International carbon credits under the proposed EU ETS revision and CBAM implementing regulations

In this article, we will examine one of the features of the EU ETS Proposal in more detail, namely the possibility that would be granted for the European Commission to purchase up to 260 million international credits (International Carbon Credits or ICCs). 

Furthermore, we note that the European Commission is also proposing that ICCs may play a role under the EU’s Carbon Border Adjustment Mechanism (CBAM) established under Regulation (EU) 2023/956 of the European Parliament and of the Council of May 10, 2023 establishing a carbon border adjustment mechanism (the CBAM Regulation). The CBAM Regulation is a piece of legislation which complements the EU ETS Directive but which, as we will see, would treat ICCs in a completely different manner, by allowing foreign installation operators to rely on ICCs to (partially) offset their obligations under CBAM.

As we describe in our full report below, both instruments reflect a common institutional caution toward ICCs, but this caution is reflected differently. Understanding the difference matters for ETS-covered operators, for importers into the EU, and for trading partners weighing their own carbon-pricing responses. Download the full report to learn more.