Breaking down the EU’s 2040 climate target proposal: what’s new and what’s next?

Setting the scene

I’ve written about the 2040 target on my blog twice before, and both pieces are still recommended reading today. First, in “2023 — the Year of Shaping EU’s 2040 Climate Target”, taking stock of the input and timing that informs the target.  Then, in “The EU’s 2040 Climate Target — context, scope and design”, in response to the Commission’s Communication (vision document) on the 2040 target, I explained what to watch out for in the upcoming legislative proposal.

According to the European Climate Law, the Commission was required to publish their legislative proposal “at the latest within six months of the first global stocktake referred to in Article 14 of the Paris Agreement”. That would take us to June 2024. Instead, we had to wait all the way until July 2025. That was mainly due to the EU elections in 2024, after which we had to wait for the new Commission to take office. The publication date was then pushed back several times for various reasons before it was released in July 2025.

Finally, here we are, the proposal is in front of us. All 2 pages of operative text, plus all the formal parts around it.

We held a dedicated 30-minute CDR Policy Scoop live session together with Sebastian Manhart to share our first reactions a day after the proposal was published. Give it a listen after you’ve read the blog post – there is a lot in there that you won’t find in the blog. Below is a more detailed take now that I’ve had some time to digest these developments.

The target

The headline target of a 90% reduction in net greenhouse gas emissions is what everyone expected. It was known in advance that for some Member States, a strict net reduction target alone will not be palatable, and that is why the proposal also includes three flexibility mechanisms.

Flexibility mechanism no. 1: international credits

This mechanism allows for the inclusion of international credits from 2036 onwards at the level of 3% of the net EU emissions in 1990. According to the EU’s latest greenhouse gas inventory, the net 1990 emissions were 4,649 Mt, and 3% of this is approximately 140 Mt. That would be the total cumulative demand for international credits from the EU.

The EU’s estimated emissions in 2040, if the net 90% target were to be achieved, would be around 465 Mt. So, this 3% level of 1990 net emissions translates into 30% of the 2040 emissions.

These credits are Paris Agreement Article 6 credits. What is unclear today is whether it refers only to Paris Agreement Crediting Mechanism credits (Article 6.4) or also to Article 6.2 credits. And, whether only certain Article 6 credit types will be permitted. Many have asked whether these will only be removal credits¹, but in my view, that is an unlikely outcome given the stakeholders involved in the negotiations. We will ultimately end up with both emission reduction and removal credits, and the question will be whether these will be limited to specific activities and/or vintages.

The first and the second flexibility about domestic removals in the EU ETS have been mixed up numerous times in the reactions to the 2040 target proposal. The international credits will not be allowed in the EU ETS, this a flexibility mechanism for countries to achieve their targets. Remember, the EU ETS target is set at the EU level, and currently, the ESR and LULUCF targets are set at the country level. Of course, we don’t know what the ESR/LULUCF targets will look like for 2040 and whether there will even be a separate LULUCF target, given the third flexibility below. Additionally, incorporating this flexibility can also result in relaxing the EU ETS cap and linear reduction factor to some extent.

The EU has domestic targets for 2030 and 2050. It seems inconsistent to have an open target for 2040. Does it mean that the 2050 target will also be open to international credits? We’ll find out in due time.

The origin, quality criteria, and other conditions related to these international credits will be defined later.

Flexibility mechanism no. 2: permanent removals in the EU ETS

This flexibility allows for the use of domestic permanent removals to compensate for hard-to-abate emissions in the EU ETS. Here, most questions that arise relate to the role of the CRCF – whether all permanent removals will have a role, or only DACCS and BioCCS, as mentioned in the documentation accompanying the proposal. The first reactions from the Commission indicate the latter.

What I find most important, though, is the other part of this flexibility – hard-to-abate emissions. This term has not been defined anywhere and has been historically interpreted in various ways. I’ve written about it before in “Designing Carbon Removal Policy, Part 1 — Clarifying Net-Zero”, look for the section titled “Residual Emissions Challenge”. Given the benefits of constructive ambiguity surrounding this term in climate policy negotiations, we are unlikely to see a definition emerge top-down from international negotiations.

Will the EU manage to define it, and how? Will this definition also be adopted abroad?

Will residual emissions be established on an EU ETS activity level (see Annex I of the Directive) or on an installation level based on certain criteria? These will be the most fascinating conversations to follow.

Flexibility mechanism no. 3: flexibility across sectors

There has been a long and strong push by many stakeholders for the 2040 target to include separate targets for emission reductions, industrial carbon removals and nature-based removals (which raises the question of how to separate nature-based removals from the overall LULUCF sector).

Whilst the Climate Law and Commission communication on the 2040 target refers to it in the singular, the relevant Commission College agenda mentioned “2040 climate targets” in the plural, raising hopes again. Eventually, there are no separate targets. Instead, there is complete flexibility across sectors.

The challenges with achieving the EU’s 2030 LULUCF target have not gone unnoticed by the governments. I’ve covered this together with Asger Strange Olesen in our blog post “Supercharging Carbon Removal from the EU’s Land Sector”. Having more flexibility to play around with emissions and removals from different sectors is what several Member States have been (now confirmed – successfully) advocating for.

Another reason why separate targets, especially for novel removals, are tricky is that governments cannot currently account for most of these removal types in their national greenhouse gas inventories. You can read more about this challenge in a blog post I authored together with Paul Zakkour: “Will the Carbon Removal Certification Framework count in the race to climate neutrality?”. Yes, the situation is likely to improve as we approach 2040. However, it is inconsistent to establish a climate target that implies that certain activities are covered, whilst these cannot actually be quantified against that target today. In theory, establishing a target and then adding more activities under it could, depending on the scale, also undermine the target’s original ambition.

The most straightforward approach to avoid the moral hazard / mitigation deterrence that can occur between removals vs reductions is to establish separate targets. Now that this has been intentionally left out of the proposal, what other alternatives will be considered?

And what about the EU’s NDC for 2035?

This follows a separate process that the Commission is working on in collaboration with the Danish Council Presidency. The plan is to have an NDC ready in September and submit it to the UNFCCC ahead of the COP30 in Belém (Brazil). The one requirement the 2035 target has is to show a meaningful pathway from the EU’s 2030 target to its 2040 target.

Conclusion

Agreeing on the 2040 target will not be an easy path, given the diverse realities across the EU Member States. The flexibility mechanism reflects both the political challenges and technical uncertainties of decarbonising Europe’s economy. As the EU prepares its 2035 NDC and looks ahead to COP30, the 2040 target proposal will shape the region’s climate ambition, regulatory debates, and global leadership for years to come.

This article is also published on the author's blog. illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

1- answer to the question number 4 in the Q&A specifies that “These international credits must therefore 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“. However, shortly after the proposal was published, DG CLIMA explained that there is no decision yet on which types of activities would be eligible and whether it would only be removals. Furthermore, the legal text itself doesn’t clarify it either and reads much more open than the text on permanent removals in the ETS.