The update to the European Climate Law and the recent revision of the Greenhouse Gas Emissions Trading System (EU ETS) have brought the topic of carbon credits back to the center of public and industry debate. These credits are often cited as a potential tool for offsetting obligations under ETS2, the new European system for buildings, road transport, and other sectors.
This, however, is not reflected in current European Union law and risks fueling expectations that are inconsistent with the current regulatory framework.
Alongside this, however, a second area of growing interest is emerging, distinct from the ETS but entirely legitimate: the development of local carbon credits along companies' supply chains. This area, while not impacting ETS2 compliance, has significant implications for industrial strategy, sustainability reporting, and competitive positioning in the medium to long term.
ETS2 was introduced by Directive (EU) 2023/959, which amended Directive 2003/87/EC, and was implemented in Italy with Legislative Decree No. 147 of 10 September 2024. The new system extends carbon pricing to fuels used in buildings, road transport, and other sectors not included in ETS1, adopting an upstream model for regulated entities—suppliers who release fuels and motor fuels for consumption—and a downstream model for end consumers, to whom the costs will be progressively passed on.
ETS2 does not provide for free allocations; therefore, emission allowances must be purchased entirely at auction. Monitoring, reporting, and verification obligations have been in effect since 2025, while the launch of the market and the obligation to surrender allowances is set for January 1, 2028.
The current legal framework is unequivocal: ETS2 obligations can only be fulfilled through the surrender of EUA2 allowances. The use of carbon credits, whether international or domestic, for compliance is not permitted. Any direct offsetting therefore remains legally inadmissible under current legislation.
Part of the confusion surrounding this issue stems from the frequent reference to the 5% threshold, sometimes presented as a window of flexibility also applicable to the ETS. In reality, this reference belongs to a completely separate regulatory framework, linked to the definition of the European Union's new 2040 climate target, which calls for a 90% reduction in net emissions compared to 1990 levels. In that context, it was proposed that, starting in 2036, Member States could cover up to 5% of the overall target through high-quality international credits compliant with Article 6 of the Paris Agreement. This flexibility concerns the Climate Law and Nationally Determined Contributions (NDCs), not the functioning of the ETS, and in no way allows the use of credits for the surrender of ETS2 allowances.
Another element of the new European framework is the Carbon Removals and Carbon Farming Certification Framework (CRCF), established by Regulation (EU) 2024/3012. The CRCF introduces a voluntary European certification for permanent carbon removals, carbon farming, and carbon storage in products. Here too, the legal boundaries are clear: the CRCF does not modify ETS2, does not introduce compensation mechanisms, and does not allow the use of certified removals for compliance purposes. Rather, it represents the technical basis for a possible future regulated market for removals, subject to possible future legislative revisions.
Precisely because they are excluded from the scope of ETS compliance, voluntary carbon credits now have a fully legitimate scope for development outside of regulatory requirements, particularly along production chains. European Union law permits—and in part encourages—such instruments, provided they are additional to regulatory requirements, based on reliable measurement and verification systems, free from double counting with public policies or ETS systems, and used consistently for voluntary purposes, CSRD reporting, or prudent and defensible environmental claims.
This scope includes interventions such as energy efficiency, electrification and fuel switching of industrial processes, the use of biomethane or low-carbon hydrogen where not required by law, as well as carbon farming, biochar, forest management, or carbon storage projects in long-life products. These initiatives do not reduce ETS2 obligations, but rather generate value on a distinct and growing scale.
From a legal and economic perspective, supply chain credits do not replace the surrender of ETS2 allowances and do not impact compliance. Their function is different. On the one hand, they strengthen sustainability reporting in the CSRD and ESRS context, helping to demonstrate real reductions in Scope 3 emissions, if properly accounted for. On the other, they constitute a genuine regulatory training ground for the future implementation of the CRCF. Finally, they offer lead companies a concrete competitive advantage by reducing climate risk in the supply chain and increasing procurement resilience.
In this sense, ETS2 acts as an indirect catalyst. The inability to offset obligations with credits makes the latter more selective and strategic. The price signal applied to fossil fuels pushes for a structural reduction in consumption and directs investments toward solutions that, while irrelevant to compliance, generate high-quality voluntary credits.
The result is an ecosystem in which ETS2 regulates the cost of fossil carbon, while supply chain credits enhance the anticipated and certified reduction of emissions.
In conclusion, ETS2 cannot be offset with carbon credits, and will not be in the short term. But limiting the analysis to the "ETS yes, credits no" alternative misses the broader plan that European legislators are building. Local supply chain carbon credits, if well-designed, do not serve to circumvent ETS2, but rather to anticipate regulatory developments, strengthen reporting, and prepare companies for tomorrow's regulated markets.
ETS2 cannot be offset. But the supply chain that reduces and certifies today will have a negotiable advantage tomorrow.
Published on Partner24Ore Network
