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Commission eyes 90% target for 2040, implies tight ETS

A leaked document shows the European Commission is planning for a 90% net reduction target for 2040, compared to 1990. In addition to massive abatement, the target relies heavily on the use of CCS and removals. For the EU ETS, that could mean a further tightening of supply in 2031-2040, a period that would see scarce issuance already under the current trajectory. On 6 February, the European Commission will adopt and present a communication on the 2040 target to the European Parliament and the Council. Lawmakers are likely to spend the rest of the year (and possibly into 2025) before agreeing on a target that will be inserted into the Climate Law.


On 25 January, a leaked draft impact assessment of the 2040 climate target was circulated, shedding more light on the European Commission’s forthcoming proposals for GHG abatement beyond 2030. The document follows an earlier leak on the forthcoming ‘communication’ to the European Parliament and the Council on the same topic and another on Industrial Carbon Management (ICM), see our analysis on the latter here:

The final documents – both the 2040 target impact assessment and the two communications – will be known when the European Commission officially releases them on 6 February. 

The 2040 target will connect the existing climate targets for 2030 and 2050, and ensure it finds the optimal pathway. This will be the top item on Europe’s key climate and energy agenda in 2024.

Once agreed, all key climate policy instruments, including the EU ETS, will need to be recalibrated to align with the 2040 target. That will be process very much like what we have seen with “fit for 55” for 2030. For the ETS, the EUA supply trajectory is already decelerating fast, and an extrapolation of current parameters leads to the end of issuance in 2040. Further ramping up of the ambition level will move forward with the issuance of the last EUA.

The 2040 target will also be reported to the UNFCCC as part of Europe’s Nationally Determined Contribution under the Paris Agreement. This should take place before the 2025 global climate summit (COP30) in Brazil.

The Commission’s preferred 2040 target: a net 90% cut

The purpose of the impact assessment is to consider and compare the impact of various mitigation pathways, both socio-economically and in terms of emissions. The Commission has considered three emission scenarios, for net reduction targets between 75% and 95%. The aim is to identify the most appropriate 2040 target level to bring the EU to climate neutrality by 2050.

Scenario 1 is for up to 80% reduction. The impact assessment refers to this as a linear trajectory between 2030 and 2050.

Scenario 2 is for an 85-90% reduction, in line with a prolongation of the current policy framework, something that would result in an 88% reduction.

Scenario 3 envisages a 90-95% reduction. This corresponds to the range recommended by the European Scientific Advisory Board on Climate Change (ESABCC) in June 2023. The impact assessment points out that the public consultation in early 2023 showed that many individuals and some small businesses supported this target, but only a small share of large businesses.

Lion’s share of abatement to take place before 2040, tight ETS in phase 5

Scenario 3, the Commission’s preferred option, translates into a GHG budget of up to 16 Gt CO2e for the period 2030 to 2050. The yearly reduction rate will be -3.3% in the 2030s, then flatten out to -1% p.a. in the 2040s.

Table 1 and Figure 1 compare the different target options in terms of their net GHG reduction profiles and their associated cumulative net GHG emissions for 2030-2050. Each target option corresponds to a level of net GHG reductions in 2040. For each target option, the “GHG budget” is calculated assuming net GHG emissions reach zero in 2050 and linear trajectories of net GHGs between 2030 and 2040 and between 2040 and 2050.

Table 1. GHG budget and annual reduction of GHG emissions of each target option. Table 1. GHG budget and annual reduction of GHG emissions of each target option.
Table 1. GHG budget and annual reduction of GHG emissions of each target option.

Source: Leaked Impact Assessment of the 2040 target, the European Commission

Figure 1. Profile of the net GHG emissions over 1990-2050.Figure 1. Profile of the net GHG emissions over 1990-2050.
Figure 1. Profile of the net GHG emissions over 1990-2050.

Source: Leaked Impact Assessment of the 2040 target, the European Commission (which refers to EEA and Eurostat).

A net 90 percent target for 2040 will require a tightening of the “fit for 55” climate and energy framework set for 2030, which is estimated to lead to an 88 percent reduction. While the abatement burden split between sectors is not discussed in the leaked document, the ETS sectors have historically and under the current setup been required to take a heavier lift than non-ETS1 sectors.

Lawmakers might eventually decide on a slightly less ambitious target, e.g. closer to an extrapolation of the existing emission trajectory towards a reduction of around 88% in 2040 (as outlined in Scenario 2). But even so, that would still pose enormous challenges for the European economy, let alone the EU ETS sectors. The cap would still reach zero, with no room for emissions from power, industry, intra-EU aviation, and shipping – around 2040. A target in the high end will likely require an even steeper cap trajectory for ETS1.

Massive scale-up of CCS/CCU/removals, ETS as an enabler?

All scenarios, in particular the Commission’s preferred Target 3, rely heavily on carbon capture and storage or utilization as well as negative emissions through carbon removals. The Commission’s preferred scenario clearly states that “to reach a reduction of at least 90% by 2040, this scenario […] relies on a fully developed carbon management industry by 2040…”

For 2040, scenario 3 envisages gross emissions of 748 Mt and removals of 391 Mt, of which 75 Mt will come from industrial removals, and the other 317 Mt from LULUCF. This is a huge scale-up from today’s level and will require massive investments.

CCS/U and carbon removals are indeed a joker for the 2040 target. Reaching the headline target will depend heavily on the successful development of the Industrial Carbon Management strategy. A separate Industrial Carbon Management (ICM) strategy will therefore accompany the 2040 target proposal (see our analysis of the leaked document). The Commission will consider the benefits of setting specific objectives for carbon removals. 

Absent from the leaked 2040 document is any mention of international carbon credits. The EU’s climate targets are domestic and emission reductions (and removals) are set to take place in Europe. As discussed in our recent analysis, the discussion on international collaboration under Article 6 – the “elephant in the room” - may yet make its way into the 2040 debate, although it is not on the Commission’s agenda.

The plan, judging from both the ICM and 2040 leaks, seems to be that the EU ETS, by providing a price signal, should trigger vast investments in removals technology, but whether that materialises remains to be seen. None of the documents set for 6 February will provide clarity on how the removals framework will be integrated with the EU ETS. Hence, as of now, the potential incentivizing role of the EU ETS remains blurred. Not until 2026 will the Commission assess if and how removals can be accounted for and covered by emissions trading.

In any case, developing technology, and testing and scaling up removals projects will require many years, and the current EUA price level around €65/t is hardly sufficient to spur an investment boom.

Next steps

The key event will be the European Commission announcements on 6 February on the 2040 target and Industrial Carbon Management.

Member states’ ministers will have a first opportunity to discuss this at the 4 March Energy Council meeting and/or at the 25 March Environment Council (agendas for those meetings are not yet available).

On 25 January, 11 member states (Austria, Bulgaria, Denmark, Finland, France, Germany, Ireland, Luxembourg, the Netherlands, Portugal, and Spain) addressed a letter to the Commission asking for “an ambitious climate target for 2040”. The letter does not mention a specific number. Denmark voiced support for a 90% target already last year, but other member states have so far been conspicuously silent. Warsaw surprised everybody when a state secretary for climate announced in Brussels in early January that the Polish government also supports that level of ambition.

The eleven capitals calling for an ambitious target do so despite signs of climate backlash and upcoming elections, most notably in German states (Länder).

In the European Parliament, the Greens and the S&D group are set to campaign on an ambitious 2040 climate target. While the centre-right EPP group seems to be downplaying climate concerns, the Greens and the S&D both put forth draft election manifestos this week that highlight an ambitious 2040 target. The former wants to achieve full climate neutrality in 2040, ten years ahead of schedule, and to ramp up the 2030 target of at least a 55% cut. S&D says the EU should set “a strong EU climate for 2040”.

It remains to be seen how deeply the incumbent parliament will discuss the documents that will be presented on 6 February. The last plenary session will take place in April, and MEPs are not likely to agree on a position on the 2040 target by then. Instead, we expect the new parliament, to be constituted on 16 July, to pick up the discussion sometime in H2.

The legislative proposal to amend the Climate Law – by which the 2040 target will be binding – is expected either later 2024 or early 2025. The Commission hopes to bring it to completion in time for the 2025 climate summit in Brazil.