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European Union Climate Legislation

The European Union has committed to becoming the first climate-neutral continent through their establishment of a European Green Deal. By 2030, the EU plans to reach at least 55% less net greenhouse gas emissions than in 1990. To achieve this feat, they’ve enacted legislation and regulations spanning various sectors.

Here’s everything you need to know about EU Climate Legislation:

Fit For 55 (1)

The Fit for 55 legislative package is a set of proposals that aim to reduce greenhouse gas emissions by at least 55% by 2030, using 1990 as a baseline. There are two integral pillars to European Climate Legislation within the Fit for 55 package: Effort Sharing Reduction (ESR), EU Emissions Trading System (ETS).

EU ETS (2)

The EU ETS sets a limit on greenhouse gas emissions from energy-intensive industries that are responsible for around 40% of the EU’s emissions through a system of tradable emissions allowances. This is the EU’s most significant policy to reduce carbon emissions through economic incentives. It’s conducted on a cap-and-trade system, so a limit is placed on the amount of greenhouse gas emissions a specific sector can emit each year and tradable emission allowances are created based on this cap and distributed to market participants through free allocation or auctions.

What’s the Legislation Timeline?

  • Was reformed in 12/2022 to increase the target to a 62% reduction in emissions from the sectors involved by 2030

What Companies are Affected?

  • Power, heat generation, energy intensive industrial sectors, aviation, and the maritime sector

Financial Penalties for Non-Compliance?

  • For each ton of emissions for which no allowance is surrendered in due time, there is a penalty of €100. Names of the penalized operators are also disclosed to the public, which can impact their businesses (3)

Effort Sharing Regulation (4)

The EU ESR sets greenhouse gas emissions reduction targets for industries that are not subject to the EU ETS including transport, buildings, and agriculture. These sectors account for almost 60% of total EU GHG emissions. The ESR legislation established targets for emissions reductions through extending carbon allowances to EU member states and to industries, operating on a bank-and-borrow system. The bank-and-borrow system allows countries to bank CO2 allowances when they do not emit their total allocation of emissions and use them in subsequent years. They can also borrow a limited amount from the next year if they emit more than their allowance and buy or sell around 10% of their annual allocated emissions to meet their targets.

What’s the Legislation Timeline?

  • Initially adopted in 2018
  • In May of 2023, a revised regulation was enacted with a proposal to reduce emissions under ESR by at least 40% by 2030, using 2004 as a baseline, through increasing emission reduction targets (5)

What Companies are Affected?

  • Transport, buildings, agriculture within every EU member state

Financial Penalties for Non-Compliance?

  • Because this legislation is country-based, these countries are forced to submit action plans if they do not comply with the ESR targets

Carbon Border Adjustment Mechanism (6)

The Carbon Border Adjustment Mechanism was enacted to prevent carbon leakage and the offshoring of emissions through imposing a price of carbon emitted during the production of goods entering the EU. CBAM mirrors the EU ETS, but was enacted to establish harsher carbon emissions prices for foreign producers.

What’s the Legislation Timeline? (7)

  • Implemented in October 2023
  • Between now and the end of 2025, importers will have to report emissions embedded in their goods subject to CBAM without paying a financial adjustment in a transitional phase, providing stakeholders with some time to prepare for the final system to be put in place
  • Permanent system with consequences will be implemented in 2026

What Companies are Affected?

  • Cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen

Financial Penalties for Non-Compliance?

  • Financial penalties have not been established yet since the legislation is still in its transitional stage

Other Policies in Fit for 55

What You Need to Know:

  • Renewable Energy Directive (8)
    • Set renewable energy target of share of at least 42.5% renewables by 2030
    • Industry-specific ambitions to include more renewable sources of energy in transport, heating and cooling, and buildings
  • Energy Efficiency Directive (9)
    • Target of a decrease in 11.7% of energy consumption in 2030 compared to forecasted levels


Corporate Sustainability Reporting Directive (10)

The CSRD establishes a requirement that specific companies provide detailed reporting on sustainability issues, basically presenting an Environmental Social Governance Report, as a revision to the non-financial reporting directive (2014).

What’s the Legislation Timeline?

  • Compliance by 1 January 2024 for companies already subject to the non-financial reporting directive
  • 1 January 2025 for large companies that are not presently subject to the non-financial reporting directive
  • 1 January 2026 for listed SMEs, small and non-complex credit institutions and captive insurance undertakings

What Companies are Affected?

  • All public and large companies in the EU
  • For non-EU companies, those generating a net turnover of €150 million in the EU and which have at least one subsidiary or branch in the EU

Financial Penalties for Non-Compliance?

  • Compliance is ensured through third party, independent certifiers, but unclear what the financial implications are currently

The EU will soon impose economic consequences if companies do not comply with their carbon emissions targets. Not only is the EU requiring companies to report their emissions through the Corporate Sustainability Reporting Directive, they also are explicitly restricting carbon emissions through allowances in the EU Emissions Trading System and imposing prices on emissions in the Carbon Border Adjustment Mechanism. Your company needs to act now to mitigate their carbon footprint. DitchCarbon empowers procurement teams to reduce emissions with insights into the emissions of all of your suppliers. We include tailored action items on how each of your suppliers can mitigate their emissions including terms you can include in contracts to enforce emissions mitigation. We help you understand and reduce your carbon footprint to maintain accordance with EU regulations.


  1. https://www.consilium.europa.eu/en/policies/green-deal/fit-for-55-the-eu-plan-for-a-green-transition/
  2. https://tracker.carbongap.org/policy/eu-emissions-trading-system/
  3. https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets/monitoring-reporting-and-verification-eu-ets-emissions_en
  4. https://ec.europa.eu/commission/presscorner/detail/en/qanda_21_3543
  5. https://climate.ec.europa.eu/eu-action/effort-sharing-member-states-emission-targets/effort-sharing-2021-2030-targets-and-flexibilities_en
  6. https://tracker.carbongap.org/policy/carbon-border-adjustment-mechanism/
  7. https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en
  8. https://www.consilium.europa.eu/en/infographics/fit-for-55-how-the-eu-plans-to-boost-renewable-energy/
  9. https://www.consilium.europa.eu/en/infographics/fit-for-55-how-the-eu-will-become-more-energy-efficient/
  10. https://www.consilium.europa.eu/en/press/press-releases/2022/06/21/new-rules-on-sustainability-disclosure-provisional-agreement-between-council-and-european-parliament/

Carbon Footprint

The Strategic Case for Nature-Based Carbon Investments

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Nature-based carbon investments deserve consideration when they address a specific business dependency and produce outcomes you can measure. Imagine Moonbucks, a global coffee roaster planning next season’s espresso blend. It is considering natural Grade 4 coffee from Jimma, in southwestern Oromia, Ethiopia. Its sourcing decisions affect the roasting schedule and the cash tied up in coffee purchases. Moonbucks needs to understand which measures could protect that supply, what they would cost and how it would judge the results.

1. Define the sourcing problem before choosing a project

Moonbucks needs a dependable component for its espresso blend. Its procurement team wants continuity of volume and an agreed cup profile. Replacing a shipment at short notice could require new sample approval and changes to the blend, and given the schedules for cultivation, processing, and freight delivery, is practically impossible. Moonbucks needs to get this right, and its initial concern is inconsistent deliveries. It commissions an assessment of the supplying farms and post-harvest chain. The questions cover land condition, harvest availability and whether drying or storage problems are affecting saleable lots.

This distinction changes the investment brief. A tree-planting proposal cannot be assumed to fix drying problems. Better storage cannot restore eroded land. The team must establish which problem exists before selecting the response.

CCC’s guide to finding nature-based solutions in your supply chain explains where to look. Here, the next task is to turn a broad concern into a testable proposal.

2. Develop nature-based carbon investments around the actual supply chain

The assessment would trace Moonbucks’ purchases back through the exporter and supplying producer groups. Which farms supply the contracted lots? Who controls land-management decisions? How long does the buyer expect to maintain the purchasing relationship?

Furthermore, Jimma natural Grade 4 cannot be treated as interchangeable with every Ethiopian coffee. Moonbucks would need to test any substitute against its own blend and quality requirements.

Suppose Moonbucks’ assessment identifies an opportunity to maintain shade trees and restore vegetation along exposed streambanks. The IPCC describes agroforestry as a way to store carbon in vegetation and soil, with potential benefits for erosion control and water quality.1 Moonbucks would need local advice on species, growing conditions and maintenance before deciding how these measures fit its sourcing plan.

The proposal now has a defined sourcing connection and a candidate intervention. The next steps are to test its effect on production, assess carbon eligibility and build the financial case.

3. Compare the proposal with other ways to protect supply

WBCSD’s Nature-based Solutions Blueprint recommends comparing nature-based options with other responses across their benefits and costs.2 For Moonbucks, that means evaluating the landscape proposal alongside drying improvements, storage controls and alternative sourcing arrangements.

The product’s natural-process designation matters. Moonbucks should examine the drying and dry-milling chain alongside land conditions. Its team would check storage practices, contamination risks and incoming-lot quality to see whether problems arise before or after the coffee leaves the farms.

The revised proposal might combine land stewardship with separate post-harvest controls. Each component needs its own purpose and budget. A sustainability label should not obscure which activity is expected to solve which problem.

The project develops as the evidence improves. Its scope should follow the diagnosis rather than preserve the first idea unchanged.

4. Establish what the carbon outcome could count toward

Moonbucks’ sustainability team now tests the proposed carbon case separately from the sourcing case. Is the objective a measurable change in Moonbucks’ value-chain emissions, verified credits for separate voluntary use, or distinct outcomes under carefully defined arrangements?

Scope 3 covers value-chain emissions. A purchasing relationship alone does not prove that a farm intervention can be included in Moonbucks’ inventory. The team needs an applicable accounting method, defensible boundaries and evidence supporting attribution.

SBTi’s FLAG Guidance (forest, land and agriculture), version 1.2, says purchased credits used as offsets cannot meet near-term FLAG or energy and industry targets. Eligible land-based removals are subject to accounting requirements.3 Moonbucks needs to test its proposal against those rules before including an outcome in its targets.

For Moonbucks’ Jimma proposal, maintaining existing trees and establishing new vegetation could involve different carbon questions. Specialists must examine the baseline and additionality, meaning what changes because the project proceeds. They must also assess measurement and the risk that stored carbon is lost. CCC’s MRV and additionality article introduces those tests.

Until that work is complete, Moonbucks should not budget an assumed Scope 3 reduction or credit-sale receipt. Direct emissions reductions remain the priority.

5. Build a financial case that survives weaker assumptions

Moonbucks’ finance team would now build a multi-year budget. UNEP’s State of Finance for Nature 2023 compares current finance with the investment needed to meet climate, biodiversity and land-restoration goals.4 The company would cost its proposed activities, farmer participation and ongoing monitoring. Verification, where required, is a separate expense. Maintenance and responsibility for replacing failed plantings must remain visible after the initial establishment budget ends.

Operational benefits need equally careful treatment. If fewer rejected lots reduce emergency purchasing, count that saving once. Do not add “supply resilience” as another financial benefit when it represents the same avoided cost.

Moonbucks should compare a base case with slower benefits, higher implementation costs and no carbon revenue. It should also distinguish production outcomes from quality and shipment outcomes. A single good harvest would not prove that the landscape intervention caused better delivery performance.

A project can remain worth funding even when its carbon case needs more work. That decision must rest on the operational evidence and the company’s objectives, without unsupported environmental claims.

6. Fund a pilot with a clear expansion decision

Moonbucks’ first approval would fund a bounded pilot, rather than commit the entire sourcing program. Before spending, Moonbucks would agree on participating farms, responsibilities and the evidence needed at review.

Its scorecard could track farmer participation, implementation costs and plant survival, alongside accepted coffee volumes and lot-quality results. Carbon measurements would follow the selected method. Farm-level traceability must connect the intervention to the actual sourcing relationship.

Suppose Moonbucks’ review later finds that storage changes explain most quality improvements, while the land measures need longer observation. Those findings would shape the next decision: expand the proven component, adjust the landscape work or pause further spending. They would not justify crediting all improvements to tree planting.

This gives nature-based carbon investments a practical place in a multi-year strategy. Funding increases as the evidence supports it, and the project can change direction before a larger commitment.

Discuss a sourcing opportunity with CCC

Carbon Credit Capital’s nature-based supply-chain investment service uses its Dual-Value Model to examine supply-chain economics alongside potential sustainability outcomes.

Schedule a consultation to discuss your sourcing exposure and the questions to resolve before allocating capital.

Sources

  1. Intergovernmental Panel on Climate Change (IPCC), Climate Change 2022: Mitigation of Climate Change, Chapter 7, Agriculture, Forestry and Other Land Uses, section 7.4.3.3 (Agroforestry).
  2. World Business Council for Sustainable Development (WBCSD), Nature-based Solutions Blueprint, 5 June 2024.
  3. Science Based Targets initiative (SBTi), Forest, Land and Agriculture Science-Based Target-Setting Guidance, version 1.2, March 2026, section 3.1.4, pp. 37–38.
  4. United Nations Environment Programme (UNEP), State of Finance for Nature 2023, 2023.
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EU carbon credit claims after 27 September 2026

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