Global Perspective | EU Revises European Climate Law with 90% Emission Reduction Target by 2040!

While the US is reversing course on addressing the climate crisis, the EU seems to be taking a firmer stance. Its long-term goal of achieving climate neutrality by 2050 remains unchanged, and it has once again set a more ambitious mid-term target.

On July 2, local time, the European Commission issued a statement that it has proposed amendments to the European Climate Law, setting a target of reducing net greenhouse gas emissions by 90% compared to 1990 levels by 2040. The European Commission also proposed introducing mechanisms such as carbon credits to alleviate the pressure on Europe in achieving its emission reduction targets. Currently, the EU is steadily achieving its 55% emission reduction target for 2030. This amendment builds on this legally binding target, proposing a more pragmatic and flexible path to achieving it, aiming to drive the European economy towards decarbonization by 2050. The European Commission originally planned to propose an amendment to the EU Climate Law by the end of March, setting a greenhouse gas emission reduction target for 2040 to align with the 2050 net-zero emission blueprint. However, the draft was delayed, mainly because some member states and members of parliament considered the initially proposed 90% emission reduction target too stringent. High-profile members of parliament called for a reduction in the 2040 emission reduction target, warning that overly strict regulations could cripple the manufacturing industry and even lead to deindustrialization. However, the European Commission remained firm this time, maintaining the 90% emission reduction target for 2040, which also enjoys widespread public support. Data from a European public opinion poll released on June 30 showed that 85% of EU citizens consider climate change a serious problem, and 81% support the EU's goal of achieving climate neutrality by 2050. In addition, the European Commission made thorough preparations before formally submitting the legislative proposal to EU member states and the European Parliament. The proposal is based on a detailed impact assessment and recommendations from the Intergovernmental Panel on Climate Change (IPCC) and the European Scientific Advisory Board on Climate Change. Following the release of the Commission's communication and recommendations on the 2040 climate target in February 2024, extensive consultations and participation were initiated with EU countries, the European Parliament, stakeholders, civil society, and citizens, ultimately leading to its adoption. However, based on these extensive consultations, the amendment proposes a set of innovative approaches to achieving the 2040 target, different from previous methods. Flexibility is a core element; the Commission will fully consider this when designing future legislative instruments to achieve the 2040 climate target.

Image: The EU proposes flexible policies, guidelines, and a supportive framework; Source: European Commission
 

These flexibility measures include:

• Appropriate restrictions on the use of high-quality international emission allowances from 2036 onwards;
• Formal inclusion of domestic permanent carbon removal in the EU Emissions Trading System (EU ETS);
• Further enhancing flexibility between sectors to help member states achieve their targets in a cost-effective and socially equitable manner.
• Specifically, this means that member states will have the opportunity to compensate for potential emission reduction challenges in sectors such as land use through exceeding emission reductions in areas such as waste management and transport.

It is particularly noteworthy that the EU is preparing to introduce international carbon credits on a limited basis. In other words, companies can offset their own carbon emissions by funding emission reduction projects in other countries through the Article 6 mechanism of the Paris Agreement, further achieving the ultimate net-zero goal.

Currently, the EU's 2030 and 2050 climate targets rely on actual emission reduction actions within the region. Opening up to the inclusion of international carbon credits will bring about a significant shift in the EU's climate policy.

In the past, the EU also allowed companies to purchase international carbon credits for offsetting, leading to a large influx of carbon credits, depressing EU carbon prices. Experts and media warned of the risk of greenwashing. The EU completely banned them from entering the carbon market in 2013.

In this revision of the Climate Law, the European Commission proposes that from 2036 onwards, a limited contribution equivalent to 3% of the EU's net emissions in 1990 can be used to achieve the EU's 2040 target, in line with the accounting rules of the Paris Agreement.

Through this addition, the EU aims to strike an appropriate balance between domestic action and international cooperation.

However, the EU emphasizes that any potential use of international carbon credits will undergo a detailed and thorough impact assessment, and EU rules will be developed to clarify when and how they will be incorporated into current or future EU climate legislation. These rules will include strict and high-integrity standards and conditions regarding the origin, timing, and use of carbon credits.

Will strict climate legislation affect the competitiveness of EU industries? This is also a major concern for the EU.

In the European Commission's Q&A document on the proposal for the 2040 EU climate target, the EU states that the proposed 2040 EU climate target provides a strong signal of stability and predictability for European industry and investors, demonstrating that the EU will continue along a clear path of transformation, aiming to support a just transition and create a prosperous and competitive Europe for all.

The EU emphasizes that setting the 2040 climate target now will enable the EU to develop the necessary policies and investments to ensure that the transition to climate neutrality goes hand in hand with a strong and stable economy, a competitive industry, and future-oriented job opportunities. This will create an economy more resilient to future crises, price shocks, and the impacts of climate change, with sustainable and affordable energy, food, and materials, and enhance Europe's strategic independence from imported fossil fuels.

Therefore, to ensure the competitiveness of EU industries, the proposed 90% emission reduction climate target complements the previously adopted Clean Industry Act, the EU Competitiveness Compass, and the Affordable Energy Action Plan.

According to the statement, the next step is for the newly proposed amendment to be submitted to the European Parliament and the Council of the European Union for negotiation and adoption under the ordinary legislative procedure.