The European Union must cut greenhouse gas emissions by 90% by 2040 relative to 1990 levels — with 5 percentage points of that reduction coming from climate action outside its borders, as established by a 2025 law. A study from the Potsdam Institute for Climate Impact Research now proposes a novel mechanism to meet that external component.
The proposed instrument, called performance-based Jurisdictional Reward Funds, aims to avoid perverse incentives that often plague offset schemes. Its architects argue it would strengthen international climate efforts, which in turn bolsters Europe's own environmental goals. The fund would cost roughly 5 billion euros annually.
This approach shifts focus from project-level offsets to rewarding entire jurisdictions — such as states or regions — for verifiable emissions cuts. By tying payments to actual performance, the system is designed to encourage genuine reductions rather than just accounting tricks. The study marks a concrete policy proposal for a still-undefined part of the EU's climate law.
At 5 billion euros per year, the fund represents a relatively modest investment compared to the EU's total budget or the economic costs of unchecked climate change. Questions remain about how jurisdictions would be selected and how performance would be monitored. The proposal enters a broader debate about the role of international credits in domestic climate targets.
Critics may argue that such external credits still allow Europe to delay its own domestic transformation. Environmental groups have previously warned that relying on reductions elsewhere undermines the urgency of cutting emissions at home.