On 2 July 2025, the European Commission introduced its 2040 climate target of reducing greenhouse gas (GHG) emissions by 90% compared to 1990 levels. One of the key features of this strategy is the possibility to introduce international carbon credits. If adopted, from 2036 onward, international carbon credits may contribute up to 3% toward the EU's overall emission reductions.
The European Commission's proposal to amend the European Climate Law will, if adopted, allow the limited use of international carbon credits to contribute towards the 2040 target of reducing emissions by 90% compared to 1990 levels.
The EU's current targets under the European Climate Law already incorporate domestic, EU-based, carbon removals.1 Starting in 2036, the proposed amendment to the European Climate Law introduces the possible limited use of international carbon credits which can be sourced outside the EU provided they meet, still to be defined, environmental and governance standards. These international credits may account for up to 3% of the EU's overall 2040 emissions reduction target:2
- Criteria and standards: Following an impact assessment, the credits would be governed by "robust and high integrity" criteria to verify the origin, timing and quality of credits.3
- Alignment with the Paris Agreement: The use of international credits should be aligned with Article 6 of the Paris Agreement.4
The Commission's proposal will now proceed through the EU's ordinary legislative procedure. Under this procedure, both the European Parliament and the Council need to approve the proposal and can propose amendments. Initial reactions to the 2040 target included criticism from stakeholders for a lack of ambition and insufficiently detailed implementation.
If adopted, the Commission must take the necessary measures to implement the GHG emissions targets under the European Climate Law. Therefore, even if the proposal is adopted, the use and requirements for international credits will still need to be further implemented under EU law, following an in-depth impact assessment by the Commission.
Implications for businesses
If adopted, the shift may incentivise investment in eligible projects and carbon removal technologies across partner countries and may increase demand for verifiable international carbon credits, which will likely be closely scrutinized by stakeholders.
Outlook for the EU ETS
The proposed amendment to the European Climate Law also requires the Commission to reflect in its upcoming review of the EU's Emissions Trading System ("EU ETS"), the role of domestic permanent removals to compensate for residual emissions from hard to abate sectors. The 2026 review of the EU ETS is therefore likely to clarify in more detail how these mechanisms can be integrated in the ETS. Subject to the Commission's conclusions following its review, this could result in flexibilities for companies in certain sectors under the EU ETS.
Maia Bishop (Associate, Brussels) contributed to the development of this publication.
2 Regulation (EU) 2021/1119 establishing the framework for achieving climate neutrality ("European Climate Law"), OJ L 243, 9.7.2021, p. 1–17.
3 See European Commission, "EU's climate law presents a new way to get to 2040", press release published 2 July 2025, available here.
4 See European Commission, "Questions and answers on the 2040 EU climate target proposal", press release published 2 July 2025, available here.
5 Ibid. Article 6 of the Paris Agreement establishes a framework for voluntary international cooperation in achieving climate targets. Under Article 6.2, countries can use Internationally Transferred Mitigation Outcomes (ITMOs) to meet their nationally determined contributions (NDCs).
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