EU countries split over polluting credits for European industry in Green Deal pusback

European Union countries are divided over the volume of polluting credits their industries could use on their path to hitting the 2040 climate neutrality target, split between those who want more flexibility and those pushing to maintain higher climate ambitions intact.

The discussion held by European ambassadors crystallises the growing tensions among the EU27 member states over the future of the Green Deal, once hailed as the bloc's landmark policy and engine of clean growth.

Nonetheless, as the EU puts the focus on competitiveness, the European industry has voiced concerns about excessive regulation and targets that are too strict, making them less competitive vis-à-vis global competitors.

Carbon credits are tradable certificates that the industry uses to offset part of its emissions and are meant to create financial incentives to reduce pollution.

Each credit represents one metric tonne of CO2 reduced or sequestered from the atmosphere. Environmental groups are vocal in their opposition to carbon credits, arguing that it doesn't reduce pollution; they just shift it to lower-income countries.

Four diplomats close to the negotiations in Brussels on Friday told Euronews that EU countries remain split on the way forward, signalling trouble ahead for a crucial vote due next Tuesday on the climate target for 2040, which aims to reduce emissions by 90% by the next decade.

The 2040 target has divided the Commission and the European Parliament between those pushing for a watered-down proposal and countries like Denmark, which holds the rotating presidency of the EU and is handling the controversial file, who want to double down on the goals and keep them intact.

In July, the European Commission presented a proposal recommending a cap of 3% for international carbon credits, which the latest draft negotiation document dated October 29 and seen by Euronews, maintains despite calls from France, Italy and Poland to raise the amount.

Paris and Rome are asking for a 5% ceiling. Meanwhile, Warsaw is calling for a more substantial 10%, according to the diplomats talking on condition of anonymity.

An agreement on carbon credits is expected next week, as EU countries failed to break the impasse today, according to one of the diplomats. The decision could be delayed until then on what the threshold should be and whether it exceeds 3%.

2040 climate target divides EU in Green Deal backlash

EU environment ministers are due to adopt the 2040 climate target next Tuesday, with pressure mounting for the bloc to reach a consensus position before the COP30 UN climate summit. Until now, the EU has presented itself as the leader of climate action.

The current climate target would oblige countries to slash emissions by 90% by 2040, compared to 1990 levels — undoing those goals, experts say, could hurt the credibility of the EU in the global stage where it has sought to take a lead and sway other highly polluting nations to follow the EU's climate efforts.

Still, hitting these goals requires a significant effort for energy-intensive industries in Europe, already under pressure, facing higher energy and production costs.

Several EU countries want to start using carbon credits in 2031 - sooner than the 2036 date initially proposed, while others support a 2036 timeline, EU diplomats said.

In a letter sent to EU governments earlier this month, Commission President Ursula von der Leyen backed the 3% carbon credits. She also argued that the bloc's target could be "lower than 90%" if underpinned by "cost-efficient and high integrity" reductions linked to the Global Gateway partnerships, the bloc's own attempt to compete with China's Belt and Road initiative, to build critical infrastructure abroad.

Environmental groups, however, have been vocal in their criticism.

Mathieu Mal, policy officer for agriculture and climate at the NGO European Environmental Bureau (EEB), said the bloc’s plan to allow carbon offsets “hampers investment” in the green transition and would suggest that the EU is “unable and unwilling” to maintain the pledges made in 2019 at the height of the green wave in Europe.

"As a historical high polluter, the EU cannot and should not outsource its responsibility or allow for flexibilities just because they are cheaper and more convenient," said Mal.

"As the fastest warming continent in the world, Europe should be highly motivated to drive steep emission reductions here and now,” he added, suggesting the bloc should instead focus on reducing emissions across all sectors and restoring nature which could reverse the depletion of natural carbon sinks.

The Danish EU Presidency proposed flexibilities in the hope of easing fears of declining industrial competitiveness, mostly in the automotive and heavy industries such as steel.

Revision clause to keep promises in check

The functioning of a revision clause introduced in the latest Council’s draft proposal is among the flexibilities discussed by the EU nations, diplomats said.

The clause mandates the Commission to propose legislation if EU countries fall off track to meet the 2040 climate target, provided that “possible shortfalls wouldn’t be at the expense of other economic sectors”, the proposal says.

Some countries asked for “stronger language” in the review clause to clearly specify the conditions that would trigger it, EU diplomats added.

Nordic countries are backing the 90% target in part because of their more advanced technical capacity to decarbonise, while several eastern and central European countries, such as Czechia, Hungary, Poland and Slovakia, have asked for support to accommodate their own transition from lower historical industrial bases and fossil fuel dependencies.

On the sidelines of the October Council summit, French President Emmanuel Macron said Paris would like to see such a revision by 2030 citing a “protective agenda” rather than “protectionism” in view of restoring a “fair competition” for France’s auto sector.

Outgoing Czech Prime Minister Petr Fiala said he would “unequivocally” reject the 90% target for 2040.

“We insisted that any future climate target — any future climate targets — would be accompanied by a revision clause,” said the centrist Fiala.

Green Deal’s downfall?

The 2040 climate pledge has become a litmus test for the implementation of the Green Deal, the EU’s flagship climate initiative presented by von der Leyen during her first term.

The bloc’s green ambitions began to face resistance from centrists and the far-right in the European Parliament in the 2024 EU elections. Green parties suffered an electoral setback compared to their spectacular surge in the 2019 vote.

EU countries and industry representatives are lobbying the EU to adopt a technology-neutral approach, meaning the freedom to use the most efficient technology to meet climate targets — a request backed in the latest draft legislative proposal, with nuclear, carbon capture and storage, geothermal, and biofuels under consideration.

Axel Eggert, director general of the European Steel Association (Eurofer), said the 90% target by 2040 “is an illusion” since it implies a near-total decarbonisation of energy-intensive industries such as steel, transport, and households in just 15 years from now.

The Brussels-based European Chemical Industry Council (Cefic) recently warned that industry plant closures between 2023 and 2024 were 10 times the historical average for the sector, signalling a serious impact.

“The chemical industry is facing one of its most severe economic downturns. Without immediate and targeted support, the EU risks inducing long-lasting damage to its industrial base,” Cefic stated.

Once EU countries agree on a common position, the legislative file will be in the hands of the European Parliament. Its industry and transport committee is due to vote on the proposal on 5 November, according to MEP Niels Fuglsang (Denmark/S&D), one of the leading negotiators.