On the morning of the 5th November, the EU Commission presented it’s 2040 climate target proposal agreed between environment ministers of all 27 EU member states overnight.
The proposal is not absolute, as the EU Council and Parliament are required to comment in later stages of the legislative process.
Yet, the Deal is seen as key direction giving and was keenly awaited after being delayed many times.
What was agreed, in a snapshot:
- A 90% emissions reduction by 2040 vs 1990
- Permitted use of international credits toward member states’ nationally determined contributions (NDCs)
- An earmarked flexibility for a 5% contribution toward that target by international carbon credits on EU level
- Agreed 2035 reductions target ahead of COP30 in a “corridor” between 66.25% -72.5% vs 1990, under the Paris Agreement
Tim Atkinson, Head of Carbon for CFP Energy, commented:
"Agreement of the 2040 climate package confirms the greater EU ETS ambition that lies ahead for companies as we head in to the next phase. As we highlighted in our recent industry report, this put a significant challenge on ETS operators to manage rising carbon compliance costs."
Importantly, under the agreement a biannual review clause is included whereby energy prices, feasibility of carbon removals and industrial competitiveness will play a factor in reassessments of the 2040 climate target every two years.
Jaclyn Foss from CFP Energy, added:
“The EU’s 2040 climate deal marks a meaningful policy shift, recognising a role for international carbon credits in meeting domestic targets. By allowing member states on national level to outsource up to 5% of reductions from 2036, the proposed market mechanism for these international credits signals growing acceptance that global cooperation can deliver cost-effective decarbonisation.
Other regions, such as Singapore and Japan, have already built similar mechanisms into their compliance systems, showing that international credit integration can work in practice. For market participants like CFP Energy, this reinforces the direction of travel towards structured, cross-border solutions that connect compliance and voluntary markets.”
Only two weeks ago EU Climate Commissioner Woepke Hoekstra announced a minister agreement whereby the existing framework for the EU ETS2 which introduces emissions trading for the road transport and building heating sector, would be amended.
The changes would introduce more sensitive and generous market stability mechanisms with a dampening effect on prices and early auctions of ETS2 allowances in 2026.
If you would like to learn more about ETS policy changes from our award-winning team, share your contact details here.
Woepke Hoekstra confirmed on LinkedIn that the adoption of ETS2 implementation framework by end of 2025 to smoothen the launch of the scheme.
Some news reports this morning reported a potential delay to free-allocation phase-out to industry and tentative inclusion of international carbon credits in the EU ETS – though no further evidence to this was seen.
We will keep clients updated via our weekly email updates if further any information emerges.
It is clear that a number of countries are prioritising industrial competitiveness over decarbonisation and that the agreement of the 90% reduction target by 2040 was only possible with ample compromises.
The attribution for international credits effectively allow industry stakeholders more breathings space in their effective emissions abatement trajectory – as such the gross 2040 reduction target is closer to the early considerations around a 80-85% emissions reduction across the EU.
While all of the above was agreed by majority vote, there were a number of countries that, throughout this year, have displayed increasing resistance to the historical agreement on the Green Deal in 2023: the Czech Republic, Poland, Hungary and Slovakia did not vote in favour of this mornings announcements.