Seven years ago, back then when I was still a student of environmental sciences, I was visiting a fascinating prototype on the rooftop of my alma mater ETH Zurich, a giant fan designed to remove carbon dioxide from the air. At the time, this was regarded as a promising experiment, a technical curiosity that might one day contribute to climate mitigation.
Fast forward not even a decade, carbon removals such as Direct Air Capture described above are gaining political momentum in Europe and are for the first time legally recognised as an essential element of the EU’s long-term climate strategy. Indeed, on 2 July the European Commission put forward a proposal for a 2040 climate target that explicitly allows for the use of carbon removals and international credits as means to achieve a 90% emissions reduction by 2040 compared to 1990 levels.
Why this matters
The Commission’s proposal signals that carbon removals will become an integral part of EU climate policy and could create a clearer market for negative emissions. While details remain open, companies active in this sector now have a window to engage, shape standards, and prepare for inclusion in regulated markets.
What has been proposed
The Commission’s 2040 climate target proposal includes four main elements:
- A binding target:
A 90% net emissions reduction by 2040 compared to 1990 levels, aligning with the EU’s 2050 climate neutrality goal. - International carbon credits:
From 2036, EU countries and companies may use international credits, capped at 3% of 1990 emissions. Commissioner Hoekstra described this as a pragmatic choice to recognise verifiable reductions wherever they occur. - Carbon removals in the EU ETS:
For the first time, carbon removals will be included in the EU Emissions Trading System for hard-to-abate sectors like cement and steel. This will support technologies such as Biogenic emissions Capture with Carbon Storage (BioCCS) and Direct Air Capture with Carbon Storage (DACCS), which extracts CO₂ directly from the air for permanent storage. - Review and alignment:
A comprehensive review of post-2030 climate legislation to align policies with the 2040 target, considering competitiveness, fairness, social impacts, and energy security.
What this means for businesses
The inclusion of BioCCS and DACCS in EU law creates a potential business case for removals that was missing until now. Over time, regulated demand could drive scale-up and investment. However, no binding sub-targets have been set, which means the market outlook remains uncertain.
The Commission’s emphasis on flexibility, including the role of international credits, also points to a more cautious policy stance. This reflects a shift in priorities amid concerns over costs, public acceptance, and industrial competitiveness.
Importantly, while international credits will be permitted, the Commission’s explanatory memorandum states that these credits “should not play a role for compliance in the EU carbon market”. If confirmed, this would limit their impact on ETS carbon prices, as they would count toward national targets rather than be traded within the ETS itself.
Next steps
The process to turn this proposal into law will unfold over the next two to three years:
- Council of the EU: Under the Danish Presidency, Member States will debate the file. Milestones include an informal ministerial meeting in Aalborg on 10–11 July and a special Environment Council on 18 September. The Presidency aims for a general approach by the end of 2025.
- European Parliament: The ENVI Committee will lead Parliament’s work. Political divisions are already visible: the Greens and Left support the target, the ECR group opposes it, and positions within EPP, Renew, and S&D vary, especially regarding international credits.
- Negotiation: Once the Council and Parliament adopt their positions, trilogues will begin to agree on a final text.
- Follow-up legislation: The Commission is expected to table proposals to revise the ETS and other laws in 2026. Additional detail will likely be included in the 2026 Commission Work Programme, traditionally published in autumn of the previous year.
What should companies do now?
While the framework is still evolving, companies should:
- Monitor developments: The rules, definitions, and standards that will determine market eligibility are not yet set.
- Engage early: Stakeholder input can influence how removals are accounted for, what qualifies as high-quality credits, and how funding mechanisms are designed.
- Prepare for compliance: Inclusion in the ETS will create obligations as well as opportunities.
If you would like to explore how this proposal may affect your organisation or how to engage effectively in the coming debate, reach out at sara@political-intelligence.com.
Sara Cerar – Senior Consultant in Energy, Brussels
