Leveraging Carbon Markets to Meet Europe’s Climate Goals: Designing a Credible Framework for High-Quality Carbon Credits
TNC and EDF release roadmap to help development of high‑integrity, diverse carbon credit system for Europe’s 2040 climate goal
In December 2025, EU institutions reached a political agreement on a new 2040 climate target: a 90% reduction in greenhouse gas emissions compared with 1990 levels, with up to 5% of that target being met through the use of international carbon credits. The European Commission is expected to publish a legislative framework for the purchase of credits by the end of the year.
This is a significant shift.
It signals a growing recognition among EU policymakers that well-designed international carbon markets can meaningfully support global and European climate ambition. And that Europe has a role in shaping them. The question now is how to design a framework that delivers on that potential.
In our new joint paper, The Nature Conservancy (TNC) and the Environmental Defense Fund (EDF) outline what a credible, effective and strategically coherent purchasing framework could look like. We set out recommendations on credit quality criteria, the governance architecture for approving eligible standards and methodologies, and the strategic choices the EU must make about which types of credits to procure.
What Is a Carbon Credit?
A carbon credit is a unit representing one metric tonne of carbon dioxide (CO₂) that has been reduced or removed from the atmosphere. Under Article 6 of the Paris Agreement, countries can generate credits through emission reduction or removal activities, like forest restoration or energy transition projects, and transfer them to another country to help meet their climate targets. This can lower the costs of meeting climate targets while mobilizing finance for emission reduction.
Learn MoreA strategic opportunity, not just a compliance tool
International carbon credits are often framed primarily as a way to keep compliance costs down by tapping cheaper emissions-reductions options abroad. That is a legitimate consideration, but it only captures part of their potential value.
Purchased strategically, these international credits can advance several of the EU’s broader objectives. Credits tied to European technology exports can strengthen Europe’s industrial competitiveness. Moreover, high-quality carbon credits can bolster the EU’s climate diplomacy and build environmental partnerships by promoting EU’s commitment to address climate change as a global issue and to help third countries in their green transition and in restoring ecosystems.
By signalling demand early, the EU can help build the supply of high-quality credits the market will need well before actual purchasing begins. The implications go well beyond meeting a small share of the 2040 target.
Building the quality architecture on solid foundations
The European Climate Law made clear that the origin and quality of carbon credits will be further defined in EU law. The EU is now grappling with how to translate this into a practical system the EU can actually use.
We assessed three possible approaches:
- Adopt the Paris Agreement Crediting Mechanism (PACM) as is. This would be simple, but that would leave the EU with limited control over how quality rules evolve.
- Build a completely new EU standard. While this offers full control, it would demand significant institutional capacity and time, risking not setting clear signals early enough.
- A hybrid option. The EU sets core principles for what credits should deliver but while using existing standards that would meet these principles.
We recommend the third approach.
The standards and methodologies already developed, such as the Integrity Council for the Voluntary Carbon Market’s Core Carbon Principles, could, for example, be evaluated and, if compatible, be considered eligible under such a system. This would allow the EU to build on existing best practice and limit fragmentation for project developers while keeping the ability to independently assess them and avoid dependence on any single body.
This architecture is practical, flexible and builds on what already exists, making it well-suited to the EU’s timeline and objectives.
On permanence: a spectrum, not a binary
The Climate Law highlights permanence as an issue that needs careful consideration. But the solution is not to restrict eligibility to technological removals. Reversal risk is ultimately a governance and market design challenge, and there are already proven tools to manage it, including: buffer pools, insurance mechanisms and fund-based approaches.
Nature-based solutions such as forests and peatlands remain the largest available source of affordable, high-volume credits. They also deliver substantial co-benefits for biodiversity, ecosystems and community resilience, making them an essential part of the overall portfolio.
A framework that treats permanence as a spectrum, requires strong risk management and rewards co-benefits will be both more scientifically grounded and more effective in practice.
Building supply takes time
The EU will likely use several million tonnes of credits over the 2036-2040 period. Ensuring a high-integrity supply that meets the eligibility criteria the EU sets will take years, factoring in the need to develop bilateral agreements, methodology approvals, project development and credit generation.
No single credit type can meet the EU’s needs across volume, cost, technological content, co-benefits and political feasibility. A portfolio approach is therefore essential, combining both technology‑ and nature‑based reduction and removal credits to leverage the near-term, at-scale importance of nature while developing long-term removal technologies.
The Commission’s legislative proposal will define whether this programme succeeds. We look forward to contributing to that process.
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Credit quality criteria and implications for the EU's purchasing strategy
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Rebecca Humphries is leading The Nature Conservancy’s climate policy work in Europe. She is responsible for TNC’s engagement with European policy-makers across climate and energy policies.
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