The European Union has struck a deal on its 2040 climate target which, on paper, maintains the headline goal of slashing emissions by 90% but allows loopholes and backdoors that will result in hundreds of millions of tonnes of additional domestic emissions.

After months of delay and succumbing to efforts to dilute climate action, the three EU institutions sealed an underwhelming deal on the European Union’s 2040 target that shortchanges future generations and undermines human wellbeing. 

At the most superficial level, the agreed target keeps in place the net 90% emissions reductions goal, which is the absolute minimum domestic target required for the bloc to remain within its fair share of the Paris Agreement objective of keeping temperature rises below the 1.5°C threshold. However, the 2040 target allows for the use of international carbon credits to cover 5% of target, which brings the actual domestic goal down to a net 85% reduction. 

“This 2040 target ignores the EU’s historical and ongoing responsibility to tackle climate change and the scientific community’s advice to prioritise domestic emissions reductions rather than shifting some of the burden to other parts of the world,” said CMW’s Executive Director Sabine Frank. “2,000 scientists declared that not only is ambitious climate action essential for planetary wellbeing, but that for the EU it is also an economic and competitive necessity. Yet EU governments lack the courage and responsibility to act on this advice.”

Lowering the bar

The European Scientific Advisory Board on Climate Change, an official EU advisory body, had recommended a fully domestic 2040 emissions target of at least 90-95% without any international flexibilities. It is also entirely feasible for the European Union to achieve climate neutrality by 2040, a full decade before the official 2050 target date, research and modelling have indicated.

Instead of setting 90% of 1990 emissions as the minimum bar for ambition, the EU has dipped far below this by opening the floodgates to the use of international carbon credits from Article 6 of the Paris Agreement. 

“The political milestone of agreeing to a 2040 climate target was overdue, but the extent to which it has been watered down risks capsizing the EU’s ability to achieve its climate goals and will hurt the bloc’s future prosperity and competitiveness,” says CMW Policy Director Sam Van den plas. “It is now up to responsible policymakers to implement the 2040 target next year in a way that it upholds and increases climate action.”

In addition to the explicit loopholes, there are also numerous omissions in the deal. “On top of downgraded domestic ambition, the EU neglected to provide clarity on its efforts to reduce gross emissions, develop permanent removals, and maintain ambitious, binding land use targets. The EU chose loopholes and ambiguity over accountability and predictability,” explains Fabiola De Simone, CMW’s lead on carbon removals.

Shortchanging people and planet

The reliance on Article 6 carbon credits shifts responsibility for part of the EU’s domestic emissions to communities in the Global South who did little or nothing to create the climate crisis, potentially exacerbating existing inequalities and making it harder for these countries to reach their own climate goals.

This outsourcing of climate ambition is not only unfair to the Global South and future generations, it also lets big polluters off the hook, undermining the polluter pays principle. 

In addition, the international credit use would cost the European Union some €50 billion (assuming a conservative price of €70 per credit) and would result in 50% higher emissions in the EU in 2040 than if the target had remained entirely domestic, according to CMW estimates. Not only could these billions have been invested in the EU to decrease the bloc’s dependence on fossil fuels, the agreement is silent on where these funds will come from and how high the costs will be after 2040.

“Setting strong safeguards for the EU’s use of international credits will be critical, though very costly, given the scarcity of high-quality credits on the market,” says Federica Dossi, a CMW expert focusing on Article 6 carbon markets. “The EU and its member states will soon realise it was more convenient and less expensive for them to invest in reducing their own emissions first.”

ETSmas for big polluters?

Although the European Commission has stated previously that international credits would not be used in the EU’s Emissions Trading System (EU ETS), the agreement has failed to definitively rule this out, posing potential risks to one of the Union’s primary climate tools. 

When it comes to international credits on the EU ETS, policymakers have, of course, been here before, and it did not end well. In the instrument’s early years, polluters were allowed to use carbon credits generated by the Kyoto Protocol’s Clean Development Mechanism (CDM) to offset part of their emissions. This practice led to a crash of the European carbon price and delayed the decarbonisation of the bloc’s heavy industry.

The fact that some CDM credits are migrating to the new Article 6 carbon market raises the spectre of dilution and delay once again. In fact, a recent CMW-commissioned study found that international credits would severely compromise the EU ETS and undermine its effectiveness.

With international credits posing an existential risk to the functioning and integrity of the EU ETS, EU lawmakers must resist calls from large polluters for more flexibility and exclude this option during the next review of the EU ETS in 2026.