We welcome the European Commission’s proposal for a 90 per cent reduction in EU greenhouse gas emissions by 2040. This level of ambition is essential to maintain Europe’s climate credibility, ensure economic resilience and competitiveness, and deliver on its Paris Agreement commitments. 

Delivering on this target will require clear, credible plans in every sector. It is vital to maintain urgency in reducing emissions and to respect the UNFCCC process as the agreed international framework for setting, reviewing and delivering climate targets. 

We believe that using only domestic reductions would be the ideal path to meet the EU’s 2040 climate target. We would rather see international carbon credit purchases by the EU as being on top of the 2040 target. However, if the EU does decide that credit imports are needed in order to gain political acceptance for the 2040 target, then we must make sure that importing credits is done within a proper EU-wide governance framework. 

For several decades, we have worked to support and improve carbon markets. The EU’s decision to use a small percentage of international credits is an opportunity to use the EU’s political clout to improve upon the imperfections of today’s global carbon markets. 

We are aware that the European Scientific Advisory Board on Climate Change has advised against importing credits to meet the 90 per cent target for 2040. However, we think that allowing a small number of high-quality international credits into the EU could help us reach the Paris targets faster, if it is done properly. There is no reason to think that the EU is bound to repeat the mistakes it made in the past with importing CDM credits, as those lessons have left a profound mark EU climate policy. Most importantly, the EU must ensure that the imported international credits are of high environmental integrity. It is a good sign that the draft is calling for quality criteria that are regulated at the EU level. Credit quality controls and processes have improved markedly in recent years.  The European Union should rigorously assess leading credit frameworks – such as the Paris Agreement Crediting Mechanism, the Integrity Council for the Voluntary Carbon Market, and the Carbon Credit Quality Initiative – and select the most effective and credible tools available. 

In addition, we welcome that the purchasing process would also be regulated at the EU level. A common EU-wide credit purchasing mechanism could create enormous leverage for the EU on the international carbon markets, and the EU’s quality requirements could effectively become the law for all international credits. Just as it does with CBAM, the EU could use its carbon credit purchases to shape and drive international decarbonisation efforts. 

It is premature to decide at this time on the actual sectors in which the international credits should be used, for example whether they should be excluded from the EU ETS, as was proposed in one of the drafts. The very purpose of importing international credits is to protect against potential fluctuations in the carbon price, to contain compliance costs and more broadly to cushion the economic impacts of climate policies. However, we do not really know where these problems will emerge, if at all. We should rather see the purchase of international credits as insurance against such risks – something that the EU may or may not need to use. 

We caution that the 3 per cent of emissions to be potentially covered by international carbon credits would be way too large of a window if only non-ETS sectors can use it. It is important to remind ourselves that 3 per cent of 1990 EU greenhouse gas emissions amounts to 4.75 per cent of 2023 EU emissions. The sectors which are neither under ETS1 or ETS2 (primarily agriculture and waste) amount to about 17 per cent of total EU emissions. If they only would be allowed to use international credits, then the 3 per cent window would cover around 30 per cent of the emissions in these sectors, which indeed would significantly blunt ambition. 

Finally, the conditional language of the draft is a further cause for concern. It speaks of the credits’ “possible limited contribution” towards the target. It is important to recall that it takes many years to bring carbon credits to the market, especially if the buyer has specific quality requirements. If the EU wants to have the option of using quality credits in significant amounts after 2036, it needs to set out the rules and start purchasing credits several years in advance to create a pipeline. Such advance purchases could be seen as a form of international carbon finance, if these purchases are not counted towards climate commitments of the EU. Such advanced purchases would also leverage the EU’s position in the market to influence the rules of the various carbon crediting frameworks (PACM, ICVCM, others) towards higher integrity overall.