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The EU's renewed opening to international carbon credits has moved, within four months, from principle to instrument. Regulation (EU) 2026/667, which amended the European Climate Law in March, established that from 2036 high-quality international credits under Article 6 of the Paris Agreement may make "an adequate contribution" to the 2040 target "of up to 5% of 1990 Union net emissions", corresponding to a domestic reduction of 85%.
It also adds that their origin, quality criteria and conditions of acquisition and use are to be regulated in Union law. The ETS review proposal tabled by the Commission on 17 July can be seen as the first act of that regulation. The figure at its centre, 260 million tonnes, has been read in several ways, and the proposal's own drafting invites part of the ambiguity.
The proposed Article 9b of Directive 2003/87/EC does not reinstate international credits as compliance units, as was the case for Kyoto units between 2008 and 2020; operators would continue to surrender EU allowances only. Instead, up to 260 million allowances would be set aside from the Union-wide quantity and auctioned by the Commission, with the proceeds, constituted as external assigned revenue, financing a Facility, to be established by the forthcoming act on international credits rather than by the Directive itself. It will be empowered to purchase up to 260 million "high-quality, high-integrity" credits contributing to the ambition of ETS sectors between 2036 and 2040.
The environmental effect is transmitted through the cap: the linear reduction factor for 2036–2040 is set at 1.7% rather than the 2.7% implied by a fully domestic trajectory, the explanatory memorandum stating that the lower factor "takes into account the possible purchase of 260 million international credits" and that the allowances set aside fund "the amount of international credits (260 Mt) corresponding to the EU ETS ambition reduction".
The Commission must report by 31 January 2033 on the development of a high-integrity market, including supply, accounting robustness and the risk of mitigation deterrence. Should that assessment be negative, the reduction factor reverts to 2.7% and unused allowances are redirected to the Industrial Decarbonisation Bank. A 2031–2035 pilot, foreseen by the Climate Law, "may be considered" without being specified.
The relationship between this volume and the Climate Law's ceiling is the point on which the proposal is least clearly drafted, requiring attention both to the texts and to the units. The explanatory memorandum presents the credits as "reducing the need for domestic abatement of up to 5 percentage points in 2040", with a reduced LRF "aligned with reaching an ambition of 85% EU domestic emission reductions by 2040".
Read in isolation, this suggests that the 260 Mt fill the entire gap between 85% and 90%. The same memorandum, however, describes the set-aside as corresponding to "the EU ETS ambition reduction". Article 9b draws the volume from the international-credit quantity provided for in the amended Climate Law, and the Commission's presentation to the Council's Working Party on the Environment on 20 July frames the 1.7% factor as being "in accordance with up to 2% high-quality, high-integrity international credits from 2036". Two per cent of what is stated in neither text.
The arithmetic nonetheless excludes the readings that do not fit. The 5% is defined against annual 1990 net emissions, between roughly 230 and 245 MtCO₂e per year depending on the inventory basis. Used in full over 2036–2040, it would amount to roughly more than 700 Mt, with a linear phase-in; the 260 Mt cannot therefore be the whole flexibility if this calculation method is used.
Assuming that the 260 Mt is a cumulative quantity over the same five years, we are talking of approximately 52 Mt per year on average. Nor can the base be the ETS cap itself: two per cent of a cap that will stand in the low hundreds of millions of tonnes by the late 2030s would amount to some 5–10 Mt per year, an order of magnitude too small. The only base that reproduces the figure is 1990 Union net emissions: two percentage points, roughly 90 Mt per year at full effect in 2040 and phased in from 2036, yield between 230 and 280 Mt cumulative depending on the phase-in profile.
This is also how the Commission's own explanatory materials, which describe the facility as creating "additional emissions space in the EU ETS up to 2% while maintaining the 90% target", should be read, and how ICAP reads it, as roughly 2% of 1990 net emissions and well within the 5% ceiling. It is consistent with the derivation followed by market analysts, whereby ETS sectors represent around 40% of Union emissions and are therefore attributed approximately two of the five available percentage points.
The "five percentage points" of the memorandum might thus describe the economy-wide relaxation the Climate Law permits, to which the ETS trajectory is aligned. The 260 Mt would be the ETS sectors' share of it, with the remaining three points not addressed by the proposal. They might be implicitly reserved for the non-ETS sectors and for the forthcoming proposals on post-2030 national targets.
Beyond the quantum, several design features merit scrutiny. The first is its binary character: the 2033 review yields either a 1.7% or a 2.7% reduction factor, with no provision for a partial supply of eligible credits. The second is temporal. Procurement would begin in 2036 and demand can only be confirmed in 2033, whereas a predictable supply pipeline (the precondition for the "transformative" activities the Climate Law privileges) requires host-country authorisation procedures, MRV systems and jointly agreed methodologies to be operational years earlier, which argues for specifying the pilot rather than merely permitting it.
The third concerns coherence across instruments. The draft implementing regulation on carbon prices paid in third countries, published for consultation on 13 May, would allow importers to deduct Article 6.2 and 6.4 credits used under a binding domestic regime, up to 10% of covered emissions, so that credits would enter EU carbon pricing directly at the border and only indirectly at the cap, an asymmetry examined in March. Interoperability between these treatments, and with partner countries' emerging pricing systems, is not yet an explicit objective of either text.
The most consequential interaction, however, lies outside the ETS. The Climate Law's ceiling is defined at Union level, yet several Member States, seeking greater influence over the origin of credits to reflect national interests, are already developing their own procurement strategies.
The Swedish Energy Agency, mandated to conclude Article 6.2 agreements, has done so with Ghana, Zambia, Nepal, Kenya and the Dominican Republic, and uses the resulting ITMOs as supplementary measures towards national targets while cancelling a share for overall mitigation of global emissions. Italy, among the capitals that pressed for flexibilities in 2025, is also developing its strategy closely interlinked with its development cooperation priorities under the so-called Mattei plan, and Germany is setting up a facility to purchase carbon credits for national end-uses.
These emerging national strategies raise a question the ETS text leaves open. Under a single Union NDC, how are Member State purchases to be recognised, and against which quantity? The Union's 5%, a future effort-sharing allocation, or neither? Article 6 rules on when credits may be used and for which NDC period make coordination among partners before the next NDC updates indispensable.
To avoid fragmentation, the autumn package could differentiate the origin of credits within a common procurement framework, for instance, a shared pool governed by the Commission but with dedicated shares for Union and Member State interests, financed by a combination of ETS revenue and direct national contributions.
Such a structure would allow the Union to reflect in its next NDC the planned role of international credits, providing long-term policy certainty for partner countries, and to anchor – as recently proposed in a research conducted at the European University Institute – procurement in joint policy plans that link the purchase of credits to a gradual, time-bound transition towards domestic carbon pricing in host countries, rather than treating credits solely as a means of reaching EU targets more cost-effectively.
The ETS review has therefore settled how much flexibility the carbon market receives and through which channel, even if its drafting leaves that quantum open to misreading. It has not settled the allocation of the remaining three points, the compatibility of national and Union procurement, or the eligibility rulebook against which either will be judged. These are the questions the forthcoming proposals must answer if 260 million tonnes are to function as a stepping stone towards a more integrated global carbon pricing landscape, rather than as the only certainty in a market that, by the Commission's own admission, may not exist by 2033.
Quantities and supply aside, the debate should nevertheless fit into the wider climate action context. “Overall, the Paris Agreement offers a significant degree of flexibility to Parties such as the EU in terms of how climate cooperation can occur, and this discussion on credits fits exactly in this story,” adds Injy Johnstone, Senior Research Fellow at the Max Planck Institute and founder of the Article 6 Observatory. “A mainstay of the EU’s collective approach to this should be, now that Article 6 has been anchored in the European climate policy toolbox, a focus on the responsible use of these instruments, including how the standards the EU, as a buyer for the 260 Mt, will set will uphold environmental integrity. Without such coordination, the EU risks decelerating rather than accelerating climate mitigation efforts both within and beyond its borders while continuing to discuss quantities or whether measures are sufficiently aligned with domestic needs.”
“The ETS review proposal gives us a first, and significant, indication of the quantum and of how the EU intends to engage with international carbon markets in the years ahead. The legislative package expected by the end of the year will complete the picture,” concludes Aurora D’Aprile, EU Policy Director at IETA Europe, speaking in her individual expert capacity. “It is expected to clarify what credits will be eligible, how they will be managed, and how much additional demand may come beyond the ETS, potentially giving Member States a much more active role in the market.”
Cover: photo by Envato