Negotiations stretched late into the night, but the EU member states at last agreed the EU nationally determined contribution (NDC) for 2035 and the 2040 climate target, shortly before the COP30 climate conference. There has been a major change in how the achievement of the target of 90 per cent will be calculated: from 2036 onwards, EU member states will be able to cover up to 5 per cent of the emissions to be reduced with carbon certificates from climate projects in non-EU countries. A pilot phase is scheduled to start as early as 2031.
“Regardless of how you evaluate this decision in the interplay between ambitions for decarbonisation and political reality, there is now a short window of time to adjust to this new situation. This is a wake-up call for all market participants, from companies that rely on certificates and support projects to project initiators that enable high-quality climate protection with integrity,’ says Florian Goppel, Co-CEO of the Foundation myclimate.
What does this mean for carbon markets and their offerings in general?
It’s a question of the eligibility criteria for projects and their implementation and review within the framework of Article 6 of the Paris Treaty. The aim must be to approve and implement only those projects that meet demonstrably high standards for carbon avoidance and reduction as well as contribute to the SDGs, thus benefitting the people in the host countries of the Global South. In accordance with climate justice, this would direct cash flows to the regions of the world that are already most affected by the effects of climate change.
“The EU climate target will also have a huge impact on companies. At a single stroke, there will be an enormous need for corresponding emissions certificates. Depending on the calculation, only 30 per cent of the required carbon certificates required for this are currently on the market, many of which of insufficient quality. Establishing high-quality climate protection projects takes time. The demand we now expect will lead to a sharp rise in prices, including on the voluntary carbon market,” says Sven Focken-Kremer, Senior Project Manager for Public Affairs & Strategic Communication at myclimate.
Companies that have compliance requirements or use projects as part of their climate strategy will have to prepare for more than just rising prices. There will also be intense competition with EU member states for suitable projects.
Demand for high quality projects is also picking up from other sides
At the same time, the Science-Based Targets initiative (SBTi), the premium standard for ambitious corporate climate commitments, has announced that it will promote the financing of climate protection projects in the upcoming Corporate Net-Zero Standard Version 2. This is likely to further increase demand for such projects.
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