals at the top of the proposal make clear that the Commission is willing to go ahead with it and justify it as a way to create incentives for the carbon removals industry. By so doing, the EU executive is preempting the public consultation on the ETS, which is still ongoing, while an impact assessment on the consequences of such a choice is pending.

This kind of integration into the EU ETS would not create a business case for permanent removals. Instead, it would create loopholes to keep polluters off the hook, undermining the very aim of that policy tool. At least in the medium term, the cost of permanent removals will be far higher than the ETS price, so there will be little to no incentive for industries to buy high-quality, permanent removals, not to mention the fact that the current Carbon Removal and Carbon Farming (CRCF) certification framework will not be able to guarantee that EU removal units will be of high quality. Moreover, the ETS should aim to make polluting expensive so that companies are left with no choice but to innovate and find solutions and alternative zero-emission materials and technologies. The price of residual emissions should be high enough to incentivise decarbonisation and reflect the cost of pollution to society and the economy.

In addition, removals cannot magically neutralise emissions: once released into the atmosphere, greenhouse gases have a permanent and often irreversible impact on the Earth’s climate, ecosystems and human health, which removals cannot undo (think glaciers melting, sea levels rising and species going extinct). Moreover, the permanent removals methods the Commission mentions in the proposal, bioenergy with carbon capture and storage (BECCS) and direct air carbon capture and storage (DACCS), are still in their infancy, could have harmful negative effects on the environment and human rights and, as explained above, they remain a finite and scarce resource that should be used to balance out those emissions from activities that, as a society, we deem too important and are, thus, for us, “impossible to abate”. 

Finally, according to research recently published and commissioned by Carbon Market Watch, the EU ETS does not require the inclusion of carbon removals until at least 2036. After that, integrating permanent removals would not compensate for the expected tight supply of emission permits. To develop high-quality, permanent removals without interfering with emissions reduction efforts, other alternatives that do not equate emissions with removals should be implemented. These include using part of the ETS revenue to fund permanent removal activities without them entering the ETS; a separate Removal Trading Scheme; and distinct national removals targets (separated from emission reduction targets).

Delays and backroom politics

After analysing the content, we cannot help but comment on the process that led to the European Commission’s proposal. It took 17 months to publish the legislative text after the  Commission indicated its initial intention in February 2024. 

Not only was the release of the proposed 2040 target delayed several times, but the EU executive also conducted behind-the-scenes talks with EU member states and political groups before the ordinary legislative procedure even started, and delivered a proposal that considerably lowered the bar on the final legislation. Now, the Commission is looking to rush the formal exchanges between the three EU institutions to turn the proposal into law. 

The European Commission chose to cook the books instead of protecting the climate and prioritised political expediency over effective climate action. The EU executive deemed a safe and prosperous green future for all to be less important than short-sighted realpolitik and cosying up to industry. Yet, 85% of EU citizens consider climate change a serious problem. In the EU and globally people want more climate action. The European Parliament and the Council have the responsibility to bring this policy file back in line with science, our collective right to a brighter future and the EU’s fair international share of climate action.