EU environment ministers reached an agreement on the 2040 climate target after lengthy negotiations. The final compromise sets a 90% emissions reduction goal, but includes notable flexibilities. Pressure to reach consensus was high: the Commission and several member states pushed to retain the 90% target, while others advocated for a lower ambition and more leeway in implementation.
The most significant flexibility was the right to use international carbon units under Article 6 of the Paris Agreement to help meet the 2040 target. As a compromise, ministers agreed to allow up to 5% offsetting from 2036 onward, preceded by a five-year pilot phase. The Commission had proposed a 3% cap, while big major member states like France supported 5%, and Poland and Italy called for up to 10% level.
Allowing international offsets effectively reduces the EU’s domestic reduction target to 85%, falling short of the European Scientific Advisory Board on Climate Change (ESABCC) recommendation of 90–95%. This lower ambition will likely lead to relatively more investments being directed outside the EU compared to a scenario maintaining the -90% target without flexibilities, potentially slowing down the transformation of the European economy.
ETS adjustments and ETS2 delay
The EU emission trading system (ETS) also saw some changes. In the upcoming ETS review, the Commission was asked to assess the possibility of allowing limited emissions beyond 2039. Additionally, it was decided that the Commission should timely consider a slower phase-out of free allowance allocations from 2028 to support decarbonisation, investment and employment in Europe. The launch of ETS2, covering transport and heating, was postponed from 2027 to 2028.
Permanent removals into EU ETS, natural removals under loop
Ministers strongly recommended the inclusion of permanent carbon removals (e.g. BECCS and DACCS) in the EU ETS to compensate for residual emissions. This move strengthens the market outlook for these critical technologies.
Natural carbon sinks were also addressed with stronger emphasis on uncertainties, including forest age structure, organic soil share, natural variability, and the impacts of climate change. Moreover, it is noteworthy that the ministers proposed that any potential shortfall between the projected and actual carbon sinks should not have to be compensated by actions in other sectors. This is significant because, in practice, such compensation would result in a lower overall emissions reduction than originally targeted.
Monitoring and potential revision of the 2040 target
To ensure progress, ministers approved on biennial reporting and a five-year comprehensive assessment. The latter obliges the Commission to propose a revision of the climate law, including the 2040 target, if necessary. While revisions can go both ways, in the current political climate, this clause is unlikely to be viewed as enhancing predictability.
Last-minute approval of the 2035 NDC target
The agreement also enabled the EU to submit its indicative 2035 Nationally Determined Contribution (NDC) to the UN just in time. The target — 66.25–72.5% emissions reduction — is based on the EU’s 2030 (55%) and 2050 (net-zero) goals, and the newly agreed 2040 target.
Looking ahead…
Despite the aforementioned compromises, the deal is likely the best achievable outcome under current economic and political conditions. The focus must now be on ensuring that carbon credit use leads to real emissions reductions, supports technological development, and strengthens international cooperation. At the same time, Europe’s competitiveness remains to be constrained by its reliance on fossil fuels, a dependency that costs the Union nearly €370 billion in inports each year.
