Decoding the 2040 climate target proposal for industrial carbon management

The European Commission’s recent proposal for a 90% net GHG emission reduction by 2040 marks a critical step towards EU climate neutrality. This post decodes the Commission’s 2040 target proposal, analysing its key provisions and highlighting where greater clarity and robust frameworks are needed to accelerate the deployment of carbon management technologies and achieve industrial decarbonisation.

Last month, the European Commission proposed a planned revision of the EU Climate Law, setting a 2040 EU climate target of a 90% reduction in net greenhouse gas (GHG) emissions, compared to 1990 levels. This intermediate milestone is crucial to ensure that the European Union (EU) remains on course to achieve climate neutrality by 2050 and net-negative emissions thereafter. Additionally, the target will serve as the basis for the EU’s updated 2035 Nationally Determined Contribution (NDC) under the Paris Agreement, to be submitted by September 2025 ahead of COP30.

The proposal recognises the key role that industrial carbon management will play in achieving the 2040 target as well as in increasing European industries’ competitiveness and resilience. More specifically, it highlights the necessity to enable the conditions for the uptake and scale-up of clean technologies and low-carbon solutions such as Carbon Capture and Storage (CCS), carbon capture and utilisation where the CO₂ is permanently stored (CCU), and carbon dioxide removal (CDR). 

In this post, we decode the key provisions of the proposal and their implications for industrial carbon management.

Grounding the 2040 target in science: why disaggregated targets matter

The proposed target aims for an overall of 90% net reduction by 2040, encompassing both emission reductions and carbon removals.

As expressed in our 2023 response to the Commission’s public consultation on the 2040 climate target, it is essential to align the 2040 target and related framework with the recommendations of the European Scientific Advisory Board on Climate Change (ESABCC).

The 90% target recommended by the Commission is ambitious and consistent with the lower end of the ESABCC’s recommendations and of Option 3 of the Commission’s Impact Assessment. However, it should have moved beyond a net approach and adopted three disaggregated targets, explicitly differentiating between: (1) GHG emission reductions, (2) temporary removals, and (3) permanent removals.

This disaggregation, strongly supported by the ESABCC and the broader scientific community, would have better reflected the different climate functions of temporary and permanent removals in relation to counterbalancing permanent fossil CO₂ emissions in line with the like-for-like principle.

Moreover, a separate target for temporary carbon removals would have enabled a clearer distinction between passive uptakes from active removals, currently threatening the achievement of geological net zero. The fact that the Commission chose not to follow this approach is regrettable.

Clarifying the implementation path for the 2040 target: addressing legislative uncertainty

While the 90% net emission reduction target updates the long-term EU climate direction, many crucial details remain deferred to the forthcoming post-2030 policy package, expected to address the 18 elements outlined in Article 4.

Of these, three have been described by the Commission as “flexibilities”, namely:

• A possible and limited contribution of international credits under Article 6 of the Paris Agreement.
• The role of domestic permanent removals within the EU Emission Trading Scheme (ETS) to compensate for residual emissions from hard-to-abate sectors.
• Enhanced flexibility across sectors.

However, it remains unclear how these will be “appropriately reflected” in the legislative proposals, creating uncertainty for national policymakers, industries, and all relevant stakeholders.

Carbon Removals in the ETS: permanence is essential

The commitment to establishing a pathway for scaling CDR in Europe is a positive and necessary step, reflecting the scientific consensus that substantial volumes of permanent CDR will be required to achieve climate neutrality by 2050. For instance, a recent study by TNO estimates that in the Netherlands alone, between 15 and 40 million tonnes of residual emissions will need to be removed annually in 2050 to meet national climate targets.

The EU ETS provides one mechanism for emitters to ensure their installations reach net zero, while also providing important sources of revenue for CDR project developers to advance projects. However, much of the architecture surrounding permanent CDR under the EU Carbon Removal and Carbon Farming Regulation (CRCF) has yet to be designed or implemented. Methodologies for permanent carbon removals are due to be adopted by the end of 2025, and the first units are expected to be issued in 2026/2027.

Ensuring that methodologies for certifying permanent CDR are robust is essential to guarantee that the ETS does not accommodate removals lacking permanence, which would undermine environmental credibility and trust in the market.

As noted in our response to the call for evidence on the revision of the ETS, CDR should only be integrated into the ETS under strict quality standards, proven permanence of storage, and a clear alignment with the broader ETS structure (e.g., MSR).

Considering the long-term atmospheric impact of CO₂ in the atmosphere, the inclusion of CDR into the ETS should be limited to Direct Air Capture with Carbon Storage (DACCS) and Bioenergy with Carbon Capture and Storage (BioCCS). Indeed, these are the only methods with a sufficiently robust framework to guarantee permanent storage for thousands of years.

Conversely, biochar lacks sufficient scientific certainty regarding its long-term durability and does not have the same experience in large-scale deployment as methods that store CO₂ geologically. It is for these reasons that the ESABCC encourages context-specific and large-scale field studies. Until sufficient legal and regulatory frameworks can support the large-scale deployment as a permanent CDR method, biochar should not be treated as equivalent to methods such as DACCS and BioCCS, and thus be excluded from the ETS inclusion.

Using international carbon credits: caution is advised

Another element requiring further legislative specification is the potential inclusion of international carbon credits, which appears to be subject to both quantitative and qualitative limitations.

According to the proposal, carbon credits issued under the Article 6 mechanism of the Paris Agreement could be permitted from 2036 onwards, with their use capped at 3% of the 1990 net emissions. Considering that the 2030 and 2050 targets are both domestic, the proposal implies that international carbon credits could only be used for 5 years, up to the end of 2040.

While this approach has the potential to support sustainable development in third countries, it may risk diverting investment away from sustained technological innovation and deployment in the EU, ultimately influencing the pace of domestic decarbonisation efforts.

According to the proposal, these credits would be restricted to “high-quality” units and governed by Union law, which would define their origin, quality criteria, and other conditions related to their acquisition and use. Importantly, international carbon credits would not be eligible for use within the ETS.

For international carbon removal credits, the European Commission and co-legislators should establish clear guardrails to guarantee that only permanent removal credits are allowed. Since DACCS and BioCCS are the only technologies capable of meeting such a high permanence standard at scale, international carbon credits counting towards the 2040 target should be restricted to those produced under equivalent regulatory standards, as defined by the Commission. This will ensure that only credits meeting strict criteria established by the EU will count towards the achievement of national targets and prevent fraudulent credits from third countries from entering the European market, as is currently the case with the import of biofuels.

Nevertheless, potential co-benefits stem from the use of international CDR projects. For example, the EU must ensure that storage projects delivering removals via DACCS and BioCCS adhere to the rigorous standards included in the CO₂ Storage Directive (2009/31 EC). Given that other jurisdictions often lack comparable regulatory frameworks for storage projects, the EU is well-positioned to influence global norms by setting high standards for CO₂ storage projects – an example of the Brussels Effect.

Furthermore, allowing the use of permanent CDR from outside Europe could enhance bankability in regions with optimal conditions, such as abundant clean energy and sustainable biomass, ultimately supporting greater climate impact.

Ensuring EU industrial carbon management policy reflects our climate ambition

While the continued emphasis in the Climate Law proposal on supporting the deployment of industrial carbon management is a positive development, significant work will be needed to ensure that deployment can meet the 2040 target.

In the absence of a robust business case, impeded by factors including the volatility and unpredictability of the EU carbon price and uncertainty in the availability of CO₂ infrastructure, advancing more industrial carbon management projects to operation past first-of-a-kind continues to prove challenging.

The Industrial Carbon Management Strategy (ICMS) and the Clean Industrial Deal (CID) correctly position industrial carbon management as a strategic pillar of a sustainable and competitive European economy. It is pivotal that the legislative package built on the 2040 target incorporates targeted policies to help de-risk investment and accelerate the scale-up of CO₂ infrastructure in Europe.

In particular, enhanced efforts at the national level should be made to streamline the permitting process for the transport and storage of CO₂ in line with the Net Zero Industry Act, thus also providing increased certainty for investors.

The proposal will follow the ordinary legislative process, where it will be examined by the Council and the European Parliament. These discussions will be key to defining the role of industrial carbon management within the EU’s post-2030 regulatory framework.