EU environment ministers meeting in Brussels on 5 November 2025 agreed the Council's position on the bloc's 2040 climate target after negotiations that ran through the night. The agreement keeps the headline goal proposed by the European Commission in July, a 90% reduction in net greenhouse gas emissions compared with 1990, but widens the flexibility in how it can be met.
Under the Council's position, at least 85% of the reduction must be achieved through domestic action within the EU. Up to 5% of 1990 emissions can be covered by high-quality international carbon credits from 2036, with a pilot period between 2031 and 2035. The Commission's original proposal had allowed up to 3%.
Ministers also agreed to postpone the start of ETS2, the new emissions trading system covering fuels used in buildings and road transport, from 2027 to 2028.
Why the compromise was needed
The 2040 target has been one of the most contested climate files in the EU this year. Several member states, citing industrial competitiveness and household energy costs, pushed for a lower target or more flexibility. Others argued that the 90% goal should be met largely through domestic cuts to give clear investment signals.
The final compromise reflects that division. The higher share of international credits and the pilot period from 2031 were concessions to governments concerned about cost. A review clause allows the target to be reassessed in light of developments, including the state of the economy and technology. The 85% domestic floor was a concession to those wanting stronger internal action.
The agreement also allowed the EU to finalise its nationally determined contribution under the Paris Agreement before COP30 in Belém, which begins on 10 November. The EU's 2035 NDC, derived from the 2040 trajectory, is expressed as a range.
The ETS2 delay
ETS2 will put a carbon price on heating fuels and road fuels, which are currently subject to national fuel taxes and, in some countries such as Germany, national carbon pricing. When the system was agreed in 2023, it was scheduled to start in 2027, with a price stability mechanism designed to limit price spikes and a Social Climate Fund to support vulnerable households.
Several member states had argued that starting in 2027 could raise heating and transport costs at a politically difficult moment, particularly after the energy price shock of 2022. The one-year delay to 2028 gives more time to prepare, and the Council also agreed measures intended to contain prices in the early years.
For energy markets, ETS2 will affect demand for heating oil, natural gas for heating, gasoline and diesel over time. A carbon price on these fuels would strengthen the economic case for heat pumps, building insulation and electric vehicles. The delay pushes that signal back by a year.
International credits
The use of international credits, governed by Article 6 of the Paris Agreement, will be a significant change for the EU, which stopped accepting international credits in its emissions trading system after 2020. Under the Council's position, the credits must be of high quality and consistent with Paris rules on accounting, so that the same reductions are not counted by both the EU and the host country.
If the EU becomes a major buyer of Article 6 credits from the 2030s, that would create a large source of demand for emission reductions in partner countries. Projects that could generate such credits include renewable power, methane capture, efficient cooking and forestry. Quality criteria, which the EU has yet to set, will determine which projects qualify.
Implications for the EU ETS
The 2040 target will frame the design of the main EU emissions trading system after 2030. The cap on allowances for power, industry, aviation and maritime transport will need to be consistent with the new target, and the Council's position also opens a role for domestic permanent carbon removals within the system.
For power markets, the target implies that the electricity sector must be close to fully decarbonised by 2040, given that it is the sector where low-carbon options are most mature. That points to continued growth in wind, solar, nuclear and storage, and a declining role for unabated gas generation.
For industry, the target sharpens the challenge facing steel, cement, chemicals and fertilisers, which will lose free allowances between 2026 and 2034 as the carbon border adjustment mechanism phases in. The Commission's Clean Industrial Deal aims to support decarbonisation of these sectors, including through public procurement and state aid.
Gas demand
A 90% target implies a substantial fall in EU natural gas consumption by 2040. EU gas demand has already declined since 2021 because of high prices, efficiency gains and the growth of renewables. Long-term LNG contracts signed since 2022, some running into the 2040s, will face questions about how much of the contracted volume Europe will need, although some contracts include destination flexibility that allows cargoes to be resold elsewhere.
How the pieces fit together
The 2040 target sits on top of a stack of EU climate instruments that interact. The main emissions trading system covers power, industry, aviation and shipping. ETS2 will cover buildings and road transport fuels. The effort sharing regulation sets national targets for sectors outside emissions trading, such as agriculture and waste, and the land use regulation covers forests and soils. The carbon border adjustment mechanism protects industry covered by the main trading system from carbon leakage as free allocation ends. A 2040 target of 90% requires all of these to tighten over the 2030s, and the Commission will need to propose a package of revisions to make them consistent with the new goal.
For investors, the sequence matters. The target is agreed first, then the instruments are redesigned, and only then do the price signals change. Most of the revisions are expected to be proposed in 2026 and negotiated in 2027, which means the full market effect of the 2040 target will not be visible for some time.
Next steps
The Council's position now goes into negotiations with the European Parliament, which is expected to adopt its own position. A final agreement between the institutions is needed before the target becomes law as an amendment to the European Climate Law.
What to watch
Key items include the Parliament's position and the final text agreed in trilogue negotiations, the quality criteria for international credits, and the design of the post-2030 emissions trading system, which the Commission is expected to propose in 2026. The outcome of COP30, and the reception of the EU's NDC there, will also shape the debate.