a day ago
Carbon markets aren't a cop-out, they're a climate solution
Dr. Daniel Klier is the CEO of South Pole, a climate consultancy. A former Partner at McKinsey, Daniel is a recognised sustainability leader, having chaired climate finance groups for the Bank of England and the Institute of International Finance.
The EU's 2040 climate target proposal is the boldest policy pivot in years. By backing the use of high-integrity Article 6 carbon credits and opening the EU Emissions Trading System to carbon removals, Brussels has delivered an unmistakable message: Carbon markets are back in the game.
While no silver bullet, when the cost of inaction is mounting and public budgets are stretched, no credible climate tool can be left on the shelf.
Cutting emissions by 90% based on 1990 levels by 2040 is the penultimate stop before full decarbonisation by 2050. It defines the EU's negotiating position ahead of COP30 in Brazil and will influence global climate ambition just as countries submit their updated national climate targets.
One of its most significant provisions is the allowance of international carbon credits worth 3% of EU 1990 emission to be used towards the 2040 target. This may sound modest, but it's a breakthrough: the EU has formally backed the use of Article 6, a key provision in the global climate pact (also known as the Paris Agreement) that enables countries to work together by trading carbon credits to reduce emissions more efficiently and fairly.
Even more notable: the expansion of the EU Emission Trading System (ETS) to include domestic project-based, technology carbon removals, opening one of the world's most influential carbon pricing mechanisms to a new category of climate solutions.
These aren't tweaks, they're turning points.
As the EU balances net zero with energy security, competitiveness, growth and defence, carbon markets are reemerging as a legitimate pillar of its climate policy. It's not just a residual fix, but a driver of finance, innovation and global cooperation.
In practical terms, it amounts to around 140 million tonnes of CO ₂ equivalent by 2040, roughly equal to the annual emissions of 30 million cars. A fraction of the EU's overall emissions, yes, but a clear vote of confidence in international carbon trading.
This matters. After years of technical negotiations – many led by European delegates – Article 6 of the Paris Agreement is finally in play. It allows countries to trade emissions reductions across borders, helping unlock climate finance for projects that wouldn't otherwise happen, particularly in developing economies.
As climate finance from developed nations continuously falls short, private investment is non-negotiable. And high-integrity carbon markets can help close the gap.
When well-designed and governed, these markets create powerful financial incentives for low-carbon transformation across sectors, from clean energy and transport electrification to modernised waste systems and the early retirement of coal-fired plants.
One thing is clear: Article 6 is no excuse to stall or delay the low-carbon transition.
So while the volumes of carbon that have been hotly debated these past few weeks are relatively small, the opportunity to channel finance to emerging economies is significant.
The 2040 target also proposes opening the EU Emissions Trading System (ETS) to permanent, domestic project-based technology carbon removals. The ETS – with its scale, rules, and market discipline – offers what the sector badly needs: a credible price signal to develop new technology solutions and incentivise innovation.
Europe has long claimed that innovation is key to its green growth strategy. Including high-integrity removals within its flagship climate mechanism makes good on that promise. It will drive down costs as demand grows and accelerate technology development at the pace needed.
Crucially, the 2040 goal isn't just about setting targets, it's about delivering on them. That means putting Article 6 credits and removals into practice, not just leaving them on paper.
The risk isn't utilising carbon markets. It's failing to act at the scale and speed the climate crisis demands.
