The European Union's 2040 climate target has become law. Regulation (EU) 2026/667, which amends the European Climate Law to add an intermediate target for 2040, was adopted by the European Parliament and the Council on 11 March 2026 and published in the Official Journal on 18 March. It enters into force on 7 April 2026. The Council gave its final approval on 5 March.
The regulation sets a binding target of reducing net greenhouse gas emissions by 90% by 2040 compared with 1990 levels. It sits between the existing target of at least a 55% cut by 2030 and the goal of climate neutrality by 2050.
Flexibilities
The target was the subject of difficult negotiations in 2025. The Commission proposed the 90% figure in July 2025, and member states reached a general approach in November 2025 that introduced several flexibilities. These include the possibility of counting a limited quantity of high-quality international carbon credits under Article 6 of the Paris Agreement towards the target, from 2036 onwards, along with a role for domestic permanent carbon removals in the EU Emissions Trading System and a review clause allowing the target to be reassessed in light of economic and technological developments.
The Council also agreed to delay the start of ETS2, the new carbon market for buildings and road transport fuels, by one year to 2028. ETS2 was originally due to start in 2027.
What it means for the power sector
The EU power sector has already cut emissions sharply, driven by the growth of wind and solar and the decline of coal. According to the Commission, emissions in the sectors covered by the EU ETS were about 50% below 2005 levels by 2024, with the largest reductions in electricity generation, where coal has been steadily replaced by wind, solar and gas. A 90% economy-wide target by 2040 implies near-complete decarbonisation of electricity well before that date, because power is expected to supply growing demand from electric vehicles, heat pumps, industry and data centres.
For utilities and investors, the 2040 target provides a longer horizon for investment planning. Grid investment, storage, interconnectors and firm low-carbon capacity, including nuclear and hydrogen-ready gas plants, are long-lived assets whose economics depend on policy beyond 2030.
Industry and carbon prices
The EU ETS cap declines each year, and under current rules the issuance of new allowances for stationary installations approaches zero around 2039. The 2040 target is broadly consistent with that trajectory. Market participants watch the target and its flexibilities because they affect expectations about the future scarcity of allowances, and therefore about carbon prices.
The use of international credits is particularly relevant. If a share of the target can be met with credits from outside the EU, domestic reductions required in the 2030s would be somewhat lower. The regulation caps that share, and the rules for credit quality and the legal channel through which they will be used are still to be set out in future legislation.
Heavy industry, including steel, cement and chemicals, faces the largest challenge. The carbon border adjustment mechanism, whose definitive period started in January 2026, is designed to protect EU producers from competition from countries with lower carbon costs as free allocation of allowances is phased out.
The NDC link
The EU used the 2040 target as the basis for its nationally determined contribution under the Paris Agreement, submitted in late 2025, which set a 2035 range of 66.25% to 72.5% below 1990 levels. The 2040 target and the NDC together set the EU's position for COP31 in Antalya in November 2026.
Political context
The target was adopted against a background of concern about competitiveness, high energy prices and the cost of the transition. Several member states pushed for more flexibility, and the European Parliament amended the proposal before the final agreement. Supporters of the target argued that it provides investment certainty; critics argued that it adds costs at a difficult time for European industry. The final text reflects compromises on both sides.
Carbon removals
The regulation gives a role to permanent carbon removals, such as direct air capture with storage and bioenergy with carbon capture, in the EU's climate architecture. The Commission is developing certification rules for removals under a separate framework adopted in 2024. Integrating removals into the ETS could create a new source of supply for compliance, which would affect the market balance in the 2030s. Energy companies with carbon capture projects, particularly in the North Sea, see this as a potential revenue stream.
Next steps
Member states will also need to update national energy and climate plans to reflect the longer horizon.
The 2040 target will be implemented through a package of legislation for the period after 2030, which the Commission is expected to propose in the coming years. That package will cover the ETS cap after 2030, the effort sharing regulation for sectors outside the ETS, land use and forestry rules, and the framework for carbon removals and international credits.
Implications for gas
Natural gas demand in the EU has fallen since 2021 because of high prices, efficiency, mild winters and growth in renewables. A 90% target by 2040 implies that unabated gas use in power and heating would be much lower than today, though gas would still play a role for flexibility and in sectors that are hard to electrify. That outlook matters for LNG suppliers, including US exporters signing long-term contracts with European buyers. Contracts running to the late 2030s and 2040s will need to fit within a declining demand profile, which is why some European buyers favour flexible destination terms.
Data centres and electricity demand
The EU expects electricity demand to rise as transport, heating and industry electrify. Data centre demand adds to that growth, particularly in Ireland, the Netherlands, Germany and the Nordic countries. Meeting a 90% target while demand grows depends on adding clean generation and grid capacity fast enough. The Commission has launched initiatives on grid investment and permitting to address bottlenecks.
What to watch
Key milestones include the post-2030 legislative package, the rules for using international credits, the ETS2 start in 2028 and the EU's negotiating position at COP31. For energy markets, the main question is how the 2040 target translates into the ETS cap and allowance supply in the 2030s.