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EU includes international CO2 credits in climate goal for first time
Published by Global Banking & Finance Review®
Posted on July 2, 2025
3 min readLast updated: January 23, 2026
Global Banking & Finance Review®
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Published by Global Banking & Finance Review®
Posted on July 2, 2025
3 min readLast updated: January 23, 2026
The EU's 2040 climate target includes international CO2 credits for the first time, aiming for a 90% emissions cut from 1990 levels.
By Kate Abnett
BRUSSELS (Reuters) -The European Commission on Wednesday proposed an EU climate target for 2040 that for the first time will allow countries to use carbon credits from developing nations to meet a limited share of their emissions goal.
The European Union executive proposed a legally-binding target to cut net greenhouse gas emissions by 90% by 2040, from 1990 levels - aiming to keep the EU on course for its core climate aim to reach net zero emissions by 2050.
But following pushback from governments including France, Germany, Italy, Poland and the Czech Republic, the Commission also proposed flexibilities that would soften the 90% emissions target for European industries.
The EU has among the world's most ambitious climate targets. So far, its emissions targets have been based entirely on domestic emissions cuts.
Reflecting Germany's public stance, up to 3 percentage points of the 2040 target can be covered by carbon credits bought from other countries through a U.N.-backed market, reducing the effort required by domestic industries.
The carbon credits would be phased in from 2036, and the EU will propose legislation next year to establish quality criteria they must meet and rules on who would buy them.
EU climate commissioner Wopke Hoekstra said the target had been drafted in an "extremely difficult" geopolitical context, but would create investment certainty for industries.
"It makes sense from an economic, a security and also a geopolitical standpoint, to make sure that we stay the course on climate," Hoekstra said.
"It is about protecting our people from extreme weather events," he added.
FASTEST-WARMING CONTINENT
Climate change has made Europe the world's fastest-warming continent and a severe heatwave this week caused wildfires and disruption across the continent, but Europe's ambitious policies to combat temperature rise have stoked tensions within the 27-member bloc.
Enforcing strict climate action has been complicated by the tone set by the United States, where President Donald Trump withdrew the U.S. from global climate negotiations earlier this year.
Some governments and lawmakers say industries reeling from U.S. tariffs and high energy costs cannot afford tougher emissions rules.
German environment minister Carsten Schneider said the target was a strong signal to other major economies and that Europe had maintained a high level of ambition.
"This can motivate China, India, Brazil, South Africa and others to follow suit," he said.
The Commission proposal offered countries more flexibility on which sectors contribute to the 2040 goal - for example, if their forests struggle to absorb enough CO2, they could compensate by cutting emissions from cars faster.
The EU's climate science advisers had opposed counting credits towards the 2040 target, and said buying foreign carbon credits would divert investments from local industries.
Carbon credits are generated by projects that reduce CO2 emissions abroad - for example, forest restoration in Brazil, and raise funds for such projects. However, some credits have failed to deliver the environmental benefits they claimed.
"Carbon credits have a long record of failure and ultimately do not stop Europe emitting more than its fair share of carbon emissions," Colin Roche, climate justice coordinator at campaign group Friends of the Earth, said following Wednesday's announcement.
EU countries and lawmakers must negotiate and approve the 2040 goal. The EU faces a mid-September deadline to submit a new 2035 climate target to the U.N. - which the Commission has said should be derived from the 2040 goal.
(Reporting by Kate Abnett; additional reporting by Holger Hansen and Milan Strahm; editing by Barbara Lewis)
The European Commission proposed a legally-binding target to cut net greenhouse gas emissions by 90% by 2040 from 1990 levels.
For the first time, the EU will allow countries to use carbon credits from developing nations to meet their emissions targets, with up to 3 percentage points of the 2040 target covered by these credits.
Enforcing strict climate action has been complicated by geopolitical factors, including the U.S. withdrawal from global climate negotiations and concerns from various governments about the economic impact of tougher emissions rules.
Critics argue that carbon credits have a history of failure and may divert investments from local industries, ultimately not reducing emissions as intended.
The carbon credits will be phased in starting from 2036, with legislation proposed next year to establish quality criteria and rules for their purchase.
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