EU climate policy locks in 2.0-2.5°C temperature pathway

CRU’s long-term carbon price forecast quarterly update, published last week, shows a 2% downward revision in 2050 to $204 /tCO2 (real 2023). This is primarily due to lower renewable energy costs resulting from expected reduced storage needs in the optimal EU energy mix. However, the emission reduction target recommended by the incumbent European Commission (EC) – a 90% reduction on 1990 levels by 2040 – not only represents an upside risk, but also has implications for keeping heating below the 1.5°C Paris target. This target will serve as setting intermediate goals between the goal of net-zero at 2050 and the 55% reduction on 1990 levels agreed by the Fit for 55 legislation.

CRU models both the emissions reduction pathway of the Nationally Determined Contributions (NDCs) under the Paris Agreement and a pathway for carbon neutrality by 2050. When compared to either pathway, this new emission reduction target requires greater emissions abatement by 2040 than both.

Furthermore, the rationale for setting this goal is to frontload emission reduction efforts. This new policy shifts the greatest decadal change in emissions from 2020–2030 to 2030–2040, but also lowers the shift required after 2040, when compared to the net-zero pathway. So, while this does frontload emissions efforts before 2040, it also shifts the timeframe for key mitigation efforts from immediately to the 2030s.

The implications of this are two-fold. On one hand, should this proposal be approved by the next EC, to be elected in June, it signals that European efforts to meet net-zero by 2050 will be strengthened and the new goal does significantly frontload abatement efforts into the 2030s. However, based on CRU analysis of global emission trends, given high emissions since the signing of the Paris Agreement in 2015, the 2040 goal will only lock in a 2.0–2.5°C transition at best. That is, while EU policy is more advanced than in most countries, even here, policy is falling behind requirements to keep temperatures within a 1.5°C rise over pre-industrial levels, which suggests significant carbon removal will ultimately be required.

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About the Authors

Samuel Dath , Sustainability Analyst

Sam is a Sustainability Analyst in CRU's London office. He joined CRU in 2023. Prior to joining CRU, Sam worked for 2 years as an ESG Consultant for Deepki, focusing on the impact of ESG performance on real estate valuation and non-financial sustainability and emissions reporting.

Paul Butterworth , Research Manager

Paul moved to CRU's newly-formed Sustainability team in August 2021 where he is working closely with clients and internally on carbon market and energy transition issues. Paul joined CRU in 2012 and, latterly, was responsible for CRU's analysis across the whole steel value chain, from raw materials through to finished steel, as well as CRU's Steel cost services, a comprehensive suite of cost models covering iron ore mining, coal mining, steelmaking and ferroalloys operations worldwide.