The Next Phase of European Climate Policy: Laying the Groundwork with the 2040 Target

Regulatory successes

The European elections in June 2024 will bring an end to the current Commission’s mandate. The next Commission is expected to take office by the beginning of November. Under Ursula von der Leyen, the Com­mission has left a deep mark on climate policy since 2019. As part of the European Green Deal, the “Fit for 55” package bundled the Commission’s proposals to strengthen all legal acts adopted in 2018 aimed at meet­ing the original 2030 reduction target of 40 per cent, and to align them with the new 2030 target of 55 per cent as stipulated in the European Climate Law (Regulation 2021/1119).

The successful adoption of a large number of legislative acts through the Member States and the European Parliament, despite the challenges posed by the coronavirus pandemic, the Russian invasion of Ukraine and high inflation, is regarded as a signifi­cant achievement for the Commission. The European Green Deal, launched after the 2019 European elections, has led to a legally binding increase in ambition, the advance­ment of existing instruments and the devel­opment of new ones. These include the expansion of the existing Emissions Trading Scheme to include shipping, the creation of a second trading scheme for buildings and road transport (ETS-II), and a Carbon Border Adjustment Mechanism (CBAM) for the iron and steel, aluminium, cement, fertiliser, electricity and hydrogen sectors.

These successes demonstrate the political resilience of the majorities in favour of an ambitious climate policy and the stability of the climate policy framework established to date. They also showcase the functionality of the EU’s co-decision procedure. While other policy domains, such as health or energy policy, have been predominantly driven by crises, climate policy is more notably char­acterized by the regular updating of exis­ting legal acts and instruments.

Nevertheless, the ambition gap described above clearly underscores how urgent it is to implement the targets and instruments that have already been agreed upon. In the coming years, weakening and backsliding initiatives pursued by individual Member States or a differently composed European Parliament are possible. European and national policymakers should therefore press ahead with securing the agreed level of ambition and mix of instruments.

The 2040 target: establishing the path forward

The timeline for the 2040 interim target agreed in the European Climate Law pro­vides that the Commission will present the legislative proposal six months after the first global stocktake under the Paris Agree­ment, which was finalized at COP28 in De­cember 2023. However, since this require­ment clashes with the European elections in June, the Commission has chosen to first publish the Communication and defer the legislative proposal to the next Commission.

The new Commission is expected to reach an agreement and publish a proposal in the first quarter of 2025 at the earliest. It will not be bound by the level of ambition or target design recommended by the previous Commission.

The European Council’s leadership

As with the setting of the 2020 and 2030 targets, the heads of state and government are likely to assert their claim to leadership and seek to limit the influence of the Euro­pean Parliament in the process of setting new climate targets. Similar to the setting of the 55 per cent target for 2030, Member States could use the timely submission of the EU’s new Nationally Determined Con­tribution (NDC) under the Paris Agreement to shape the EU legislative process. Setting an NDC target for 2035 in such a way that would render a 90 per cent reduction by 2040 improbable is one approach for influ­encing the 2040 level. In addition to ongo­ing exchanges in the Council, initial agree­ments and course-setting could already be part of the meeting of heads of state and gov­ernment in the European Coun­cil scheduled for the end of June, where the appoint­ments to the top positions will be negotiated.

With its recommendation, the outgoing Commission seeks to anchor thematic prior­ities and set a level of ambition for the discussions among Member States and the subsequent debates in the new European Parliament. The recommendation on the 2040 target is therefore not only a handover of the baton to the new Commission, but also an attempt to pre-structure what is likely to be a controversial decision on poli­ti­cal terra incognita.

The target recommendation in detail

The Commission recommends a net reduc­tion of 90 per cent in greenhouse gas emis­sions by 2040 compared to 1990 levels. By proposing a net target, the Commission con­tinues the paradigm shift introduced with the “Fit for 55” package, i.e. taking removals into account to reach the climate targets. As with the 2030 target, and in response to calls from many stakeholders, including environmental NGOs, political parties and companies, it proposes to split the net tar­get into two ceilings: To achieve a 90 per cent net reduction, no more than 850 mil­lion tons (Mt) of CO₂ equivalent should still be emitted by 2040 (excluding emissions from land use, land use change and forestry, LULUCF), and a maximum of 400 Mt of CO₂ removal from the atmosphere would be allowed to contribute toward achieving the target. In percentage terms, this would cor­respond to a minimum reduction target of about 83 per cent and a CO₂ removal target of about 8 per cent of 1990 gross emissions levels.

A key distinction from the 2030 target is that the proposed target architecture includes industrial CO₂ removal in addition to CO₂ removal in the LULUCF sector. This refers to technologies that remove CO₂ by capturing atmospheric or biogenic CO₂ and permanently storing it. In the impact assess­ment scenarios, bioenergy with carbon capture and storage (BECCS) and direct air capture with CCS (DACCS) are projected for large-scale deployment by 2040. To counter­balance residual emissions in other sectors, the power sector achieves net negative emissions in all scenarios by 2050, and in some scenarios already by 2040.

New potential for conflict

The detailed impact assessment shows that significant efforts will be needed to reach the 90 per cent target. These include, for example, a decarbonized energy system, a focus on defossilization in industry, and sig­nificant emission reductions in agriculture. The increased ambition, therefore, touches on sectors that have been the subject of intense parliamentary debate, demonstra­tions and protests in the last few months. Recently, the current Commission has had to water down some of its plans in the area of agricultural policy, not least due to a lack of majority within the European People’s Party. In order to meet the overall reduction targets, the next Commission will have to push ahead with new measures to better integrate climate and agricultural policies.

Similarly, within the industrial sector, the prevailing political discourse is charac­terized not by objectives related to climate policy, but by concerns regarding the com­petitiveness and resilience of an industry beset by crises. The Commission is antici­pat­ing the political backlash in climate policy by proposing a “deal” for the de­carbonization of industry as part of its recommendation. Given that the Net Zero Industry Act and the STEP (Strategic Tech­nologies for Europe Platform) have fallen short of the expectations initially raised by the Commission, flanking climate policy with industrial policy is likely to be a key area of action for the next Commission.

Carbon management

The preparations for a new focus on indus­trial policy are also reflected in a Communication on industrial carbon management published in parallel with the 2040 recom­mendation. The prominent role of technol­ogies for CO₂ capture and subsequent utili­zation or storage is an important interface between climate and industrial policy for which companies and industry associations have high expectations. All three variants of these technologies – carbon capture and storage (CCS), carbon capture and utilization (CCU) and industrial carbon removal (CDR) and their functions in climate policy (see SWP Comment 30/2023) – are considered by the Commission to be crucial building blocks for achieving the interim target by 2040.

The figures in the impact assessment for individual carbon management technologies are in some scenarios very high, and imply a rapid upscaling of all three approaches (280 Mt CO₂ by 2040, 450 Mt by 2050). Achieving these levels would require enormous re­sources and strong support for development. It would also demand a single European mar­ket for CO₂ transport and storage capacity.

However, beyond the synergies that such a single market for these technologies would bring, it would also give rise to new political conflicts: carbon management is sometimes the subject of highly controversial debates in Member States. In Germany, for example, CCS is a sensitive issue. The impact assess­ment’s assertion that the absolute amount of CO₂ captured from fossil fuel combustion in the power sector will increase until 2050 is likely to cause irritation among environ­mental NGOs and some political parties. In addition, conflicts are likely to emerge both within and between Member States over the development of CO₂ transport infrastructure.

Next steps and implications for Germany

The Commission’s Communication on a 2040 climate target should be seen primarily as a strategic intervention aimed at setting the tone and managing expectations. It remains to be seen whether the new Com­mission will follow the 90 per cent recom­mendation in its legislative proposal and whether the European Parliament will main­tain its majorities for ambitious climate policy following the elections. In general, it will be an overarching goal of the Member States to claim de facto decision-making power in the European Council. In contrast to the Council of the European Union, the heads of state and government decide by consensus, which is usually a high hurdle in climate policy.

The debate on a new climate target comes at a politically unfavourable time for the German government. In view of the already controversial discussion on the amendment of the Federal Climate Change Act, the 2040 target will bring additional potential for conflict. What is more, the negotiations on the proposed legislation will take place in 2025 – a federal election year. One way for mitigating the anticipated dissent in the lead-up to the election campaign would be to aim for postponing the legislative process for the 2040 target until after a timely deci­sion on the 2035 NDC is reached.

The diversity of voices in EU legislative processes that Germany’s governing coali­tion has shown in recent months, along with the last-minute unravelling of com­promises that had been agreed upon (e.g. on the Sup­ply Chain Act or the CO₂ emis­sion performance standards for trucks and buses) have tarnished the reputation of the German gov­ernment in Brussels. However, given that Ger­many is the Member State with the highest emissions in absolute terms, its stance on the 2040 target will be an impor­tant benchmark for other Member States.