Position on the role of international credits in EU ETS and CBAM – April 2026
Discussions on the role of international carbon credits in the EU’s decarbonisation framework are accelerating. The EU’s 2040 climate target foresees a possible, limited use of high‑quality international credits to help achieve a 90% emissions‑reduction objective. In its December 2025 CBAM proposals, the Commission signaled openness to allowing a minor role for such international credits for CBAM compliance. The upcoming EU ETS review in July 2026 now places their potential inclusion formally on the agenda.
The Business for CBAM Coalition considers that international carbon credits, whether or not issued under Article 6 of the Paris Agreement, should be excluded from both the EU ETS (ETS1) and CBAM. This position is based on three core considerations:
- International credits would divert scarce resources for decarbonisation investments in the EU to third countries
The ETS1 Innovation Fund (IF) is heavily oversubscribed, with calls exceeding available resources by a factor of six (IF25 hydrogen auction) to nine (IF24 Net-Zero Technologies call). Many eligible projects cannot be financed due to budget limitations. Because a significant share of ETS1 revenues flows into the IF, allowing international credits for ETS1 compliance would lower the auction revenues in ETS1 and divert essential funding away from Europe’s primary industrial decarbonisation instrument and towards projects outside the EU. Admitting international credits would also expand the pool of compliance instruments against a fixed cap, weakening the scarcity of ETS1 allowances and depressing the ETS1 price. The latter is a dynamic recognised by the Commission itself when it moved to restrict CDM credits and introduce the Market Stability Reserve in response to the post-2012 allowance surplus.
This would fail to address the increasingly complex challenges facing European industry. The upcoming EU ETS review should instead ensure that a greater share of ETS revenues is channelled into EU‑based industrial decarbonisation – through the ETS investment booster, the Innovation Fund, or the future Industrial Decarbonisation Bank (IDB).
- International credits overestimate emission reductions
Experience from the Korean ETS (the only system currently permitting a limited use of international credits) shows that such credits have significantly overstated actual emission reductions. This raises serious concerns for the environmental integrity of both the EU ETS and CBAM. If credits claim to reduce one tonne of CO₂ but deliver materially less, the credibility of the system is undermined. This could erode trust in the CBAM and the EU ETS, weaken investor confidence, and reverse years of progress in strengthening the market.
The EU has been here before. International credits from the Clean Development Mechanism (CDM) were phased out of the EU ETS precisely because of similar integrity concerns, and subsequent peer-reviewed literature (e.g. Probst et al., 2024 and Romm et al., 2025) has confirmed that only a small share of such credits represented genuine, additional emissions reductions. Substantial uncertainty also remains about how any new international credit regime would be designed, governed and used within the EU framework, thereby raising further doubts about their suitability for meeting EU climate objectives.
- International credits reduce regulatory and investment certainty
Some stakeholders argue that international credits could be used if companies were required to surrender a quantity of credits equivalent in value to the ETS1 or CBAM compliance cost. In theory, this would align compliance costs: For example, if it costs EUR 80/tCO₂ for an importer to buy CBAM certificates from national competent authorities or an EU producer to buy ETS1 allowances, while an international credit costs EUR 20, then one could purchase four international credits.
In practice, it is unclear why companies would choose this route. If the compliance cost is equivalent, EU producers and importers are likely to prefer ETS1 allowances or CBAM certificates, which provide full legal certainty. International credits, by contrast, rely on the credibility of emissions reductions that are often geographically distant, methodologically uncertain, and subject to future scrutiny. Such scrutiny could expose projects as overstating their emissions reductions, leaving the buyer of the linked credit retroactively non-compliant. This is a risk that regulated entities in our view will not take where ETS1 allowances or CBAM certificates offer full legal certainty.
For international credits to be commercially attractive, they would need to be priced materially below ETS1 allowances or CBAM certificates. But a credit price significantly below the ETS1 price would weaken the carbon price signal that drives investment in EU-based decarbonisation, and shift abatement outside the Union. International credits therefore either fail to attract demand, or succeed at the expense of the EU carbon price — neither outcome serves the objectives of ETS1 and CBAM.
Concluding remarks: Keep international credits out of the ETS1 and CBAM
International credits, for reasons given before, carry inherent risks regarding their legitimacy and environmental integrity. Future scrutiny could expose projects that fail to deliver the claimed reductions, creating legal and financial exposure for companies. This uncertainty is incompatible with the investment clarity industry requires.
A limited role for international credits may be more appropriate in other parts of the EU climate framework where compliance is assessed at Member State level (such as the Effort Sharing Regulation, ETS-2 or LULUCF), but this is not the case for ETS1 and CBAM.
For these reasons, the Business for CBAM Coalition strongly urges EU institutions to refrain from introducing any link to international carbon credits in either ETS1 or CBAM.
About the Business for CBAM Coalition
The Business for CBAM Coalition brings together businesses and business associations committed to upholding the ambitions of the Carbon Border Adjustment Mechanism (CBAM) and consequently of the EU Emissions Trading System (ETS). Contact the secretariat via info@businessforcbam.eu