2040: the new European climate frontier that will reshape economic models

The European Union has set a milestone that will redefine the economic trajectories of the next twenty years. In November 2025, the EU Council and the European Parliament adopted their positions on the revision of the European Climate Law, establishing an unprecedented binding target: reduce net greenhouse gas emissions by 90% by 2040, compared to 1990.

This interim target, situated between the effort already made for 2030 (–55%) and the climate neutrality aimed for in 2050, creates a new regulatory and technological frontier. For businesses as well as for communities, it is no longer simply about adjusting their practices: their economic and energy models will need to evolve profoundly.

A target of –90% that sets an irreversible framework

The Council and the Parliament fully converge on this point:
➡️ massive decarbonization becomes the norm,
➡️ all economic sectors will be affected,
➡️ the reduction of internal emissions remains a priority,
➡️ compensation mechanisms play only a strictly regulated complementary role.

This target now serves as a compass for industrial policies, low-carbon investments, and the climate strategies of organizations.

Three flexibility levers to achieve this ambition

To maintain the feasibility of the 2040 target, the EU plans several mechanisms that allow for adapting the effort to technological and sectoral realities.

1. International carbon credits: a limited but structuring use

Starting in 2036, member states will be able to use international carbon credits up to 5% of 1990 emissions.

Both institutions agree, while introducing important safeguards:

• pilot phase between 2031 and 2035,

• strict quality and verification requirements,

• priority for domestic reductions.

💡 Implication for businesses: International credits will not solve the problem: they will provide a margin for sectors where reductions are technically very difficult. Organizations will therefore need to focus first on the actual reduction of their internal emissions.

2. Permanent carbon absorptions: a pillar for residual emissions

Carbon capture and storage technologies — whether bioCSC, direct air capture (DACCS), or geological storage — are taking on an increasing role in the European climate architecture.

• The Parliament wants to integrate them directly into the ETS system to offset uncompressible residual emissions.

• The Council recognizes their role but remains cautious about their operational integration.

💡 Implication for high-emitting companies: Cement plants, steel mills, heavy chemistry: these sectors will need to plan for capture and storage solutions within their 2030–2040 roadmap.

3. Expanded intersectoral flexibility to coordinate efforts

The EU wishes to facilitate adjustments between:

• the sectors covered by different regulatory regimes (ETS, ESR, LULUCF),

• carbon regulation tools,

• member states with different economic structures.

A key point: the postponement of the EU ETS 2

The launch of the quota trading system for buildings and road transport is postponed by one year, from 2027 to 2028.
This delay aims to:

• give more time for actors to adapt,

• enable better administrative preparation,

• reduce socio-economic risks related to the initial timeline.