The European Union’s Council reached agreement on a binding 90% net greenhouse gas emissions reduction target for 2040 compared to 1990 levels, but the accord introduces flexibility mechanisms that effectively lower the domestic reduction requirement to 85%. Member states negotiated through the night to secure provisions allowing up to 5% of the 1990 baseline to be met through international carbon credits—a mechanism the EU’s own scientific advisory bodies cautioned against deploying for compliance purposes.
The Mathematical Reframing of Ambition
The headline figure of 90% net emissions reduction obscures the domestic reduction reality. The Council’s position permits “high-quality international carbon credits” to contribute up to 5% of 1990 EU net emissions toward the 2040 target from 2036 onward, with a pilot period running 2031-2035. This translates to an 85% domestic reduction requirement, with the remaining 5% achievable through carbon offset purchases potentially occurring thousands of kilometers from European territory.
The 5% differential carries substantial quantitative weight. EU greenhouse gas emissions in 1990 totaled approximately 5.6 billion tonnes CO₂ equivalent. Five percent of this baseline equals 280 million tonnes annually—roughly equivalent to the combined annual emissions of Belgium and Portugal, or the entire aviation sector’s pre-pandemic European emissions. This volume of carbon credits represents significant monetary flows to offset projects globally while reducing the pace of emissions elimination within European borders.
The timing structure creates a graduated approach. The 2031-2035 pilot period allows limited carbon credit usage under undefined parameters, followed by full 5% flexibility from 2036 through 2040. This progression suggests the EU anticipates needing maximum offset flexibility precisely when approaching the 2040 deadline—the period when emissions reductions typically prove most difficult and costly as remaining sources concentrate in hard-to-abate sectors.
Scientific Advisory Rejection Overridden by Political Necessity
The EU’s scientific advisory board specifically recommended against using international carbon credits to replace domestic emission reduction goals, citing integrity concerns that have plagued voluntary carbon markets for years. Academic research consistently demonstrates that significant percentages of forest-based carbon credits—the most common offset type—fail to deliver claimed emission reductions due to baseline manipulation, additionality questions, permanence risks, and leakage effects.
A 2023 analysis of forest carbon credits found that 90% of rainforest offset credits approved by the world’s leading certification standard likely represented no actual emission reductions. Subsequent investigations revealed similar integrity failures across renewable energy credits, cookstove programs, and industrial gas destruction projects. The mechanisms that would ensure “high-quality” credits under the EU framework remain undefined in the Council’s position, deferring these critical determinations to future Commission legislative proposals.
The advisory board’s concerns extended beyond offset quality to structural issues. Relying on international credits creates dependencies on carbon market developments outside EU control. Credit supply, pricing, and integrity standards vary dramatically across jurisdictions and certification schemes. Countries simultaneously pursuing net-zero targets increasingly restrict credit exports, tightening supply precisely when EU demand would peak under the 2036-2040 framework.
Member states overrode these scientific cautions under pressure from industrial sectors warning about competitiveness erosion. France, Poland, and Italy led negotiations emphasizing that rigid domestic reduction requirements would disadvantage European manufacturers against international competitors operating under less stringent climate policies. The carbon credit flexibility provides cost containment, allowing compliance through credit purchases potentially priced below the marginal abatement cost of final domestic emission reductions.
The Competitiveness Calculus Driving Policy Dilution
The Council’s position explicitly strengthens language around “competitiveness of the EU’s economy and industry” compared to the Commission’s original proposal. This emphasis reflects sustained industrial lobbying warning that aggressive unilateral climate targets risk carbon leakage—where production shifts to jurisdictions with weaker environmental standards, potentially increasing global emissions while destroying European industrial capacity and employment.
Energy-intensive industries cite specific vulnerabilities. Steel production in Europe faces CBAM-protected markets but competes globally in sectors outside carbon border adjustment coverage. Cement manufacturers operate in partially globalized markets where regional production advantages can shift with carbon cost differentials. Chemical producers operate complex value chains where carbon costs cascade through multiple production stages, creating cumulative competitive disadvantages.
The competitiveness argument gains force from Europe’s economic stagnation. GDP growth across the eurozone has underperformed the United States and China for over a decade. Manufacturing output has declined from 16% of EU GDP in 2000 to approximately 13% currently. Industrial electricity prices in Europe exceed those in the United States by factors of two to three, creating structural cost disadvantages even before carbon pricing differentials.
However, the competitiveness narrative faces empirical challenges. Research examining previous phases of EU climate policy implementation finds limited evidence of carbon leakage in most sectors. Industries receiving free emissions allowances maintained or increased production volumes while reducing emissions intensity. The threat of competitiveness erosion proved less severe than industry projections suggested, partly because energy efficiency improvements often delivered cost savings offsetting carbon compliance costs.
The carbon credit flexibility potentially undermines rather than supports long-term competitiveness. Delaying domestic emissions elimination postpones technology development, infrastructure investment, and supply chain transformation that will ultimately determine competitive positioning in a decarbonizing global economy. Competitors pursuing aggressive domestic reductions—particularly China’s industrial decarbonization programs—develop technological capabilities and cost structures that may prove advantageous by 2040 regardless of carbon credit availability.
Natural Carbon Removal Uncertainty Embedded in Target Structure
Beyond international carbon credits, the Council’s position acknowledges “uncertainty associated with” natural carbon removals while simultaneously allowing “domestic permanent carbon removals under the EU emissions trading system to compensate for residual hard-to-abate emissions.” This dual treatment—recognizing unreliability while permitting compliance usage—creates accounting ambiguities that could further weaken effective emission reductions.
Natural carbon sinks in European forests have shown declining sequestration capacity over recent years due to climate change impacts, pest infestations, drought stress, and harvest rate increases. The EU’s land use sector transitioned from a net carbon sink of approximately 300 million tonnes CO₂ annually in 2010 to roughly 225 million tonnes by 2023—a 25% decline in removal capacity precisely when climate targets assume increasing sequestration contributions.
The permanence question proves even more challenging. Carbon stored in forests faces release risks from wildfires, pest outbreaks, drought mortality, and harvest decisions extending decades beyond the 2040 target date. Recent European wildfire seasons released tens of millions of tonnes of previously sequestered carbon back to the atmosphere. Climate models project increasing fire frequency and intensity across Mediterranean and Central European regions through 2040, directly threatening the permanence of forest-based removals counted toward climate targets.
The Council’s position attempts to address these concerns by “focusing on the long-term protection and enhancement of natural carbon sinks and biodiversity, addressing the impacts of climate change and natural disturbances on land use and forestry.” However, these aspirational statements lack quantitative commitments or enforcement mechanisms that would ensure removal reliability under deteriorating climate conditions.
The ETS integration of domestic removals creates further complications. Allowing removal credits to compensate for residual emissions within the trading system essentially creates an offset mechanism internal to Europe. If removal capacity declines due to climate impacts or land use changes, previously issued credits represent emission allowances without corresponding sequestration—effectively increasing net emissions while maintaining nominal compliance with the 90% target.
The ETS2 Postponement: Buildings and Transport Delay
Embedded within the climate target amendment is a provision postponing the EU emissions trading system for buildings and road transport by one year, from 2027 to 2028. This delay affects the policy mechanism designed to drive emissions reductions in sectors representing approximately 35% of total EU emissions—precisely the areas where reduction progress has lagged industrial and power sector achievements.
The stated rationale centers on social impacts and household cost burdens. Extending carbon pricing to heating fuels and road transport directly affects consumer expenditures in politically sensitive categories. Member states facing electoral pressure over cost-of-living increases secured the postponement despite climate policy coherence arguments for maintaining the original timeline.
The delay creates a one-year gap in policy coverage for emissions sources that must decline dramatically to achieve 2040 targets. Buildings and transport emissions must fall approximately 60% from current levels by 2040 under pathway modeling consistent with the 90% overall target. Each year of delayed policy implementation compresses the reduction timeline and potentially increases the ultimate carbon price needed to drive behavior change and investment decisions.
Previous EU climate policy implementation demonstrates that delays compound over time. The original ETS launch in 2005 faced multiple postponements and phase-in modifications that reduced effectiveness during the initial years. The current ETS2 postponement creates precedent for further delays if social or economic conditions deteriorate, transforming binding timelines into negotiable political commitments.
Review Clause as an Escape Mechanism or Accountability Tool
The Council’s position introduces “biennial assessment to track progress towards intermediate targets based on the latest scientific evidence, technological advances and the EU’s global competitiveness.” This review mechanism includes provisions allowing Commission proposals to adjust the 2040 target based on findings about net removals, competitiveness challenges, and energy price evolution.
The review clause operates bidirectionally—allowing target increases if progress exceeds expectations or decreases if circumstances deteriorate. However, the political economy of climate targets suggests asymmetric application. Constituencies mobilize more effectively to prevent target increases that might impose additional costs than to prevent decreases that maintain existing policy trajectories. The competitiveness framing in the review criteria provides explicit justification for future target reductions.
The review’s attention to “the status of net removals at EU level in relation to what would be required to achieve the 2040 target” creates particular concern, given declining natural sink capacity. If reviews determine that anticipated removal contributions prove unattainable due to climate impacts or land use pressures, the adjustment mechanism could lower the 2040 target rather than require increased emissions reductions to compensate.
Energy price evolution presents another adjustment trigger. The clause specifies that reviews will “take into account the evolution of energy prices and their impact on industries and households.” High energy prices—whether from geopolitical disruptions, infrastructure underinvestment, or transition costs—could justify target reductions under competitiveness or social equity arguments, creating conditions where near-term economic pressures override long-term climate objectives.
The Technology Neutrality Dilemma
The Council’s position emphasizes “fostering innovation and the deployment of safe, scalable technologies across all sectors in a technologically neutral manner, while ensuring that energy efficiency remains a central principle.” This technology neutrality language represents a victory for nuclear power advocates and carbon capture proponents seeking equal treatment with renewable energy in EU climate policy.
Technology neutrality sounds reasonable in principle—allowing markets and innovation to determine optimal decarbonization pathways rather than prescriptively favoring specific solutions. However, the concept confronts timing and scale realities. Technologies must achieve commercial deployment at a massive scale by 2040, requiring immediate investment and deployment acceleration. Maintaining neutrality between mature technologies ready for immediate scaling and emerging technologies requiring further development potentially delays deployment of available solutions while awaiting unproven alternatives.
The nuclear power dimension proves particularly contentious. France successfully advocated for nuclear-friendly language, viewing advanced reactor deployment as essential for achieving 2040 targets while maintaining industrial electricity supply and grid stability. However, new nuclear projects face 15-20 year development timelines from initial planning to operational generation, meaning projects not already under construction will contribute minimally to 2030-2040 emission reductions regardless of policy support.
Carbon capture and storage occupy similar territory. The technology exists and operates commercially in limited applications, but scaling to levels capable of materially contributing to 2040 targets requires deployment acceleration far exceeding historical trajectories. Current European CCS capacity totals approximately 1.5 million tonnes CO₂ annually. Achieving meaningful contribution to the 90% target might require 50-100 million tonnes annual capture capacity by 2040—a 30-60x scale increase within 15 years.
The energy efficiency principle acknowledgment attempts to balance technology neutrality by maintaining demand reduction as the primary strategy. However, the subordinate positioning—”while ensuring that energy efficiency remains a central principle”—suggests efficiency no longer holds the paramount position it occupied in previous EU climate policy frameworks. This rhetorical shift may reflect industrial pressure to emphasize supply-side solutions over demand constraints that might limit production growth.
Member State Divergence and Implementation Heterogeneity
The Council’s emphasis on “taking into account different national circumstances” and “enhanced flexibility within and across sectors and instruments” acknowledges the profound divergence in emissions profiles, economic structures, and decarbonization pathways across member states. Poland generates approximately 70% of its electricity from coal, while France derives 65% from nuclear power, and Sweden obtains 98% from hydro and nuclear combined.
This heterogeneity complicates binding EU-wide targets. Pathways that prove straightforward for some members—France expanding nuclear capacity, Sweden increasing electrification—remain politically or technically infeasible for others. Coal-dependent economies face massive labor market disruptions, energy security concerns, and capital requirement burdens that renewable-rich economies avoid. The flexibility mechanisms attempt to accommodate these variations while maintaining aggregate progress.
However, flexibility risks creating enforcement asymmetry where member states facing difficult reductions receive perpetual extensions while early movers bear a disproportionate burden. Previous EU climate policy phases demonstrated this pattern, with Eastern European members securing generous free allowance allocations and timeline extensions while Western European economies implemented more aggressive reductions. The 2040 framework’s flexibility provisions could institutionalize this dynamic through permanent structural accommodations.
The cross-sectoral flexibility—” allowing member states to address shortfalls in one sector without compromising overall progress”—creates particular gaming opportunities. Member states could concentrate reductions in sectors with the lowest marginal abatement costs while indefinitely delaying action in politically sensitive or technically challenging sectors. Transport emissions could remain elevated if offset by deeper power sector cuts. Agricultural emissions could persist if compensated through industrial reductions.
The Adequacy Question: 90% Versus Climate Science Requirements
The 90% net reduction target for 2040 derives from EU modeling of pathways consistent with limiting global warming to 1.5°C above pre-industrial levels with limited or no overshoot. However, this framing obscures the probabilistic nature of climate projections and the equity dimensions of burden-sharing between developed and developing economies.
Climate science identifies multiple pathways potentially limiting warming to 1.5°C, with different probabilities of success, peak warming levels, reliance on carbon dioxide removal, and implied emission reduction trajectories. The EU’s 90% target aligns with pathways offering approximately 50% probability of staying below 1.5°C—a coin flip probability that some climate scientists argue proves insufficient given catastrophic risks at higher temperatures.
Higher probability pathways—67% or 83% chances of limiting warming to 1.5°C—require steeper near-term reductions and less reliance on future carbon removal. These pathways would imply 2040 targets closer to 95% or even 98% domestic reductions for developed economies like the EU. The 90% net target with 5% international credit flexibility therefore, represents a moderate rather than aggressive interpretation of climate science requirements.
The equity dimension adds another layer. Climate justice frameworks suggest developed economies should achieve domestic net-zero earlier than global targets to allow development space for lower-income countries. Under these frameworks, the EU should reach domestic net-zero by 2040-2045 rather than 2050, with interim targets exceeding 90% by 2040. The current target’s reliance on international credits could be viewed as developed economies purchasing compliance rather than eliminating their own emissions.
Member states rejecting more aggressive targets cite feasibility constraints rather than disputing climate science. The argument holds that targets disconnected from technological and economic reality risk political backlash, policy reversal, and ultimately greater climate damage than moderately ambitious but durable commitments. Recent electoral gains by parties questioning climate policy stringency in multiple EU members lend empirical support to this political feasibility concern.
Negotiation Dynamics and the Parliament’s Response
The Council’s position now moves to trilogue negotiations with the European Parliament, which must adopt its own position before discussions begin. Parliament has historically advocated for more aggressive climate targets than member state governments, creating predictable negotiation dynamics where final compromises typically fall between Commission proposals and Council positions.
Parliament faces several strategic choices. Accepting the Council’s carbon credit flexibility and ETS2 postponement in exchange for other concessions maintains progress while acknowledging political realities in member state capitals. Rejecting these provisions and demanding stronger targets risks negotiation deadlock and potential failure to adopt any 2040 target before the upcoming European Parliament elections—an outcome potentially worse than accepting diluted commitments.
The Parliament’s negotiating leverage depends partly on the broader political context. If economic conditions improve and energy prices stabilize through 2025, arguments for flexibility and postponement weaken. If economic stagnation persists or worsens, member state resistance to aggressive targets may harden further. The Parliament’s ability to shape the final text depends on reading these political-economic conditions accurately.
Previous climate legislation negotiations suggest the Parliament will secure some tightening of the Council’s position—perhaps limiting carbon credit usage to 3-4% rather than 5%, or requiring more stringent quality criteria—while accepting the fundamental structure of flexibility mechanisms and extended timelines. The final text will likely preserve the 90% headline target while maintaining most flexibility provisions, allowing both institutions to claim success while postponing difficult reduction requirements.
