EU Reaches Deal to Cut Emissions by 90% by 2040 — A Milestone With Trade-offs

Last week, the European Commission, the Council of the European Union and the European Parliament struck a provisional agreement to amend the EU Climate Law, setting a binding target to reduce the EU's net greenhouse gas (GHG) emissions by 90% by 2040 compared with 1990 levels, just in time for the ten-year anniversary of the Paris Agreement.

This intermediate goal sits between the EU's 2030 ambition of at least 55% emissions reductions and its legally binding goal of climate neutrality by 2050 under the European Climate Law.

However, the deal agreed in trilogue negotiations includes several important flexibilities that weaken the effective domestic ambition, drawing criticism from some climate scientists and civil society advocates.

Key Flexibilities in the Deal

1. International Carbon Credits (up to 5%)

The agreement allows up to 5 percentage points of the 2040 target to be met through "high-quality" international carbon credits , emissions reductions achieved outside the EU, from 2036 onward. In practice, this means EU countries can cover some of their obligations by buying credits abroad, lowering the effective domestic emissions cut to 85% by 2040.

Critics argue that reliance on credits, particularly from markets with unclear integrity, can delay much-needed structural change within the EU. Others, while supportive of flexible implementation, stress that credits must meet rigorous standards to ensure real climate benefit.

2. Postponed ETS II Launch

Under the new agreement, ETS II, the EU's emissions trading system covering buildings and road transport, will now begin in 2028, one year later than initially planned. This delay can slow early price signals that help decarbonise hard-to-abate sectors such as residential heating and transport fuels.

3. Land Use and Carbon Sinks Uncertainty

The EU's future reliance on natural carbon sinks, forests, peatlands, soils, remains a concern. If LULUCF (Land Use, Land-Use Change and Forestry) sinks decline, the overall emissions balance could worsen unless efforts to enhance renaturation and sink capacity are significantly stepped up. While the agreed framework includes periodic reviews, ensuring reliable sinks remains a challenge.

Why This Matters

Despite these flexibilities, the 2040 climate goal is a major political and legislative milestone.

• It provides the first legally binding medium-term target bridging the 2030 and 2050 goals, giving investors and policymakers a clearer roadmap for long-term decarbonisation.
• It underpins future EU competitiveness by embedding climate action into industrial, energy and innovation strategies.
• It allows Europe to present strengthened commitments at global forums such as UNFCCC/COP30 in Brazil later this year.

However, many climate scientists argue science-based pathways still point to deeper cuts, and sooner, to align with the Paris Agreement's 1.5 °C goal. Domestic reductions closer to net-zero before 2040 remain central to those assessments.

Looking Ahead

Reaching agreement on a 90% GHG cut by 2040 lays a critical foundation, but rules, regulations and implementation timelines will shape whether the EU can deliver on the ambition in practice.

Next steps include:

• Final adoption of the amended climate law by co-legislators,
• Adoption of detailed implementation measures (regulations, ETS rules, sectoral decarbonisation pathways),
• Ongoing monitoring and review mechanisms with science-based checkpoints.

Europe's transition to a net-zero, resilient and competitive economy hinges on policy clarity, investor engagement and cross-sector collaboration.