Trésor-Info - Publications de la direction générale du Trésor - EU

The Role of Carbon Credits in Financing Global Climate Goals

2025-11-25T00:00:00+01:00

Carbon credits are financial instruments aimed at supporting greenhouse gas emission reduction or carbon removal projects, especially in developing countries. Businesses use them to offset some of the emissions generated by their operations (offsetting) or to demonstrate their environmental commitment (contribution), for example by funding afforestation projects.

Carbon credits, which help to raise private-sector funding for climate initiatives, are instruments that can be used alongside, but are distinct from, emission trading schemes such as the European Union Emissions Trading System (EU ETS).

In 2024, around $500m in credits were traded on carbon credit markets globally. These markets are experiencing a crisis due to supply-side quality issues as well as challenges to the credibility of the principle of offsetting emissions owing to several greenwashing scandals. Several public- and private-sector initiatives are nevertheless seeking to better regulate practices to ensure the market’s credibility and real climate benefits. The establishment of an international carbon credit trading scheme is foreseen by the Paris Agreement on climate change, with the aim of providing a firm foundation for the market and fostering climate cooperation between countries.

EU Member States have adopted a climate target for 2040 that will allow high-quality international carbon credits to be used to contribute up to 5% towards the target, thereby helping to achieve European climate goals cost-efficiently by raising EU funding for projects outside the bloc. In addition, the European Commission has proposed to integrate permanent carbon removal projects, located on European soil, into the EU Emissions Trading System (EU ETS).

The EU Single Market, a Driver for Economic and Trade Integration

2024-03-05T00:00:00+01:00

The single market plays a central role in European integration, and its purpose is to ensure the political stability and economic prosperity of its Member States. As of 2023, the market included 27 countries, 23 million businesses and nearly 450 million people, making it the world’s largest developed market. Within this market, economic and financial relations between Member States are very close (see Map on this page).

The EU single market has met its initial expectations, promoting innovation, boosting productivity and enabling convergence in the European Union (EU). The strengthened internal economic relations and economic convergence made possible by the single market have helped significantly raise incomes and the standards of living in EU Member States.

Between 1984 and 2019, EU economies’ goods export structures have become more similar, most likely reflecting the development of intra-industry trade. The single market has therefore not led to increased relative specialisation within the EU, where each Member State would have specialised in different sectors.

A Carbon Border Adjustment Mechanism for the European Union

2021-03-23T00:00:00+01:00

To achieve carbon neutrality by 2050, the European Union (EU) recently raised its greenhouse gas emissions reduction target for 2030 and plans to strengthen its climate policy instruments, starting with its carbon pricing policy via the Emissions Trading System (EU ETS).

As a result, the divergence with third countries level of carbon pricing (see graph) is expected to widen, posing an increased risk of carbon leakage for the EU. This phenomenon occurs when emissions in third countries increase after a country or region adopts more ambitious climate policies. This undermines the effectiveness of climate policies.

Ex ante modelling estimate carbon leakage to be in the range of 5-30%: in other words, for every 10 tonnes of emission reductions in the country or region implementing more ambitious climate policies, emissions in the rest of the world increase by 0.5-3 tonnes. Whilst it has proven difficult to detect carbon leakage empirically at EU level, in part because of low carbon prices in the past, more recent data suggest that carbon leakage is already taking place.

In June 2021, the European Commission will put forward its proposal for an EU carbon border adjustment mechanism (CBAM). Under this mechanism, EU carbon pricing would apply to imported goods in the same way as for emission-intensive goods produced in the EU. The aim is to tackle carbon leakage more effectively than existing instruments, within a framework compatible with World Trade Organisation (WTO) rules.

The EU CBAM must address a number of legal, technical, economic and political challenges. France has put forward proposals on how to tackle these challenges, favouring a gradual approach based on a system of allowances that mirrors the EU ETS and which accounts for the climate policies and levels of development in third countries.