Article 6 credits in the EU ETS 1

Abstract

Following the amendment of the European Climate Law, the European Union (EU) may use a limited volume of Article 6 credits to meet its 2040 climate target. If a share of these credits enters the EU Emissions Trading System 1 (EU ETS 1), this paper argues that indirect integration through an intermediary mechanism would be preferable to direct use by regulated entities. It then assesses four indirect integration options based on supply control, decarbonization incentives, administrative complexity, and cost savings. The analysis highlights key trade-offs between options, identifies safeguards to mitigate risks, and finds that a cap-neutral approach with targeted cost reductions stands as a promising candidate for further exploration.