The EU’s Emissions Trading System is essential to meeting the European Union’s 2040 climate target. Watering the EU ETS down with international carbon credits or carbon removals will prove fatal, concludes this study commissioned by Carbon Market Watch and conducted by the Oeko Institute. The study models various climate scenarios and strategies for calibrating the Emissions Trading System to the new reality of the 2040 climate target, including enabling polluters to use international credits or carbon removals on the EU ETS.

These risky options could undermine the environmental effectiveness of the ETS, the analysis concludes, while the current configuration provides a cost-effective means for the European economy to decarbonise by both putting a price on emissions and channeling that revenue into climate action and investment in Europe.