EU Agrees Binding 90% GHG Emissions Reduction Target for 2040

European Parliament and Council lawmakers have reached a provisional agreement to enshrine a binding 90% greenhouse gas emissions reduction target by 2040 in the European Climate Law, on a 1990 baseline. The deal includes expanded roles for international carbon credits, biennial review mechanisms and a one-year delay to the ETS2 carbon pricing extension to road transport and buildings sectors.

The agreement amends the EU Climate Law, originally adopted in 2021, which set EU climate neutrality by 2050 and a 55% net GHG reduction by 2030 on a 1990 basis. The Commission reported that the EU had already achieved a 37% reduction by end-2023. The new 2040 target allows international carbon credits under Article 6 of the Paris Agreement to contribute up to 5% of the goal from 2036, requiring domestic reductions of at least 85% by 2040. The deal also permits the use of domestic permanent carbon removals under the EU ETS to compensate for hard-to-abate emissions, and introduces a 2030–2035 pilot phase to develop a high-integrity international credit market.

The expanded role for international carbon credits in the EU's 2040 climate framework has significant implications for carbon market development globally, including in India. Indian projects generating Article 6 credits could potentially contribute to European compliance, creating a demand signal for high-integrity Indian forestry, methane and clean energy credits. The biennial review mechanism means the 85% domestic abatement floor and 5% credit ceiling could be adjusted based on scientific data, technological developments and international competitiveness assessments, introducing regulatory uncertainty that carbon market participants will need to monitor.

The delay of ETS2 from 2027 to 2028 provides additional time for the road transport and buildings sectors to prepare for carbon pricing. The agreement introduces greater cross-sector flexibility for member states to compensate for shortfalls in meeting individual sector climate targets. The provisional agreement requires formal adoption by both the Parliament and EU Council before entering into force. European Commission President Ursula von der Leyen described the deal as demonstrating the EU's commitment to the Paris Agreement one month after COP30.

Key figure — 90% GHG emissions reduction by 2040 versus 1990