EU: New 2040 climate target

The new 2040 climate law aims to deliver a legally binding 90%  reduction in net greenhouse gas emissions compared to 1990 levels. This target bridges the 2030 goal (−55%) and the 2050 net-zero objective.

Starting from 2036, the proposal allows limited flexibility to meet the 2040 climate goal with:

• the use of international carbon credits for up to 3% of emissions reductions under Article 6 of the Paris Agreement
• the use of domestic permanent removals under the EU Emission Trading System (ETS) to offset residual emissions from hard-to-abate sectors
• increased cross-sectoral flexibility to help meet targets in a cost-effective manner

To prepare for these changes, companies should:

• assess their exposure to new transition requirements, particularly in energy-intensive sectors and across complex supply chains
• anticipate the possible use of international carbon credits, ensuring they comply with high-integrity standards under Article 6 of the Paris Agreement
• consider the potential use of domestic permanent removals under the EU ETS to offset residual emissions

Next steps include the negotiation of the proposed revision by the European Council and the European Parliament. The 2040 climate target will guide the EU’s updated Nationally Determined Contribution (NDC) to the Paris Agreement, covering efforts from 2025 to 2035. The NDC must be submitted to the United Nations Framework Convention on Climate Change by September 2025, outlining the bloc’s planned climate actions and commitments.