The proposal aims to address concerns that international carbon credits can encourage greenwashing or reward actions that would have happened regardless of external financing. Critics have long argued that countries may set weak climate targets initially to secure larger rewards later, while some emissions reduction projects lack genuine additionality.
“Our analysis shows that the international flexibility built into the EU’s 2040 climate target should not simply be dismissed as a questionable substitute for political ambition at home,” said Ottmar Edenhofer, director of PIK and Chair of the European Union climate advisory board. “Rather, climate protection beyond our borders acts as a stabilising mechanism. It ensures that ambitious climate policy in Brussels remains realistic in the future, regardless of what is decided in Beijing or Washington.”
According to the study, all developing and emerging economies with a proven record of strengthening climate policies would be eligible for funding under the proposed framework. Countries would compete for a fixed pool of finance, with rewards linked to measurable performance against common benchmarks.
“The option of crediting climate protection efforts beyond one’s own borders is an opportunity if it is designed correctly,” said Lennart Stern, researcher at PIK and co-author of the study. “To avoid the perverse incentives of previous voluntary carbon markets, we propose a more efficient framework. Brussels would provide financing via so-called Jurisdictional Reward Funds as remuneration for efforts made by governments outside the EU.”
One example cited in the study is forest conservation. Countries that reduce deforestation beyond a universally established benchmark could receive higher payments from the fund. The mechanism is designed to reward additional and above-average climate action rather than simply financing existing programmes.
The researchers estimate that achieving emissions reductions equivalent to 5 per cent of 1990 European Union emissions through the scheme would cost around €5 billion in 2040, or about €21 per tonne of carbon dioxide (CO2) avoided.
The study suggests the most cost-effective allocation of funding would direct 62 per cent toward coal phase-out efforts, 32 per cent toward reducing oil and gas production, and 6 per cent toward forest conservation.