The EU Council has secured a deal for a climate target in 2040. Following the legislative proposal by the Commission, emissions are to be cut by 90% compared to 1990. It added further flexibility by allowing international carbon credits to be counted for up to 5% of these cuts. Adding carbon removals and storage, gross emissions would only need to be cut by 73%.
(Last update on 6/11/2025)
Setting targets towards climate neutrality
Finally, after long discussion among member states, in a public vote the EU Council has agreed its position for the 2040 climate target: From 1990 levels, greenhouse gas (GHG) emissions are to be reduced by 90%, as set-out earlier legislative proposal by the EU Commission (EC).
The Council position adds further flexibility by allowing international carbon credits to be counted towards 5% of 1990 emissions.
This deal was also very last-minute. Next week the UN Climate Change Conference (COP30) starts. National climate plans are to be submitted before. The EU also agreed an indicative national contribution for 2035 to cut emissions by 66.25-72.5%.
Now also the EU Parliament (EP) has to adopt its position for the 2040 target. Negotiations then start between Council and EP to agree on the final legal text.
The EU aims to become the first climate-neutral continent to meet the commitments of the Paris Agreement. As part of the European Green Deal the goal to reach net-zero in 2050 and negative emissions thereafter had already been encoded in the European Climate Law (ECL: 2021/1119).
The ECL also includes a target to reduce emissions by 55% compared to 1990 levels by 2030. To reach this target, the Fit-for 55 package initiated various policies and legislations. The ECL also lays out a process to define an interim target for 2040.
Back in February 2024, the EC had published a detailed recommendation for a 90% reduction target in 2040 alongside a strategy for carbon management. Both communications are backed by an impact assessment and advice for a 90-95% target by the European Scientific Advisory Board of Climate Change.
Disentangling the 2040 targets
As the EC’s proposal to amend the ECL also the Council’s position sets a 90% reduction target. Yet it added further flexibility by allowing international carbon credits for up to 5% and domestic carbon removals to be counted towards this net emissions target.
Whereas these texts do not define any sub-targets, the earlier impact assessment modelled carbon emissions, removals and storage in different scenarios. Taking these numbers, we calculate that the target to reduce net emissions by 90% leaves gross emissions to be cut by only 73%.
Carbon abatement
The need for actual abatement of gross emissions is lowered by measures that are counted towards net emissions.
As the EC’s legislative proposal, the Council position defines:
- In order to reach the climate-neutrality objective … the binding Union 2040 climate target shall be a reduction of net greenhouse gas emissions (emissions after deduction of removals) by 90 % compared to 1990 levels by 2040.
This 90% emission reduction would leave 464 Mt CO2e to be emitted in 2040. Adding carbon credits, removals and storage, gross emissions could be 1,240 Mt CO2e. While this is 2.5 times higher than net emission levels, this would require more than 60% of today’s emissions to be abated.
Based on the impact assessment these cuts would come primarily from power and energy systems, which need to be mostly decarbonized by 2040. Emissions in industry would also experience massive cuts.
Emissions from buildings would need to fall under 100 Mt CO2e per year by then. Similarly, a large share of road transport systems would need to get off fossil fuels. With these cuts agriculture would remain by far the largest emitter in 2040.
Overall, these proposals supports sectoral flexibility to abate emissions in a cost-effective way.
Carbon credits
Domestic emissions can be offset by emissions reductions in other places through the purchase of international carbon credits.
The Council’s text adds:
- starting 2036 … contribution towards the 2040 climate target of high-quality international credits under Article 6 of the Paris Agreement of up to 5% of 1990 EU net emissions…
The Council’s position raises this contribution from 3% in the Commission proposal. The exact level was hotly debated with some countries even demanding higher levels.
Although this percentage appears to be modest, with 232 Mt CO2e it adds about 50% to the targeted net emissions level in 2040. In addition to this quasi-softening of the 90% target, critics also point at integrity concerns for such carbon credits.
Whereas Article 6 establishes an international framework for the validation, verification, and issuance of high-quality carbon credits, the text implies that the EU would set its own rules.
In addition to the start date in 2036, the Council proposes a pilot period from 2031 to 2035 to initiate a high-quality and high-integrity international credit market. The use of such international credits would be limited until 2050 when the current ECL text requires emissions to reach net-zero within the EU.
Carbon removals
Emissions can also be compensated by permanently removing CO2 from the atmosphere through Carbon Dioxide Removal (CDR) technologies.
The proposed text by the EC and Council requires:
- the role of domestic permanent removals under the greenhouse gas emission allowance trading system within the Union (‘EU ETS’) to compensate for residual emissions from hard to abate sectors.
To reach the 90% target in 2040, the impact assessment shows that annual removals of between 365-391 Mt CO2e would be needed.
Complementing the ECL, the revisions to the LULUCF regulation (2023/839) aim for removals of 310 Mt CO2 per year in 2030 from natural carbon sinks. The remainder would need to come from industrial removals.
While industrial removals currently play a negligible role, land use, land use change and forestry (LULUCF) today already took 200 Mt CO2 out of the atmosphere last year.
Yet these levels are falling and confronted with high levels of uncertainty. The Council text builds in a provision that shortfalls in natural removals should not require stronger cuts in other sectors.
Carbon storage
Hard-to-abate emissions can be prevented from being released into the atmosphere through Carbon Capture and Storage (CCS) technologies.
The proposed legislative texts do not explicitly mention this solution, but the introductory texts highlight the role of Biogenic Emissions Capture with Carbon Storage (BioCCS) and Direct Air Capture with Carbon Storage (DACCS) as removal solutions.
In addition, emissions from industrial processes and power generation can be captured and stored permanently. According to the impact assessment, the 90% target would require 164-169 Mt CO2e being captured from these sources. The majority of this carbon would be stored permanently underground.
As this would cover more than 10% of today’s energy and industrial emissions in the EU, a massive ramp up of capture and storage capacities would be needed. The industrial carbon management strategy from 2024 sets a framework for such policies.
Relevance for carbon markets
The recognition of international carbon credits will be a push for global carbon markets. Where and how these will be counted is still to be determined. Together with compensations through national withdrawals, they lower the need for emissions abatement in Europe.
Nevertheless, the 90 percent target by 2040 still requires ambitious emission reductions in all sectors. Also industry would have to become widely decarbonized. Ambitious measures will therefore continue to be necessary. CO2 pricing will play a key role in this.
With the phase-out of free allowances, the emissions trading for energy and industry (ETS1) enters a new phase next year – alongside a carbon price for imports (CBAM). Yet the EU Council calls for a slower phase-out pathway from 2028.
To achieve the 2040 targets, this carbon market will need to undergo substantial reforms. The texts already open the possibility to integrate carbon removals.
A new EU-wide trading system for fuels is to cover emissions from buildings and road transport (ETS2). To account for growing concerns of rising energy costs, the Council has just introduced a provision to postpone the entry into application of the ETS2 by one year, from 2027 to 2028.
Lately, there is rising backlash against strong climate goals. Priorities have been shifting to competitiveness and security, as underscored by the EC’s Competitiveness Compass or Steel and Metals Action Plan.
In light of recent discussions, the Council also added a review clause to the ECL. The review will address the evolving challenges to and opportunities to improve EU’s global competitiveness.
Sources and further information:
- European Commission: 2040 Climate Target
- EU Council: General approach for amending Regulation 2021/1119 (COD 2025/0524)
- European Commission: Proposal for amending Regulation 2021/1119 (COM 2025/524)
- European Commission: Communication on Europe’s 2040 Climate Target (COM 2024/63)
- European Commission: 2040 Target Impact Assessment Report
- European Scientific Advisory Board on Climate Change: Determination of 2040 target
Photo by James Whately auf Unsplash
