A Critical Juncture for European Climate Ambition
As Europe prepares to unveil its long-anticipated 2040 climate target, a significant debate is unfolding over the integrity of the European Union Emissions Trading System (EU ETS). While some voices advocate for increasing flexibility through the inclusion of international carbon credits and removals, emerging research cautions that such measures could erode one of the EU’s most powerful climate tools.
Understanding the Power of the EU ETS
The EU ETS has evolved into a mature, market-driven mechanism that puts a meaningful price on carbon. This price signal incentivizes emissions reductions across energy-intensive sectors, with revenue reinvested into climate innovation and social equity. Recent reforms have made the system more resilient and credible—qualities that should not be undermined by quick-fix solutions.
The Lure and Limits of International Carbon Credits
Among the options under consideration is the integration of international credits under Article 6 of the Paris Agreement. While designed to facilitate global cooperation, these credits carry historical baggage. Past experiences, particularly under the Clean Development Mechanism, show how such credits can suppress carbon prices and delay real emissions cuts. Moreover, outsourcing reductions contradicts the European Climate Law’s emphasis on domestic action.
Carbon Removals: Not a Silver Bullet
Proposals to introduce carbon removals into the ETS raise additional concerns. While removals are crucial to achieving net zero by 2050, lumping them into a market designed for emissions reductions can dilute its focus. The current carbon price within the ETS is unlikely to attract the investment needed for permanent, high-quality removals. A better approach would involve separate, dedicated targets that ensure both emissions reductions and carbon removals progress in parallel.
Lessons from ETS2: Let New Markets Mature
The new ETS for road transport and buildings—ETS2—offers a fresh opportunity to decarbonize critical sectors. However, its success hinges on stability and observation. Premature interventions, such as injecting credits or altering price mechanisms, could destabilize an already complex system. Instead, robust social climate policies and transparent governance can help this market mature effectively.
Market Stability Requires Guardrails, Not Shortcuts
Two key instruments—the Linear Reduction Factor (LRF) and the Market Stability Reserve (MSR)—help govern the EU ETS. These mechanisms are functioning as intended, ensuring predictability and preventing market volatility. Adjusting them before 2035 could jeopardize the very price signals that drive investment in clean technologies.
A Call for Strategic Discipline
The overarching insight is clear: tampering with a working system to accommodate political or industrial pressures risks undermining hard-won progress. Preserving the environmental integrity of the EU ETS requires resisting the temptation of shortcuts. Instead, Europe must continue to prioritize policies that are transparent, accountable, and rooted in domestic action.
Conclusion: Building Trust Through Climate Consistency
The road to 2040 and beyond must be paved with confidence in the systems we choose to lead decarbonization. Flexibility, when misapplied, risks becoming fragility. To meet its climate goals, Europe must reinforce—not relax—its core market mechanisms. By doing so, it sends a powerful message: that climate ambition is not a negotiable aspiration, but a shared responsibility that demands consistency, courage, and clarity.