EU’s New 2040 Climate Deal: What It Means for Business and Emissions Strategy

Carbalyze Team

21 Nov 2025

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10 MIN READ

Introduction

The European Commission, together with member states of the European Union, has finalized a landmark compromise deal that pushes the bloc’s climate ambition into a new era. As detailed by ESG Today. key features include a bold target to reduce greenhouse-gas (GHG) emissions by 90% by 2040 compared to 1990 levels, a mid-term target for 2035, and a significant expansion of flexibility mechanisms including international carbon credits.Here’s a breakdown of what the deal involves — and why it matters for organizations tracking, managing, or reporting carbon emissions.

Key Features of the Deal

1. Ambitious 2040 emissions-target

The deal sets an ambitious target to reduce greenhouse gas (GHG) emissions by 90% by 2040 compared to 1990 levels, marking a major step toward the EU’s long-term vision of achieving climate neutrality by 2050.
This means that by 2040, total EU emissions should be only one-tenth of what they were in 1990 — requiring deep decarbonization across all major sectors including energy, transport, manufacturing, and agriculture.
For businesses, this translates to stronger regulatory expectations, accelerated investment in low-carbon technologies, and greater emphasis on carbon transparency across supply chains.

2. New 2035 Interim Milestone

The agreement introduces a mid-term target for 2035, setting a reduction of 66.25% to 72.5% in emissions (based on 2019 levels) as part of the EU’s updated Nationally Determined Contribution (NDC) under the Paris Agreement.
This milestone provides a clearer short- to mid-term checkpoint, helping both policymakers and industries align their transition strategies before the 2040 goal.
It effectively bridges the gap between the current 2030 targets and the long-term neutrality objective, reinforcing the EU’s trajectory toward net zero.

3. Expansion of Flexibility via International Carbon Credits

A key compromise in the deal allows member states to use international carbon credits (under Article 6 of the Paris Agreement) starting in 2036 to meet part of their 2040 reduction target.
Initially capped at 3%, this limit was increased to 5%, with an additional optional 5% available in exceptional or “emergency” circumstances.
As a result, at least 90% of emission cuts must come from domestic reductions, while up to 10% can be achieved through verified international credits under specific circumstances.
This flexibility offers cost-efficient pathways for compliance but also emphasizes the need for robust verification and reporting frameworks to maintain credibility and transparency.

4. Delay of the Revised Emissions Trading System (ETS) for New Sectors

The implementation of the expanded Emissions Trading System (ETS2) — which will cover new sectors such as road transport fuels and building heating — has been postponed by one year, now set to begin in 2028 instead of 2027.
The delay provides affected industries with extra preparation time to adapt to carbon pricing mechanisms and integrate decarbonization strategies.
However, it also signals that carbon costs are coming, and companies in these sectors should act early to mitigate future compliance and cost risks.

5. Alignment with the EU’s 2050 Climate Neutrality and 2030 Commitments

The 2040 target builds on the EU’s existing Climate Law, which already mandates at least a 55% reduction in emissions by 2030 (vs. 1990 levels) and full climate neutrality by 2050.
This updated trajectory — 2030 → 2035 → 2040 → 2050 — provides a structured framework for long-term policy coherence and business planning.
For organizations, it means aligning internal carbon accounting, target-setting, and investment strategies with an increasingly ambitious EU climate pathway.

What This Means for Businesses

The 2040 Climate Deal sends a strong signal that the EU is accelerating its pathway to net zero — and businesses will be at the center of this transition. Here’s how it could impact organizations across industries:

Stronger Emissions Accountability

Companies will need to strengthen their carbon accounting, reporting, and verification systems to align with new EU-wide climate standards. Accurate data across Scope 1, 2, and 3 emissions will become essential to demonstrate compliance and avoid reputational risks.

Increased Cost of Carbon and Supply Chain Pressure

As the Emissions Trading System (ETS) expands and carbon prices rise, carbon-intensive operations and suppliers will face higher costs. Organizations will need to collaborate across their supply chains to identify emission hotspots and integrate low-carbon procurement strategies.

Acceleration of Low-Carbon Innovation

Meeting a 90% reduction goal will require large-scale deployment of renewables, green hydrogen, electrification, and carbon capture technologies. Businesses investing early in these areas can gain competitive advantages and potential access to EU funding and incentives.

Strategic Role of Carbon Credits

With the inclusion of international carbon credits, organizations can complement domestic reductions through high-quality offset projects — but credibility and transparency will be critical. Firms should establish clear criteria for credit quality and integrate them into their broader decarbonization strategy.

Investor and Stakeholder Expectations

Financial institutions and investors will increasingly favor companies with credible transition plans aligned with EU targets. Integrating sustainability metrics into corporate strategy, governance, and disclosures will be vital to maintain access to capital and strengthen market trust.

The Role of Carbon Credits in the New Framework

The decision to allow international carbon credits marks a pragmatic shift in EU climate policy. While the bloc remains committed to domestic emission reductions, the inclusion of up to 5% international offsets acknowledges the economic and technical limits of achieving all reductions internally.This opens the door for collaboration with verified global projects — such as renewable energy expansion, reforestation, and carbon capture initiatives — under Article 6 of the Paris Agreement. However, credibility will be critical. Only high-integrity carbon credits that meet strict monitoring and verification criteria will count toward compliance.For companies, this signals the importance of:

Engaging in credible offset programs aligned with EU standards.

Strengthening carbon accounting systems to ensure traceability.

Avoiding reliance on low-quality credits that could create reputational or compliance risks.

What Comes Next

The EU’s compromise deal still requires formal adoption and translation into national policies, but it sets the tone for the next decade of climate action. The upcoming years will focus on:

Developing sector-specific roadmaps to align industries with the 2040 and 2050 targets.

Finalizing methodologies for tracking international credits.

Strengthening data-sharing infrastructure for emissions reporting and verification.

As the framework matures, businesses that proactively embed carbon measurement, data management, and reduction planning into their operations will find themselves better positioned — not only to comply but to compete in a low-carbon economy.

Conclusion

The EU’s 2040 Climate Deal is more than a policy update — it’s a blueprint for how advanced economies can balance climate ambition with economic flexibility. By combining clear long-term targets, interim milestones, and measured use of carbon credits, the EU is setting a standard that could influence global climate governance for decades to come.For businesses, the message is unmistakable: the future of growth is low-carbon, data-driven, and globally accountable.

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