What the Proposed EU ETS Reform Could Mean for International Carbon Credits

The European Commission’s July 2026 proposal to revise the EU Emissions Trading System (EU ETS) for the post-2030 period sends a significant new demand signal for international carbon credits and marks a major shift in policy from their exclusion from the system a decade ago. With a renewed focus on affordability, industrial competitiveness, and quality, these credits could provide greater flexibility within the ETS and are expected to meet rigorous quality standards, while supporting both the EU and other countries in meeting their emission goals set under the Paris Agreement.  

Key Insights:

• The proposal gives international credits a defined, but capped role. Up to 260 Mt of high-quality international credits could be used between 2036 and 2040 within the EU ETS through a centralized purchasing facility, where the EU would vet, buy, and hold credits, funding purchases through the sale of 260 million domestic allowances.    

• Additional legislative proposals on national targets as well as the use of international credits are expected later in 2026, but clarification on a number of details will remain outstanding. In other words – further details on implementation, quality criteria, and eligibility requirements are expected ahead of the 2033 strategic review, but it is unclear when we can expect those details.  

• Pilot period could begin as early as 2031. The proposal raises the possibility of a pilot purchasing period to build the trading infrastructure starting in 2031, five years prior to the proposal’s first envisioned use of international credits within the ETS in 2036.  

• A market assessment will take place in 2033. The Commission will determine whether a sufficiently high-quality supply of international credits is developing and expected to be available in 2035, informing whether the Commission should move ahead with purchasing.

How International Credits Would Be Integrated into the EU ETS

The EU proposes a 90% net reduction, or at least 85% from direct reductions and up to 5% from international credits. This represents an important shift from the Commission’s original position, which had ruled out any use of international credits within the ETS.  

As currently proposed, however, 40% of international credit use will be financed via the ETS to create more breathing room within the cap (e.g. 2% of the 5% emission reductions from credits). Because the ETS covers roughly 40% of total EU emissions, the Commission applies that same 40% share to the overall volume of international credit use, or 260 Mt. This approach also helps resolve earlier disagreements among stakeholders over how to interpret "5% of emissions" in concrete volume terms. The remaining 60%, or 390 Mt, would be applied towards national targets and LULUCF.

A pilot period could also potentially begin in 2031; however, little additional detail was provided. It could allow purchasing to begin up to five years prior to the proposal’s first envisioned use of carbon credits, while giving the EU time to set up the trading infrastructure and test its centralized purchasing facility.  For Article 6 project developers, a 2031 pilot period could provide an earlier source of project funding.  

More notable, however, is the newly proposed 2033 market assessment, which will evaluate the maturity of the emerging Article 6 credit market and whether sufficient supply will be available to meet the EU’s yet-to-be announced quality and eligibility standards. A proposal addressing quality criteria is expected to be developed in the coming years, but it is unclear when that detail will be released. If the 2033 report finds that the credit market isn't ready, the ETS cap tightens at a 2.7% annual pace starting in 2036, instead of the softer path built around credit purchases. Such an outcome would be counter to the proposal’s goal of adding additional flexibility, cost containment, and enhancing competitiveness. The best way to ensure market readiness by 2033 is for the EU Commissions to provide clarity as soon as possible on prospective eligibility criteria.  

How the funding will work for international credits

Under the proposal, a central EU purchasing facility, funded by auction revenues from a portion of EU ETS allowances, will vet and purchase credits on behalf of regulated entities. Individual companies (e.g. regulated entities) will not buy credits directly. The European Commission proposes to set aside revenue from up to 5 million allowances in the period until 2040 to help run and manage the system. Those revenues would support administration of the system, including maintaining and securing the registry and operating the centralized purchasing facility. Starting in 2036, the EU could use this funding to purchase up to 260 Mt of international carbon credits.  

The centralized purchasing facility is meant to keep quality control transparent and in public hands, since the Commission will ensure that credits are of high quality before money changes hands. Any data verification tied to this system would also need to follow the EU's existing rules on verification and accreditation of verifiers, which are already set out in earlier EU law from 2018.  

Looking Forward

The biggest open question is still how "high quality" will be defined and whether that definition might evolve over time. The current text does not establish clear criteria for what qualifies or what would be excluded. While such criteria are expected to be developed separately over the next one to two years, the exact timeline remains unclear. The way credits get deployed will also depend on formal impact assessments still to come.  

Future European criteria should build on, rather than duplicate, existing multi-stakeholder efforts to define quality and integrity. For example, the Integrity Council for the Voluntary Carbon Market (ICVCM) has developed a robust framework to define high-integrity carbon credits, and governments are increasingly looking to established integrity frameworks as they develop their own criteria.  While the ICVCM focuses on voluntary carbon markets and doesn’t necessarily have plans to review PACM methodologies, finding a way to build on this work would promote greater standardization in how high-quality credits are evaluated. We also believe EU criteria should support a diverse range of high-integrity climate solutions, including nature-based emissions reductions such as forest protection, technology-based reductions, and engineered removals.

At this point, all of this is still only a proposal; this fall, negotiations will begin separately within the European Parliament and Council as each develops its position on EU ETS reform. We expect the role of international credits to remain an important topic of discussion among policymakers, political groups, and NGOs. Once the Parliament and Council establish their respective positions, the institutions will move into trilogue negotiations with the Commission to work toward final legislation in 2027.