With the EU’s 2040 climate target, the emerging role of international carbon credits raises important policy choices. They could remain a limited flexibility mechanism or become a key component of the EU’s external partnerships. Taking a strategic approach to international carbon credits could help align the EU’s own climate ambitions and broader economic and geopolitical interests while supporting the overall global clean transition.
As part of such an approach, the EU should consider a range of carbon crediting mechanisms, aligned with partner countries’ transition needs. Coal is still a major source of emissions in many emerging and developing economies, where fiscal constraints and high capital costs are slowing the shift to clean energy. To address this, carbon credits (or ‘transition credits’) linked to retiring coal-fired power plants early could be one option among a wider set of possible solutions, provided they ensure high environmental integrity.
International carbon credits – potentially including transition credits – could be sourced for the EU’s post-2036 framework through strategic partnerships. Embedded within broader cooperation agreements, such as Clean Trade and Investment Partnerships, they could combine finance, technical cooperation and market access to support the clean transition – in both the EU and partner countries across the world.
This CEPS Policy Brief was supported with a grant from the Rockefeller Foundation.
