Summary
What does the EU Climate Law require by 2040? The amended Regulation (EU) 2021/1119 sets a legally binding target of a 90% net cut in greenhouse gas emissions by 2040 compared with 1990. From 2036, high-quality international credits may cover up to 5% of 1990 emissions, with at least 85% of reductions made inside the EU, and the start of the second emissions trading system (ETS2) moves back one year to 2028. The 2030 target remains a 55% net cut under the Fit for 55 package. First action: test your own targets and transition plan against these pathways.
Not legal advice. This article is general information for businesses, based on official sources checked in October 2026. Laws, thresholds and deadlines change, and how they apply depends on your company’s facts. Check the current text of each law or ask a qualified lawyer before you act.
For two years, planners across Europe argued about a number. Would the 2040 target be 90%? Would credits count? Would it hold? The Council formally adopted the amendment in March 2026, and the argument turned into a planning assumption.
This guide sets out what the law now says, how it connects to the EU ETS, CBAM and CSRD, and what businesses in Germany, the UK, the US and Canada should do. The figures come from the Council of the EU’s announcement of the final adoption on 5 March 2026.
What Are the EU’s Binding Climate Targets?
| Milestone | Target | Instrument |
|---|---|---|
| 2030 | At least 55% net reduction vs 1990 | Fit for 55 package |
| 2040 | 90% net reduction vs 1990 | Amended Climate Law |
| 2050 | Climate neutrality | Climate Law |
How Do International Credits Fit In?
From 2036, high-quality international credits may cover up to 5% of 1990 net emissions, and at least 85% of the reductions must happen within the EU. Permanent carbon removals inside the EU can also offset residual emissions in hard-to-abate sectors under the EU ETS. For companies, this means credits are a limited tool, not a way around cutting emissions.
What Changes for ETS2?
The second emissions trading system for road transport fuels and buildings now starts one year later, with full operation from 2028 instead of 2027. Fuel suppliers should keep preparing, but heating and transport users get a year of breathing room. Our EU ETS compliance guide explains the surrender calendar and penalties.
How Does the Law Reach Your Business?
The Climate Law sets national and EU targets, so its effects reach companies through other rules. These include the EU ETS price, the Carbon Border Adjustment Mechanism (CBAM), energy and building rules, and CSRD transition plan disclosures. Under Omnibus I, the CSRD covers companies above 1,000 employees and EUR 450 million in turnover, with transposition due by March 19, 2027. Companies outside that scope still feel the target through customer requests and supplier questionnaires.
How Do the UK, US and Canada Compare?
| Market | Climate framework | Business reporting link |
|---|---|---|
| Germany (EU) | EU Climate Law plus national Klimaschutzgesetz | CSRD and ESRS E1 |
| UK | Climate Change Act 2008 with carbon budgets | UK Sustainability Reporting Standards, voluntary today |
| US | No federal economy-wide statute; state laws vary | California SB 253 Scope 1 and 2 report due November 10, 2026 |
| Canada | Canadian Net-Zero Emissions Accountability Act | Securities climate project paused April 23, 2025 |
EU Climate Law Action Checklist (2026)
- [ ] Company targets compared with the 2030 and 2040 EU pathways
- [ ] Credit use limited and documented
- [ ] ETS and CBAM exposure costed for the next five years
- [ ] ETS2 timing updated to 2028 in plans
- [ ] CSRD scope tested for your group
Frequently Asked Questions
What is the EU’s 2040 climate target?
A legally binding 90% net reduction in greenhouse gas emissions compared with 1990.
Can companies use carbon credits to meet it?
The target allows limited international credits from 2036, up to 5% of 1990 emissions, but at least 85% of reductions must happen within the EU. The law sets EU targets, not company targets.
When does ETS2 start?
It was delayed by one year, to 2028.
Does the Climate Law fine companies directly?
No. It binds the EU and Member States. Companies face penalties under instruments such as the EU ETS, which charges EUR 100 per tonne of excess emissions.