The European Commission has put forward new plans to cut emissions under the EU carbon market more slowly, from 2031 onwards.

On 17 July, the commission presented its long-awaited proposal for reform of the EU’s Emissions Trading System (ETS).

It recommended a number of changes, including giving companies free allowances to cover their emissions for longer than previously planned, conditional on climate investment plans.

The proposal offers a more business-friendly and “savvy” approach, argued EU climate commissioner Wopke Hoekstra in a press conference.

But critics believe it could “weaken” the system and put EU climate targets at risk.

Alongside the proposal, the commission also announced a new target for electricity to make up 46% of energy consumption by 2040, doubling the current rate of 23%.

This could cut EU spending on imported fossil fuels by €260bn annually, according to the commission.

In this Q&A, Carbon Brief outlines the details of the new ETS proposal – which is subject to negotiation with member states – and explores what it could mean for climate action.

• What is the EU Emissions Trading System?
• What did companies and countries want from the ETS review?
• What is in the new proposal from the European Commission?
  • Free allowances extended
  • Slowing path to reach zero emissions by a decade
  • Aviation
  • Auction money
  • CO2 removals
  • International credits
  • Other sectors extended
  • Market stability reserve review
  • UK-EU ties
• What could the changes mean for greenhouse gas emissions?
• How was the proposal received?
• What is ‘ETS2’?
• What happens next?

What is the EU Emissions Trading System?

The EU ETS is a carbon market, which puts a price on the greenhouse gas emissions of companies in power generation, industry, aviation and other sectors.

It covers everything from electricity generation to steel production, as well as flights within the EU and a handful of other European countries.

Emissions in these sectors have halved since the ETS launched in 2005, according to the European Commission.

A European parliament briefing describes the system as a “cornerstone” of EU climate policy, covering around 40% of the bloc’s overall emissions.

It applies to emissions in all 27 EU countries alongside Iceland, Liechtenstein, Norway and electricity generation in Northern Ireland. (The UK established its own ETS after Brexit.)

The ETS operates as a “cap and trade” system, which puts a limit on the amount of carbon dioxide equivalent (CO2e) that can be emitted within the sectors it covers.

The “cap” on emissions gradually decreases each year until, eventually, they are expected to reach zero.

The currency of trade within the system is “allowances”. One allowance is equal to one tonne of CO2-equivalent emissions.

At present, around 57% of these allowances are bought by companies in auctions. The EU generated around €43bn in revenue from these auctions in 2025.

The remaining 43% of allowances are given to companies for free, to cover some or all of their emissions.

This is intended to prevent “carbon leakage” – the idea that companies operating in countries with strict climate policies will relocate to countries with looser rules.

The amount of free allowances varies by sector, depending on factors including the level of competition with overseas firms that do not face a carbon price.

What did companies and countries want from the ETS review?

Countries and companies have been divided on how they wanted the ETS to evolve.

Some pushed for more ambition to help meet European climate goals. Others called for it to be rolled back, amid rising costs for businesses.

In March, 10 countries including Italy, Hungary and Poland wrote a letter to the commission calling the ETS an “existential risk” for key industrial sectors, reported Euronews.

Italy had earlier even called for the system to be suspended outright.

France and other countries favoured introducing a slower descent towards bringing the emissions cap to zero by 2039.

Some steel and chemical companies also criticised the cost burden of the ETS.

Other organisations focused on calls for stability and predictability in the system.

In recent weeks, Spain, the Netherlands and five other countries called on the commission to “resist gutting” the ETS in its review, said E&E News. They said the ETS should be strengthened to “ensure long-term investment predictability and regulatory stability”.

Weakening the system could “undermine investment signals and leave Europe more exposed to fossil-fuel shocks”, said a March 2026 briefing from climate thinktank E3G.

Another E3G briefing said the “risk” is that politicians weaken the system as a short-term economic fix, “undermining one of the EU’s main tools for delivering on its industrial transformation ambitions”.

Dozens of investment organisations called on EU countries to facilitate a “robust and predictable” ETS. They said that “policy stability is the cheapest investment stimulus available to the EU”.

In its list of priorities for ETS reform, the NGO Carbon Market Watch said that “now is not the time to backslide” on its aims and terms.

What is in the new proposal from the European Commission?

The commission’s proposal outlines a number of changes to the ETS, to bring it in line with the EU’s climate goal to cut emissions to 90% below 1990 levels by 2040.

The review will “bring relief to industry”, the commission says, while also continuing the ETS’ “essential” role in climate action.

However, others are more sceptical about the impacts it could have on climate action.

Below, Carbon Brief details the main aspects of the proposal.

Free allowances extended

The European Commission proposes to extend free allowances beyond a previously agreed date.

Free allocations were due to reduce from this year and be fully removed by 2034.

However, the commission has proposed to extend this to 2038, on the condition that companies receiving free allowances set out how they will invest in decarbonising their EU operations.

It proposes that from 2031 onwards, 80% of free allowances in the system would be given to companies that have submitted plans for investment in EU decarbonisation.

The remaining 20% of free allowances would only be allocated to those that can prove they followed through with planned investments and achieved the emissions reductions they had previously outlined.

This move is a “step in the right direction”, says Dr Kirsten Scholl, the director for EU affairs at thinktank Epico, but it must not “impose excessive administrative burdens”.

The EU’s carbon border adjustment mechanism (CBAM) was designed to replace the existing system of free allowances in the ETS.

It is a tax applied to certain imported goods, based on the amount of CO2 emissions released during their production. It began to be phased in at the start of 2026.

As a result, free allocation is being gradually phased out from 2026-38.

However, the commission has proposed that 15% of free allocations due to be removed because of CBAM should be reintroduced from 2028, to “reduce the speed at which CBAM is phased-in and mitigate the remaining carbon leakage risk”.

The commission says that preventing carbon leakage “remains a crucial element” of the ETS.

Pushing back the phase-out of free allowances and the full implementation of CBAM “risks squandering the EU’s credibility with investors and trading partners alike”, says Francesco Lombardi Stocchetti, a policy advisor on sustainable economy at the Bellona Foundation, an environmental NGO.

“Europe cannot lead the clean industrial transition just by moving the goalposts,” he adds in a statement.

Slowing path to reach zero emissions by a decade

The commission has proposed to cut emissions in the ETS more slowly from 2031 onwards.

This could mean new allowances are able to enter the scheme into the 2040s, instead of ending in 2039 as previously planned.

But the planned changes are still “aligned” with the EU’s 2040 climate target and net-zero requirement by 2050, says the commission.

The overall ETS cap on emissions was reduced by 1.7% each year up to 2020 and then by 2.2% annually since 2021.

It is then agreed to drop by 4.3% over 2024-27 and 4.4% from 2028 onwards.

Maintaining similar rates after 2030 would not be “realistic”, says the commission’s proposal.

Instead, it suggests that the cap should fall by 3.7% per year over 2031-35 and by just 1.7% annually over 2036-40.

This will make the path to zero emissions within the ETS “more gradual and aligned with domestic climate ambition level”, claims the commission.

But WWF says that the proposal would allow an extra 2bn tonnes of CO2e to be emitted. (See: What could the changes mean for greenhouse gas emissions?)

Aviation

The commission has proposed plans to incorporate more airline emissions into the ETS.

The plan outlines that, from 2029, all flights departing from the European Economic Area (EU, Iceland, Liechtenstein and Norway) and landing in other countries within 5,000km of a point in central Europe should be added to the ETS.

This distance means that the changes would not apply to flights landing in China or the US. (Both the US and China have opposed the expansion of ETS coverage for flights.)

The commission also proposes including emissions from private jets and other “business flights” in the ETS.

It notes that aviation currently accounts for 14% of EU transport emissions. This is expected to skyrocket to around 90% by 2050, given it is more difficult to decarbonise than other modes of transport.

Some aviation emissions have been included in the ETS since 2012. This included emissions from air travel within the EEA and flights departing from Switzerland and the UK.

The airline industry did not respond favourably to reports of plans to expand beyond this scope.

On 8 June, the biggest airlines in Europe urged commission president Ursula von der Leyen not to extend the ETS to cover international flights, saying that it would raise ticket prices.

A study commissioned by Carbon Market Watch found that the ETS encompassing all flights departing from the EEA, not just those within it, would result in a “very small impact on ticket prices and passenger demand”.

Auction money

Under the proposed changes, EU countries would need to funnel half of the money they receive from ETS auctions towards decarbonising sectors covered by the system.

This would amount to more than €100bn in investment for decarbonisation before 2030, says the commission.

Around three-quarters of the money generated by the ETS has been allocated to EU countries since 2013, the proposal notes.

Since 2023, countries have been required to spend all of this money on climate and energy-related activities – at least on paper.

But the proposal says the “transparency and effectiveness” of this mechanism has been “insufficient”.

Currently, only around 5% of the ETS money “directly supports industrial decarbonisation in sectors such as steel, chemicals and fertilisers”, it adds.

Going forward, the proposal says that 50% should be put towards actions aiding clean-energy plans, industrial decarbonisation and improved waste management, as some examples.

A briefing by thinktank Institut Montaigne noted that the money generated within the system for EU countries to help finance the energy transition should be “at the heart” of ETS discussions, amid budget constraints in many EU countries at the moment.

CO2 removals

The commission has proposed integrating permanent carbon removals into the ETS to “give additional flexibility” for certain sectors that struggle to decarbonise. This action was previously agreed within the terms of the EU’s 2040 climate target.

“Permanent” removals refer to direct air capture with carbon storage and similar measures, rather than temporary removals such as planting trees.

The removals would be integrated into the system by increasing the allowance cap by an amount equivalent to the number of removals purchased.

This will set up “additional emission space” for hard-to-abate sectors and also support the “scale-up of the carbon removals industry”, outlines the proposal.

It also proposes that certain companies, such as shipping and aircraft operators, could compensate for their emissions with their own certified carbon removals.

These emissions would not be permitted to “go beyond zero”, adds the proposal.

Sven Harmeling, the head of climate at Climate Action Network (CAN) Europe, says that adding carbon removals “would weaken the ETS impact, undermine the carbon price and create new loopholes for polluters instead of accelerating the transition away from fossil fuels”.

The proposal “fails to ensure that only high-integrity removal technologies would be considered”, he adds in a statement.

However, the director of the Potsdam Institute for Climate Impact Research, Prof Ottmar Edenhofer, describes the move as “an important step”, saying:

“For the first time, it creates a credible and long-term investment framework for carbon-removal technologies in Europe.”

International credits

The commission proposes that firms covered by the ETS could make use of “high-integrity” credits bought on the global carbon market from 2036 onwards.

This relates to the EU’s 2040 climate target, in which up to 5% of the 90% reduction in GHGs can come from global carbon credits.

Amélie Laurent, a policy advisor in carbon accounting at the Bellona Foundation, says in a statement that these credits “should be in a strategic last resort reserve, not an excuse to avoid doing our homework”.

Aurora D’Aprile, the EU policy director at the International Emissions Trading Association, notes in a statement:

“For international credits, early preparation on governance and procurement and greater certainty around a pilot from 2031, will be essential to establish a credible demand signal.”

Other sectors extended

The commission has outlined plans to expand the inclusion of the maritime sector in the ETS.

Maritime accounts for around 4% of the EU’s total emissions. The new proposals for the sector include adding certain small ships of 400-5,000 tonnes to the system.

The proposal also outlines plans to incorporate more waste incineration into the ETS on a gradual basis from 2031.

Since 2024, some waste-burning companies have been required to monitor and report their emissions under the ETS. But they did not have to purchase credits.

Now, the commission proposes introducing the sector on a gradual basis.

Under the proposals, companies would require allowances for 25% of their emissions in 2031, 50% in 2032, 75% in 2033 and 100% from 2034 onwards.

Market stability reserve review

The market stability reserve was added to the ETS in 2019 to help stabilise the flow of allowances.

It acts like an overflow container holding extra allowances. If the number of allowances in the market falls below a certain threshold, more are brought out from the reserve to balance things out.

Equally, if the market is flooded with too many allowances, depressing prices, then some are removed and put into the reserve.

The commission has proposed a reform of the reserve, including changing the upper and lower limits for when allowances are released or removed.

It wants to reduce the rate at which allowances are withdrawn from auctions when they exceed a certain threshold from 24% to 12% from 2028.

This means that the permits would be able to stay in the market for longer.

As shown in the chart below, the price of carbon in the EU increased tenfold over 2017-2021, exceeding €80 (£68) per tonne of CO2.

Nevertheless, the commission proposal says the reserve was “effective in mitigating price shocks” on the ETS caused by the Covid-19 pandemic and the surge in energy prices after Russia invaded Ukraine in 2021.

UK-EU ties

The EU and UK have agreed in principle to link their carbon markets, but the commission’s proposal says negotiations are still “under progress”.

It adds that the commission “foresees” future financial contributions from the UK to the EU’s ETS, if a final agreement is reached.

Many companies have called for the systems to be linked. In June, dozens of carbon-capture organisations and industry groups signed a letter calling for greater certainty on EU-UK links to ensure cross-border carbon-capture and storage projects are covered, for example.

Switzerland’s ETS has been linked to the EU since 2020.

What could the changes mean for greenhouse gas emissions?

The European Commission says the ETS plays a “crucial role” in meeting its climate targets “cost-effectively”.

The system contributed to a 41% reduction in EU industrial emissions over 2021-23, a decrease of around 800m tonnes of CO2 per year, according to recent analysis from the London School of Economics.

As highlighted in the chart below, the EU’s overall GHG emissions have dropped by 40% since 1990.

Climate commissioner Hoekstra told a press briefing that the proposal is “fully aligned” with the EU’s target to cut GHGs to 90% below 1990 levels by 2040. He called the plan “completely climate-law proof”.

He also noted that no other EU policy has contributed to reducing emissions on the scale of the ETS, describing it as a “phenomenal asset”.

But campaigners and experts are concerned that the proposed changes could slow decarbonisation and put the EU’s climate goals at risk.

Carbon Market Watch says the plans would “severely weaken” the ETS and “risk undermining the achievement of the EU’s 2040 and 2050 climate targets”.

The proposals “would represent a major setback for EU climate ambition, weakening incentives to cut emissions, extending reliance on fossil fuels and putting the 2040 climate target at risk”, says a statement from WWF.

WWF estimates that 2bn extra tonnes of CO2 would be emitted if the proposals were approved in the EU.

Michael Bloss, a German member of the European parliament (MEP) for the European Greens, says the plans would release around 1.4bn tonnes of extra CO2. He describes the proposal as “climate vandalism”.

Chiara Martinelli, the director of CAN Europe, says:

“Every extra tonne of CO2 allowed under the ETS makes Europe’s climate challenge harder and more expensive. Weakening the ETS now is a gift to polluters that have prioritised shareholder payouts instead of investing in cleaner production.”

How was the proposal received?

The European Commission’s new ETS proposal has been met with a mixed response.

Scholl from Epico says the proposal has “important flexibilities that can help address competitiveness challenges and provide greater certainty for industrial investment”. But she adds in a statement:

“Concerns remain about whether the proposed changes preserve the long-term investment signal of the ETS and sufficiently recognise companies that have already committed to ambitious decarbonisation pathways.”

Edenhofer from the Potsdam Institute for Climate Impact Research adds that the proposals provide “clarity on the contribution that emissions trading is intended to make towards the 2040 climate target”.

Elisa Giannelli, a programme lead at E3G, says in a statement:

“Today’s proposal might please some, but it risks increasing both the long-term cost and the time needed to deliver the EU’s growth strategy.”

Pepe Escrig, a senior researcher, also at E3G, adds that the commission held onto some of the ETS’ “essential foundation”, but “yielded to political pressure to weaken it as a quick fix to broader challenges”.

This has left the plan “pull[ing] in two directions: strengthening support for industrial investment while weakening parts of the framework meant to drive it”, says Escrig.

Andrea Spignoli, the policy manager of sustainable markets at Bellona Europa, says the proposal risks “weakening green investments” and putting a larger decarbonisation burden onto other sectors that are not covered by the ETS.

Greg Van Elsen, a senior industrial policy coordinator at CAN Europe, says in a statement:

“Free pollution permits were never meant to become a permanent subsidy. Extending them until 2038 rewards delay instead of industrial decarbonisation.”

Lobby groups also had mixed reactions to different aspects of the proposal.

The International Air Transport Association says it is “deeply frustrated” with the proposal.

The organisation’s director general, Willie Walsh, claims the consequences will be “harmful”, “sowing acrimony over extraterritoriality, slowing global decarbonisation and sapping European competitiveness”.

WindEurope says the proposal risks “slowing decarbonisation and failing to channel billions in ETS revenues to industrial electrification”.

BusinessEurope’s director general, Markus J Beyrer, says some aspects “raise concerns”. For example, he says the “new conditionalities for free allocations risk increasing bureaucratic complexity and the uncertain role for international carbon credits”.

What is ‘ETS2’?

ETS2 is a separate emissions trading system to the main ETS. It is due to take effect in 2028 and is not affected by the current ETS review or resultant proposals.

It will operate under a similar system as the existing ETS, covering emissions from transport, buildings and smaller industries in other sectors.

One key difference, however, is that ETS2 will not provide any allowances for free. They will all be auctioned and bought by companies.

On 15 July, 10 countries, including Italy and Poland, had urged the commission to also reconsider the ETS2 during this review. They were unsuccessful.

Similar to the original ETS, the commission believes the carbon price under the new ETS2 system will “provide a market incentive for investments in building renovations and low-emissions mobility”.

However, in June, member-state governments and the European parliament agreed on a number of “safeguards” to support price stability.

For example, if allowance costs under the ETS2 exceed €45 per tonne of CO2, they agreed that 40m allowances will be put into the system from a reserve to normalise the supply – double the amount previously agreed.

A European Environment Agency briefing said the ETS2 will “affect fuel prices and mobility costs” and that money will be syphoned into a social climate fund to “support vulnerable households and investments”.

What happens next?

EU countries will now negotiate over the terms of the commission’s proposal before it goes to a vote in the European parliament.

Ireland, which recently took over the six-monthly rotating presidency of the Council of the EU, has stated that it wants the ETS proposals to be signed off by the end of this year.

A previous document from the council, which represents member-state governments, outlined a target to agree a deal by the first quarter of 2027.

Clean Energy Wire says that this would be an “unusually ambitious timetable for one of the bloc’s most technically complex pieces of climate legislation”. 

Politico notes that “months of arguing” is likely to occur.

The post Q&A: What the EU’s carbon market review means for climate action appeared first on Carbon Brief.

Q&A: What the EU’s carbon market review means for climate action

Scientists have found that the deadly floods across parts of West Africa in recent weeks were made more likely and intense by human-driven climate change, while the expansion of cities into flood-prone areas amplified the devastation, raising the thorny problem of how to better protect poorer urban communities. 

A report from the World Weather Attribution (WWA) group highlighted how the floods hit some of West Africa’s most densely populated coastal regions, where rapid urbanisation has pushed formal and informal settlements dangerously into floodplains, while converting land into farms has reduced drainage.

Since May, West African countries including Ghana, Togo, Côte d’Ivoire and Nigeria have experienced weeks of torrential rain and deadly flash floods. Homes have been submerged, thousands of people displaced and over 70 people killed.

WWA scientists said climate models showed that human-induced climate change increased the intensity of the rainfall, with what was once a rare amount of rain falling in just three days – a downpour that can now be expected every two to four years.

“The event is not rare already today and therefore the flood risk is certainly not going away but will increase in particular with additional pressures from growing populations and urbanisation,” said Friederike Otto, a professor of climate science at Imperial College London.

Impact made worse by informal settlements

On top of climate change, scientists said urbanisation, inadequate drainage, poor waste management and the expansion of informal settlements into floodplains have left millions more people exposed to flooding.

Informal settlements are neighbourhoods which develop without authorisation from government authorities. More commonly known as slums or shanty towns, they often lack land tenure and services like running water and electricity and tend to be home to poorer communities.

Across West Africa and much of the developing world, as people have moved from rural areas to cities in search of work, these settlements have expanded into wetlands, flood-retention areas and riverbanks. This has further heightened flood risks across West African cities.

Kiswendsida Guigma, technical advisor at the Red Cross Red Crescent Climate Centre, said West Africa’s coastal cities are being “squeezed between repeated flooding and rapid urban growth”, pushing infrastructure beyond its limits and making it harder for communities to recover.

Roussel Teguia, a post-doctoral research fellow at Canada’s Université Laval, said the recent floods have exposed longstanding failures in urban planning across West Africa’s fast-growing coastal cities where much of the region’s economy is concentrated.

Campaigners oppose Dangote’s planned Kenya refinery over climate and ecological risks

Teguia said the floods are deadlier due to factors including rapid urbanisation in low-lying areas, lack of affordable housing alternatives and the long-standing marginalisation of poor communities. He also condemned the destruction of wetlands, mangroves and floodplains for roads and buildings when instead these natural bodies “should be treated as critical public safety infrastructure”.

“These floods should not be understood only as natural disasters,” he said. Residents of informal settlements must stop being treated as the problem, since they are often the first victims of “an urban model that exposes them to risk and then blames them for being exposed”, he added.

Short-sighted approach to relocation

Cote d’Ivoire’s capital Abidjan recorded 59 of the deaths, with about 20 dying in the densely-settled slope neighbourhood of Mossikro. Local media reported that authorities had previously relocated residents from this area due to fears about vulnerability to deadly landslides and flooding, but some people had returned to previously evacuated sites and died when the hillside collapsed due to the rain.

Local authorities have since started demolishing houses in the area, to the anger of many locals who say they were not consulted or warned about the demolitions, which are costing them their properties and livelihoods. “If you destroy this place, where am I supposed to go?” one unnamed resident told Al Jazeera.

The government says many of the structures were built illegally in flood and landslide-risk zones and it plans to move 3,000 people first and 2,000 more later. Municipal official Yue Hilaire told the TV channel the municipality has been trying to persuade them to leave for a long time. “Frankly we are tired,” he said. “The mayor instructed us to evict them because we don’t want to witness another tragedy every year.”

Loss and damage fund delays first project approvals as needs dwarf resources

Guigma said that to avoid people returning, the government should ensure that “where people are relocated they also have relatively good economic opportunities for them to stay”.

Demolishing poor people’s homes without offering real alternatives is not prevention, Teguia argued, calling on governments to provide safe, serviced and affordable land close to jobs and transport, stop the occupation of wetlands and regulate powerful land owners and users.

Relocation programmes often fail because they are designed as land-clearing or security operations rather than social processes, he explained.

Governments must move from reactive crisis management measures to a long-term comprehensive approach to risk, Teguia said. Relocation policies need to be just, fairly compensated, include affected communities and encompass economic and social networks – otherwise they “simply move the vulnerability elsewhere”, he warned.

Finance gap limits flood response

The WWA scientists said deadly floods will continue unless governments do more to reduce people’s exposure and vulnerability, calling for investments in safe and affordable housing, improved drainage and sanitation, stronger enforcement of building regulations, more effective early warning systems and greater involvement of at-risk communities in planning.

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Joyce Kimutai, research associate in extreme weather and climate change at Imperial College London, said the study is a clear example of “the need for international cooperation on climate justice”, adding that developed countries have a responsibility to help nations like Togo, Cote d’Ivoire and Ghana to adapt to a worsening problem that, as low emitters of greenhouse gas, they did not cause.

But significant financial support for countries grappling with increasing climate disasters may still be some way off. Earlier this month, the UN’s fledgling Fund for Responding to Loss and Damage (FRLD) postponed approving its first round of projects after requests for support far exceeded the money available.

One of the roughly 180 submissions the fund received was a Nigerian recovery and resilience project to address flood losses and damage in Lagos which is prone to yearly flooding. 

Otto of Imperial College London said such situations where the role of climate change is certain “should be the kinds of events where this fund should pay and help, but of course, that would require first money to be in the fund”.

Ghana and Togo have also identified increasingly frequent flooding as a major climate risk in their national adaptation plans, prioritising investments in drainage, resilient infrastructure, flood management, early warning systems and climate-resilient urban planning.

Most “zombie credits” locked out of new UN carbon market after China and India snub

But while these adaptation plans acknowledge that delivering the proposed measures requires more international aid, wealthy nations are likely to have missed their 2025 goal of doubling adaptation finance for developing countries. Funding reached just over $30 billion in 2024, far below the target of $40 billion by 2025.

The WWA findings underscore the urgent need to speed up support for vulnerable communities who have done little to cause climate change, said UN Climate Change Executive Secretary Simon Stiell, adding that “all climate finance commitments must be delivered in full”.

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Flood deaths in West African cities raise fraught issue of slum evictions

China and India have declined to back any of their old United Nations carbon credit projects seeking to sell offsets under the new UN market, driving a cull of nearly three-quarters of applicants, analysis of official data shows.

Only 415 out of more than 1,500 projects and programmes hoping to move from the Clean Development Mechanism (CDM) to the new carbon market set up under Article 6.4 of the Paris Agreement won the approval of their host governments by the 30 June deadline – a crucial step in transitioning them.

The two Asian giants, home to two-thirds of all applicants, account for the bulk of the exclusions. Brazil, the other heavyweight of the CDM era, took the opposite path, approving nearly all of its projects in a last-minute rush that leaves it with the largest number of activities still in the running to sell credits under the new mechanism.

Carbon market watchers have long regarded the CDM, set up under the Kyoto Protocol which has now been largely replaced by the Paris Agreement, as largely discredited for failing to drive real emission cuts. They also warned that letting its projects live on could dent confidence in the mechanism’s successor.

If all projects seeking transition had been successful, they could have flooded the market with up to more than 900 million credits generated with largely outdated rules, according to UN estimates. One credit is equivalent to one tonne of carbon dioxide (CO2) and 900 million tonnes is similar to Japan’s annual emissions.

‘New era’

Injy Johnstone, senior research fellow at the Munich-based Max Planck Institute, said the failure of most projects to clear the hurdle sent a significant signal that carbon trading had entered a new era. “The system is trying to remove some of the hot air that had inflated it in the past,” she told Climate Home News.

“The lack of transition is the biggest contribution that Article 6 has made to climate yet,” she added, arguing that leaving “zombie credits” in the market creates confusion, especially for buyers that might not realise these units have lost their value.

Among the schemes that failed to win government approval are nine programmes promoted by fossil fuel companies over a decade ago to subsidise the construction of gas plants in the Global South, which Climate Home News has previously reported on.

Fossil fuel firms seek UN carbon market cash for old gas plants

But one of them, supporting the Ressano Garcia gas plant in Mozambique, could still profit from the new market after the country’s government granted its approval on deadline day itself.

Brazil leads projects transition

Established in 1997 under the Kyoto Protocol, the CDM allowed rich countries to meet part of their climate obligations by financing emission-cutting projects in poorer ones. It drew widespread criticism over its patchy human rights record and for failing to deliver promised climate benefits. Backers of the Article 6.4 market say it is a higher-integrity successor.

CDM projects were given a route back into the new mechanism under certain conditions at COP26 in Glasgow in November 2021, when governments agreed the rules for the Paris Agreement market.

Project developers had until the end of 2023 to apply and host governments were originally given until the end of 2025 to grant approval. But, after requests from many developing countries for an extension, at COP30 in Belém countries agreed to push the deadline back six months to the end of June.

Brazil was the single largest beneficiary of the decision, with all of its 92 approvals coming during the extension window. Hydropower plants, landfill gas schemes and wind farms make up the bulk of the South American country’s surviving portfolio, and hydro is the single most common project type in the global transition pipeline.

Peru greenlit the move of nearly a dozen hydropower plants, Thailand backed a batch of biogas and waste-to-energy schemes, and Mexico squeezed all of its approvals – including a controversial industrial gas project – into the final week. African nations including Zambia, Malawi and Ethiopia backed programmes aiming to switch households to cleaner cooking stoves, which have the potential to generate millions of offsets and are set to be the biggest source of credits among the surviving projects.

Long way from selling credits

Securing government support does not mean a scheme can now automatically sell credits under the Article 6 mechanism. Developers are required to submit additional documentation by the end of 2026 demonstrating that their programmes respect the mechanism’s stricter rules on environmental and social safeguards and on the risk of emission cuts being reversed. The Article 6.4 Supervisory Body, the mechanism’s regulator, has the final say on which projects are allowed into the market.

Those that make it through can sell credits for emission reductions achieved between 2021 and 2025 under the old CDM methodologies, with some adjustments aimed at preventing the creation of excess credits not backed by real emission cuts. For reductions achieved from 2026 onwards, projects will need to switch to new methodologies, which the regulator is currently developing.

So far, 30 programmes have completed the process, and only two cookstove projects in Myanmar have been formally approved to issue credits.

Civil society groups have called for an investigation into the activities in Myanmar over its ties to Myanmar’s military junta – which the UN says is guilty of human rights abuses – and allegations of “massively” overstating its climate impact.

The company behind the scheme said its engagement with authorities “should not be interpreted as political endorsement” of the junta, while disputing the calculations underpinning the claim that too many credits had been issued.

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Most “zombie credits” locked out of new UN carbon market after China and India snub