The EU's emissions trading system is not only a domestic compliance instrument — it can also be a platform for Europe's global influence, writes Joseph Curtin
Transition credits are a climate finance instrument issued when a coal plant is retired ahead of schedule and replaced with renewables—cutting emissions at source while easing the financial, political, and social costs of transition. Despite their potential, these credits face significant policy barriers in Europe. If there is political will, Europe could revisit its approach—for example in the scheduled EU ETS review in 2026—and create space for this innovation.
Energy abundance is within reach. Thanks to plummeting costs, renewables are now the cheapest source of new power in much of the world. Combined with storage and modern grids, they can deliver clean, reliable, and affordable electricity at scale to vulnerable communities worldwide.
But coal remains deeply embedded in power systems across Asia, Africa, and Latin America. Over 80% of today's operating coal capacity—and nearly all new plants on the books—are in non-OECD countries. Many of these countries want to replace coal—for economic, health, and environmental reasons—but the costs are considerable.
The European Commission's recent 2030–2040 climate proposal offers limited help. It allows only restricted use of international credits after 2035, and only outside the ETS itself. At the same time, the climate debate in Brussels has tilted heavily toward carbon removals—vital technologies, but ones that will scale only over decades. They must not displace the urgent need to reduce emissions now.
Europe, more than any region, understands the risks of international crediting. The EU ETS was once undermined by low-quality CDM credits, leaving a scar that still shapes policy today. The lesson is clear: integrity cannot be compromised. That is precisely why the new Paris Agreement framework is different.
Article 6 introduces host-country authorization, strict double-counting safeguards, and transparent reporting. Transition credits cannot slip in through the back door—every unit must be authorized and accounted for.
What is missing is political will. The ETS is not only a domestic compliance instrument—it can also be a platform for Europe's global influence. By considering whether and how to allow carefully governed international credits in the future, Europe could reassert its leadership while protecting the integrity of its own system. This does not mean throwing the doors open. Europe could use its emerging Clean Trade & Investment Partnerships as a framework under which international transfers of mitigation outcomes (ITMOs) occur under strict safeguards.
Imagine, for example, a Clean Trade Partnership between the EU and the Philippines. The Philippines could authorize ITMOs from early coal retirement projects, with EU oversight ensuring integrity and compliance. Those ITMOs could, in principle, be admitted into the ETS under tightly limited conditions—mobilizing billions in private finance while accelerating the shift from coal to renewables.
The ETS would remain intact, while Europe's influence would expand—anchoring climate cooperation in a rules-based architecture at a time when multilateralism is under strain.
This approach would advance three of Europe's core priorities:
- The Just transition. Directing resources to countries disproportionately locked into coal, enabling a fairer, faster global transition.
- Climate finance. Unlocking capital at the scale needed for early coal retirements in contexts where concessional and domestic resources are insufficient.
- Competitiveness. Giving EU companies a credible, regulated channel to support decarbonization abroad while competing with firms in higher-carbon economies.
The alternative is stark: a Europe that perfects its internal carbon accounting while the world burns.
The task now is to apply integrity rigorously while embracing openness where the impact is greatest. If Europe were to take that path, billions in private investment could flow to early coal retirement, accelerating emissions reductions, improving health, and bringing clean energy abundance within reach.
Climate change will not be solved by Europe acting alone. It will be solved if Europe leverages its market power, diplomacy, and credibility to accelerate the coal-to-clean transition globally. By unlocking transition credits, Europe would not dilute its 2040 pathway—it would reinforce it, embedding ambition into the international system that Europe itself depends on.
Dr Joseph Curtin is Vice President, Energy Transitions at The Rockefeller Foundation.