Amendment to the European Climate Law: Setting the EU Climate Target for 2040

The new Regulation underscores the growing importance of carbon removals in the EU’s path towards climate neutrality. Domestic permanent removals, including biogenic emissions capture with carbon storage (BioCCS) and direct air capture with carbon storage (DACCS), are expected to play an increasingly significant role in the Union’s long term decarbonisation strategy. In this context, the European Commission intends to examine the possible inclusion of domestic permanent carbon removals in the framework of the EU Emissions Trading System (EU ETS), particularly as part of the planned review of Directive 2003/87/EC envisaged for 2026.

The Regulation further states that the future regulatory framework should take into account a broader range of considerations related to the transition to climate neutrality. These include the need to ensure cost-efficiency and solidarity among Member States, the maintenance of technological neutrality and the cost effectiveness of the measures adopted, as well as addressing concerns relating to competitiveness, including the risk of carbon leakage. The regulatory framework should also consider issues relating to the availability and affordability of energy, the role of zero emission, low carbon and renewable fuels in the decarbonisation of transport, and the investment needs and opportunities associated with the transition to a climate neutral economy.

One of the key features of the Regulation is the possibility of using high quality international carbon credits under Article 6 of the Paris Agreement as a complementary instrument for achieving the 2040 target.

Between 2036 and 2040, such credits may contribute up to 5 % of the EU’s net emissions from 1990, corresponding to a domestic reduction of net greenhouse gas emissions by 85 % compared to 1990 levels by 2040.

The Regulation also provides for the possibility of a pilot period between 2031 and 2035, aimed at supporting the development of an international carbon credit market with high quality and environmental integrity.

The origin, quality criteria and conditions governing the acquisition and use of these credits are to be regulated by Union law and are subject to robust safeguards. In line with international best practice and the EU framework on carbon removal certification, these safeguards include requirements relating to environmental integrity, the avoidance of double counting, additionality and permanence of emission reductions, transparent governance, and robust monitoring, reporting and verification methodologies. The regulatory framework must also ensure the application of environmental and social safeguards, including the protection of human rights. In addition, the credits must be based on credible and transformative mitigation activities in partner countries.

The Regulation strengthens the governance framework of the EU climate policy by introducing enhanced monitoring and reporting obligations. One year after the adoption of the Regulation, and every two years thereafter, the European Commission is required to assess and report on the implementation of the intermediate targets and decarbonisation trajectories established under the European Climate Law. These assessments must take into account the latest scientific data, technological developments and evolving challenges, as well as opportunities for the European Union’s global competitiveness.

Where appropriate, the European Commission may accompany these reports with legislative proposals. The scope of the Commission’s reporting obligations is also broadened to include an assessment of evolving challenges and opportunities for the global competitiveness of European industries, developments in energy prices and their impact on industry and households, as well as the broader socioeconomic consequences of the transition, including the effects on employment. The reports shall also take into consideration technological developments, the estimated level of net carbon removals at Union level and the progress made towards meeting the intermediate climate targets.

Following the adoption of the new Regulation, the European Commission is expected to begin work on developing the post‑2030 climate policy framework, including possible revisions to key instruments of EU climate legislation. These developments may lead to new legislative proposals affecting the EU Emissions Trading System, sector‑specific emission reduction schemes and carbon removal mechanisms, thereby shaping the next phase of the European Union’s transition to climate neutrality.

At Member State level, it will be necessary for national authorities to determine the appropriate measures to ensure that the country, as a whole, also complies with the binding target for 2040. The way in which the current legislative amendment affects companies will likewise depend on those choices, while the increased focus on carbon removals is likely to create opportunities for business development in this field.