EU Approves Amended Climate Law Setting 90% Emissions Reduction Target for 2040

EU member states have voted to approve amendments to the EU Climate Law establishing a binding target to reduce greenhouse gas emissions by 90% by 2040, while introducing the ability to use international carbon credits to meet up to 5% of the target from 2036. The amended law also delays the ETS2 carbon pricing expansion to transport and heating fuels by one year to 2028.

The EU Climate Law was originally adopted in 2021, setting a 2050 climate neutrality goal and a 2030 interim target of at least 55% net GHG emissions reduction. The European Commission proposed the 2040 target amendment in July 2025, initially proposing international carbon credits under Article 6 of the Paris Agreement to contribute up to 3% of the 90% reduction. Through Parliament and Council negotiations, this flexibility was expanded to allow international credits to account for up to 5% of the GHG reductions. Additionally, a mandatory Commission review every two years could result in target adjustments based on factors including energy prices and technological progress.

The inclusion of international carbon credits from 2036 is a significant policy development for the voluntary and compliance carbon markets. EU demand for Paris Agreement-compliant Article 6 credits from the mid-2030s could represent a substantial volume of long-dated offtake, with implications for credit pricing and project development globally. For India, which is developing Article 6 trading capacity under the National Green Hydrogen Mission and its domestic carbon credit framework, the EU's eventual demand signal represents a significant potential revenue stream for Indian emissions reduction and removal projects.

The one-year delay to ETS2 from 2027 to 2028 reflects political sensitivity around extending carbon pricing to road transport and building heating fuels, sectors with direct consumer and voter impacts. ETS2 agreement includes provisions for member states to compensate for sectoral shortfalls in meeting climate goals, adding flexibility. With both legislative bodies having approved the amended Climate Law, it will be published in the EU's official journal and enter into force 20 days after publication. The 90% by 2040 target is now legally binding and will shape EU industrial, energy, and transport policy through the middle of the next decade.

Key figure — 90% GHG emissions reduction target by 2040