Ottmar Edenhofer, director of the Potsdam Institute for Climate Impact Research, stands not in a forest or a power plant, but in a policy landscape where 21 euros can prevent a ton of CO₂ from entering the atmosphere—by investing beyond Europe’s borders. The EU’s 2040 climate target demands a 90% cut in greenhouse gas emissions compared to 1990 levels, and now a bold new blueprint shows how 5 percentage points of that goal could be achieved internationally, without undermining ambition at home. A study from PIK proposes a performance-based system—Jurisdictional Reward Funds—that would channel €5 billion annually into climate action in developing and emerging economies, rewarding real, measurable progress rather than business-as-usual projects.
This isn’t about buying shortcuts. The idea tackles long-standing flaws in carbon markets, where vague promises and inflated credits have drawn criticism. Instead, the proposed funds would reward entire jurisdictions—like states or countries—for verifiable climate performance, such as reducing deforestation below a globally benchmarked rate or accelerating fossil fuel phaseouts. All qualifying nations would compete under the same rules, with payments scaled to how much they exceed expectations. The system is designed so only truly additional efforts—those going beyond what would have happened anyway—receive higher rewards.
The numbers tell a compelling story. To deliver 5% of the EU’s 2040 emissions reductions abroad, the annual cost would be just €5 billion—equivalent to 21 euros per ton of CO₂ avoided. For context, that’s less than half the current price of carbon within the EU’s Emissions Trading System. The funding mix is strategic: 62% would target coal phaseouts, 32% oil and gas, and 6% forest conservation, reflecting where the greatest, most cost-effective gains lie. Crucially, these international credits wouldn’t just sit on balance sheets—they’d flow into the EU ETS, softening potential price spikes by up to 45% between 2036 and 2050, protecting industries and households while maintaining the push toward clean energy.
But the impact stretches beyond economics. "Climate protection beyond our borders acts as a stabilizing mechanism," says Edenhofer, who also chairs the EU climate advisory board. "It ensures that ambitious climate policy in Brussels remains realistic in the future—regardless of what is decided in Beijing or Washington." If other major emitters adopt similar systems, the global effect could multiply, turning isolated action into coordinated transformation. As the world’s largest carbon market, the EU has the chance to lead not just by cutting its own emissions, but by shaping a fairer, more effective global climate finance system—one that rewards real progress, wherever it happens.