On 2 July 2025 the European Commission proposed an amendment to the European Climate Law that would set a binding target for 2040: a 90% reduction in the EU's net greenhouse gas emissions compared with 1990 levels. The EU already has a legally binding target of at least a 55% net reduction by 2030 and a goal of climate neutrality by 2050. The 2040 target would sit between them and shape policy through the 2030s.
The most discussed feature of the proposal is a set of flexibilities in how the target can be met. The most significant is that, from 2036, high-quality international carbon credits could be used to contribute up to 3% of 1990 net emissions toward the target. It is the first time the EU would allow international credits to count toward a climate target since it stopped accepting them in its emissions trading system after 2020.
How the flexibilities work
The Commission's questions and answers document sets out three main flexibilities. The first is the international credits element, which would be governed by Article 6 of the Paris Agreement and subject to future EU rules on quality and accounting. The credits would come from partner countries and would need to be consistent with the Paris Agreement's rules for avoiding double counting.
The second is a role for domestic permanent carbon removals within the EU emissions trading system. That would allow removals such as direct air capture with storage or bioenergy with carbon capture to be used to offset residual emissions in hard-to-abate sectors.
The third is greater flexibility across sectors and instruments, so that over-performance in one area could help offset under-performance in another. The Commission framed these as ways to achieve the target in a cost-effective way while supporting competitiveness.
Reuters reported that the inclusion of credits was a response to concerns from several member states about the cost of meeting a 90% domestic target, and that some governments had argued for lower targets or more flexibility.
The path to 90%
A 90% net reduction would leave only about a tenth of 1990 emissions, after accounting for carbon removals by forests, soils and technology. EU emissions have already fallen substantially since 1990, driven by the decline of coal in power generation, efficiency improvements, structural changes in industry and the growth of renewables.
Meeting the 2040 target would require deep cuts in sectors where progress has been slower, including transport, buildings, agriculture and heavy industry. In the power sector, the target implies near-complete decarbonisation of electricity generation by 2040, with a far larger role for wind, solar, nuclear, hydro and storage, and a much smaller role for unabated gas.
Implications for energy markets
The 2040 target matters for energy markets mainly through the instruments that will implement it. The EU emissions trading system, which covers power, industry, aviation and maritime transport, will need a cap trajectory for the 2030s consistent with the target. How the cap is designed beyond 2030, including any role for removals and international credits, will determine the long-term carbon price and therefore the economics of gas versus low-carbon generation.
For gas markets, a 90% target implies falling EU gas demand through the 2030s, particularly in power generation and buildings. That affects long-term contracting for LNG and pipeline supply. European buyers have been signing new LNG contracts with US, Qatari and other suppliers since 2022, some of them running into the 2040s. The 2040 target adds to the questions about how much gas Europe will need in the later years of those contracts.
For electricity, the target supports continued investment in renewables, grids and flexibility. It also raises the importance of firm low-carbon capacity, including nuclear, and of storage and demand response to balance variable generation.
The international credits debate
The inclusion of international credits has been contested. Supporters argue that credits can channel finance to developing countries and reduce the cost of meeting the target. Critics argue that credits can weaken domestic action and that the quality of some international credits has been questioned in the past.
The Commission's proposal limits credits to 3% of 1990 emissions and delays their use until 2036. It ties eligibility to Paris Agreement rules under Article 6, which were finalised at COP29 in Baku. Article 6.2 allows bilateral transfers of mitigation outcomes between countries, and Article 6.4 creates a UN-supervised crediting mechanism.
The political process
The proposal now goes to the European Parliament and the Council of the EU, where member states will negotiate. Positions vary widely. Some governments support a 90% target with few flexibilities. Others want a lower target, more use of credits, or a review clause that would allow the target to be adjusted. The Commission wants an agreement in time for the EU to submit its 2035 nationally determined contribution under the Paris Agreement before COP30 in Belém in November.
The link to the NDC is important. The EU missed the February 2025 deadline for submitting its 2035 target and has said it will derive the 2035 figure from the 2040 target. A delay in agreeing the 2040 target could delay the EU's NDC.
Related policy decisions
The 2040 proposal comes as the EU is reviewing several related policies. The second emissions trading system for buildings and road transport, ETS2, is due to start in 2027, and some member states have called for delays. The carbon border adjustment mechanism enters its definitive phase in 2026. Free allocation to industry is being phased out between 2026 and 2034. Each of these interacts with the 2040 target and with each other.
Industrial competitiveness is a central concern. EU heavy industry has faced high energy prices since 2022, and several producers in steel, chemicals and fertilisers have cut output or closed plants. The Commission has framed the 2040 target alongside its Clean Industrial Deal, published in February 2025, which aims to support decarbonisation and competitiveness together.
What to watch
Key milestones are the positions adopted by the Parliament and the Council, and whether agreement is reached before COP30. The details of the international credits element, including quality criteria, will matter for carbon markets globally. For energy investors, the 2040 target will translate into concrete signals through the post-2030 design of the EU emissions trading system, expected to be proposed in 2026.
How it was covered
Ground News, which aggregates ratings from AllSides, Ad Fontes Media and Media Bias/Fact Check, classes the outlets covering this story as 37% left-leaning, 36% centre and 27% right-leaning (35 sources, 34 sources and 25 sources respectively, excluding outlets without a bias rating). Framing barely differed: centre and right-leaning outlets carried the same headline, “EU to add international CO2 credits to next climate goal”. The page does not flag the story as a blindspot for either side.