As the European Union considers whether international carbon credits should contribute to its 2040 climate target, a new discussion paper co-authored by Ecologic Institute's Hugh McDonald and commissioned by the German Environment Agency (UBA) examines how credits under Article 6 of the Paris Agreement could be integrated into the EU Emissions Trading System (EU ETS) while safeguarding environmental integrity and market stability. 
The discussion paper was developed as part of a project supporting the German Environment Agency in exploring options for the structural evolution of the EU ETS beyond 2030, with a focus on strengthening the system on the path to climate neutrality.

Balancing flexibility with climate ambition

The paper assesses four policy options for integrating Article 6 credits into the EU ETS through a central intermediary rather than allowing companies to purchase credits directly. It argues that this indirect approach would provide greater oversight of credit quality and supply, helping to preserve the EU ETS's role in driving domestic emissions reductions while offering limited flexibility where appropriate. 
The analysis highlights important trade-offs between reducing compliance costs, maintaining a robust carbon price and ensuring long-term decarbonisation. Among the options assessed, a dedicated mechanism for selling allowances linked to Article 6 credits emerges as a particularly promising approach, as it could lower compliance costs without increasing the overall emissions cap. The authors conclude that any future use of international credits should complement, rather than replace, domestic climate action and should be accompanied by strict quality standards, volume limits and robust safeguards.