The use of carbon credits under Article 6 of the Paris Agreement is currently a key topic of discussion in European climate policy. Article 6, as set out in the Paris Agreement, is intended to increase ambition rather than serve as a flexibility mechanism for countries’ national climate action. The EU has recently decided that it will allow the use of Article 6 credits up to 5% of its 1990 EU net emissions.

This policy brief, written in German, highlights risks related to the use of Article 6 to reach the EU 2040 and 2050 climate targets and what its use would mean for the EU and Germany in terms of economic efficiency, feasibility and costs.

We calculate that if the EU uses credits to this extent, it could increase its domestic emissions by 241 MtCO2e in 2040. This means that the above mentioned 5% would allow the EU to emit up to 50% more in 2040, compared to a scenario without use of credits. For Germany, the 5% use of credits would translate to 42% of additional emissions in 2040.

The key risks we see and our takeaways:

• High costs until 2040: The EU’s high-quality criteria for credits mean that costs will be high. This could reduce Germany’s budget available for climate action and the energy transition.

• Risk of losing technological leadership: Reduced incentives to invest in new technologies may weaken Germany’s position as a technology leader.

• Questionable implementation: It remains unclear whether the supply of credits will be sufficient to serve EU demand.

• Higher costs after 2040: There is a risk that climate action will be postponed, leading to significantly higher costs after 2040 to compensate for delayed progress.

• Competitive disadvantages: Companies already pursuing climate strategies may face additional uncertainties, putting them at a competitive disadvantage.

This policy brief was funded and commissioned by Klima-Allianz Deutschland e.V..

The report is only available in German.