The European Council has formally adopted a binding 2040 climate target requiring the European Union to reduce greenhouse gas emissions by 90% compared to 1990 levels. The decision closes a long-standing gap in the EU Climate Law, which previously set legally binding milestones for 2030 and 2050 but had not specified an interim figure for 2040.

Under the amended regulation, the new target will enter into force 20 days after publication in the Official Journal of the European Union and will apply directly across all member states.

 

Structure of the 2040 Target

 

The 90% reduction target includes a limited degree of flexibility. From 2036 onwards, up to five percentage points of the required reduction may be achieved through the purchase of international climate credits. This means that domestic emissions would need to fall by at least 85%, with the remaining portion potentially covered by certified mitigation projects in partner countries.

The European Council specified that any credits used must be based on credible greenhouse gas reduction activities aligned with the Paris Agreement. The European Commission had initially proposed allowing a maximum of 3% of reductions to be met through international credits. Following negotiations, the share was increased to 5% by the European Parliament and member states.

The EU’s existing targets remain unchanged. Emissions must fall by at least 55% by 2030 under the European Green Deal framework, and climate neutrality is required by 2050. The newly confirmed 2040 milestone is intended to provide policy continuity between these endpoints and offer greater clarity to industry and investors planning long-term capital allocation.

 

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Implementation Framework and Policy Development

 

Responsibility now shifts to the European Commission to propose sectoral measures capable of delivering the 2040 objective. This will include updated legislative packages across energy, transport, buildings, and industry. The Council has also indicated that future proposals may incorporate expanded carbon removal mechanisms and permanent storage solutions, reflecting the growing role of negative emissions technologies in long-term climate planning.

Additional flexibility mechanisms between sectors may be introduced, although details remain to be defined. Policymakers are expected to balance environmental integrity with economic competitiveness as the EU manages industrial transition pressures and geopolitical uncertainty.

 

ETS2 Postponed to 2028

 

Alongside the adoption of the 2040 target, the Council confirmed a one-year delay to the launch of the second EU Emissions Trading System, known as ETS2. Originally scheduled to begin in 2027, the system will now start in 2028.

ETS2 will extend carbon pricing to emissions from road transport, buildings, and certain additional sectors. Fuels such as petrol, diesel, and natural gas will fall under the system. Suppliers rather than end consumers will be required to purchase emissions certificates, though compliance costs are expected to pass through to retail prices.

The postponement is intended to moderate short-term price pressures on households and businesses. Carbon pricing under ETS2 will operate within a capped system in which the total number of allowances declines annually by 5.1%. This structural reduction is designed to ensure progressively tighter emissions limits and rising carbon price signals over time.

 

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Transition from National Carbon Pricing

 

In some member states, including Germany, transport and heating fuels are already subject to national carbon pricing mechanisms. Germany’s system, introduced in 2021 under the Fuel Emissions Trading Act, began at 25 euros per tonne of CO2 and is expected to reach approximately 60 euros per tonne by 2026 under a fixed price structure.

From 2028 onward, such national schemes will transition into the EU-wide ETS2 framework, which will operate as a market-based trading system rather than a fixed tax. The shift to a fully auctioned and capped model is expected to create greater price variability but also enhance alignment across member states.

 

Strategic Significance

 

The confirmation of the 2040 target establishes a clearer long-term emissions trajectory for the European Union at a time when global climate ambition remains uneven. By codifying a 90% reduction requirement, the EU reinforces its commitment to deep decarbonisation while allowing limited use of international mitigation instruments.

At the same time, the delay of ETS2 highlights the political sensitivity surrounding carbon pricing in sectors that directly affect households. The coming years will test whether the EU can combine ambitious climate policy with economic stability and social acceptance as it advances toward its 2050 climate neutrality objective.