This week, the EU Commission published a proposal for the 2040 climate target: a 90% reduction of the bloc’s emissions compared to 1990 levels.

This target comes to fill the gap in a series of ambitions: 55% emissions reductions by 2030, 90% by 2040 (proposed), and net zero by 2050.

‘Net’ refers to pure emissions accounting – where combustion-based and chemically active processes will inevitably result in CO₂ emissions, some of which cannot be fully ‘abated’ to zero, but can be removed by other measures.

What does it mean for the block?

Following recent stakeholder feedback and increasing pressure from member states on the social and cost burdens of the transition to cleaner manufacturing, the Commission included new flexibilities in its 2040 proposal.

Hence, the EU opened the door to use of international carbon credits under Article 6 of the Paris Agreement, allowing up to 3%  (approximately 129 million tonnes of CO2) of the overall 2040 target to be achieved using removals from outside the EU.

This marks a cautious return of the international credit debate, previously off-limits for over a decade.

From 2036, the EU could begin using these UN-backed credits, this would be phased-in, subject to strict quality and origin requirements that will be detailed in future legislation.

For ETS market participants, this won't have an impact as any international removals intended to support the EUs overall emissions reductions are explicitly excluded from fungibility in the EU ETS. 

What does it mean for the EU ETS?

Within the EU ETS-covered sectors, residual emissions are expected to persist in hard-to-abate industries such as cement and chemicals, however the current ETS cap would technically shrink to zero by 2040.

For compliance entities, this opens a new era of strategic planning: from 2030 onwards, we expect EU policymakers to redefine compliance obligations around the integration of high-quality removals (technological or nature-based) into the EU Registry.

Including technological removals post 2030 will allow the ETS to remain and treat each tonne of CO₂ emitted as a pollutant that the emitter will have to pay for, be it as penalty, or as fee for the verified removal of that tonne of carbon from the atmosphere.

It could also reshape EUA demand dynamics if removals begin to function as a parallel compliance instrument.

An impact assessment conducted last year to weigh options between 80/85/90% reduction targets for 2040, projected that around 360 MtCO₂-equivalent of emissions would remain annually under the 90% pathway.

In order to reach net zero by 2050, these residuals must be balanced with greenhouse gas removals, either through nature-based solutions or engineered removals—the latter assumed to remove more than 208 MtCO₂ per year by 2040 (for reference: removal capacity today: 2–5 Mt; removal capacity expected by 2050: min. 450 Mt).

The EU ETS remains the cornerstone of EU climate policy, regulating permissible emissions from power generation, manufacturing industry, aviation and shipping, while it hopes to redirect collected funds as investment toward cleaner alternatives.

For operators, the evolving structure of the ETS post-2030, including how removals are certified, priced, and integrated, will determine not just compliance costs, but the strategic value of long-term EUA positions.

Stay up to date on the next steps...

The 2040 climate target proposal now moves to the Council and Parliament, where debates will likely centre around the cost of removals, the role of international credits, and how to balance emissions reductions with the ambition to re-invigorate domestic industry in line with the Clean Industrial Strategy.

For businesses, this is a clear signal: residual emissions will come with a price, and removals—whether natural or engineered—might increasingly define the cost of compliance post-2030, alongside factors of tightening supply and phase-out of free allowances.