EU Set to Open Doors to Imported Carbon Credits Under 2040 Goal

Cooling towers at a lignite-fired power station in Jaenschwalde, Germany. Photo by Krisztian Bocsi /Bloomberg

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(Bloomberg) — The European Union wants to allow limited imports of carbon credits under a planned 90% emissions reduction goal for the next decade, in a bid to reduce the costs of its ambitious green shift and get member states on board.

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The European Commission, the bloc’s executive arm, is poised to propose that certain high-quality credits from a new United Nations-supervised mechanism can account for 3% of the pollution cut by 2040, according to a draft document seen by Bloomberg News. 

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The 90% net emissions reduction goal will be a reference point on the way for Europe to achieve its binding climate-neutrality aim by the middle of the century. The EU’s executive branch plans to put its proposal forward on July 2, sticking to its tentative timeline despite concerns voiced by some member states at a summit of national leaders on Thursday. 

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The commission wants the EU to stay the course, but it’s preparing to offer concessions to head off the threat to its green agenda from a rightward tilt across the 27-nation bloc. It also seeks to alleviate industry concerns that ever-tougher climate goals, coupled with persistently high energy prices, could deter investment in Europe.

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The EU executive branch has a policy of not commenting on draft documents. The draft may still change before adoption by the college of commissioners.

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Investors in international carbon markets have been closely watching the debate for signs of whether the region would open for credits generated under the UN carbon-trading mechanism, which was mandated by Article 6 of the Paris Agreement. The commission wants to permit their limited use from 2036, according to the document.

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Under the draft law, the EU would at a later stage specify detailed conditions for acceptance of the imported credits, such as “the origin, quality criteria and other conditions concerning the acquisition and use.” While the bloc formerly allowed credits generated by projects beyond its borders under its Emissions Trading System, it banned them in 2021 amid concerns over environmental integrity. 

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In the proposal, the commission also plans to pledge other options for cutting carbon that would be included in separate laws in the next steps. Those would include the use of so-called removals — activities that remove or prevent carbon dioxide emissions from the atmosphere — as well as an elastic approach to pollution cuts across various sectors of the economy.

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The draft also includes commitments by the EU’s regulatory arm to take into account social and economic impacts, ensure competitiveness of the bloc’s economy and energy affordability when drafting more detailed rules on how to implement the goal. 

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Still, it stops short of providing details on how exactly the emissions reductions will be achieved, risking opposition by some member states. 

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A group of EU leaders, including French President Emmanuel Macron, raised the issue of the target at a summit in Brussels on Thursday, highlighting the need to ensure that decarbonization and competitiveness go hand in hand. Czech Prime Minister Petr Fiala rejected the plan to cut pollution by 90%, calling for a realistic goal.

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—With assistance from Alberto Nardelli and Krystof Chamonikolas.

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