A recent study commissioned by Carbon Market Watch and conducted by the Oeko Institute warns that introducing flexibilities such as allowing international carbon credits or carbon removals into the EU Emissions Trading System (EU ETS) for the 2040 climate target risks undermining the effectiveness of the EU carbon market.
These flexibilities could dilute the carbon price signal, delay domestic decarbonization efforts, and reduce investment within the EU by enabling polluters to offset emissions rather than reduce them at source.
The EU ETS is central to achieving the EU’s 2040 climate target, which aims for a 90% net greenhouse gas emissions reduction relative to 1990 levels. With the upcoming launch of ETS2 in 2027, covering buildings and road transport, the EU ETS will cover about 75% of the EU’s total emissions, making its integrity crucial.
Historically, the use of international credits under the Kyoto Protocol’s Clean Development Mechanism (CDM) in the early EU ETS led to depressed carbon prices and delayed industrial decarbonization. The migration of some CDM credits into the new Article 6 carbon market of the Paris Agreement raises concerns about repeating this problem.
The European Scientific Advisory Board on Climate Change (ESABCC) and climate experts strongly advise against relying on international carbon credits to meet the 2040 target, emphasizing the need for domestic emissions reductions. They argue that outsourcing emissions cuts via credits compromises the EU’s climate leadership and legal obligations under the European Climate Law.
In summary, the study and expert advice highlight that flexibilities such as international credits and carbon removals risk breaking the EU carbon market by weakening the carbon price, delaying real emissions reductions, and undermining investment incentives necessary to achieve the ambitious 2040 climate target.
he EU ETS should maintain a robust, domestic-focused approach to ensure it remains an effective tool for deep decarbonization through 2040 and beyond.