Regulatory Opportunities for Europe’s Carbon- and Greenhouse Gas Policy

July 2025 - Erik Tamboryn, Marc Rosiers, Milan Petit, Janez Potočnik

Recommendations

  • Develop a coherent EU liability strategy to enable greenhouse gas emission control, based on uniform pricing of environmental externalities and clear definitions of responsible and harmed parties. It should ensure legal recognition of third-party status, in line with EU climate law, to strengthen environmental health protection, legal certainty, and access to justice across Member States.
  • Address past emissions – a major untapped opportunity. As a public bad, past emissions constitute the largest portion of accumulated greenhouse gases. Europe can lead by establishing binding remediation targets, supported by coordinated funding mechanisms and implementation strategies at both EU and member state levels.
  • Strengthen management of ongoing and future emissions. Introduce mandatory offsetting and ecological restoration targets for all EU members, ensuring responsibility lies with the emitters. To reinforce this, adopt fiscal instruments such as import levies and export subsidies calibrated to reflect the cost of meeting these obligations.

1. Introduction

The International Court of Justice’s recent advisory opinion on climate change presents Europe with a timely chance to strengthen its legal approach to preventing climate-related harm. The Court affirmed that, under international law, states are required to take action in line with the Paris Agreement’s 1.5-degree target. By establishing a clear and coherent liability framework that aligns with its climate ambitions and legal standards, the EU can offer the legal certainty needed in response to this landmark decision.

To support such a framework and develop additional effective climate policymaking in Europe, it is useful to segment the greenhouse gas emissions (GHG) landscape. To this day segmentation focuses on identifying the actors or sectors responsible for emissions and measuring their output either in absolute terms (CO₂-equivalents) or as a share of total emissions over time. According to the latest UNEP Emission Gap report, annual emissions for global key sectors in 2023 are:

  • 36% for power generation
  • 18% for agriculture and LULUCF1
  • 15% for Transport

This source-based segmentation guides current policies. However, for effective climate policy, we propose a complementary approach: segmenting emissions by the countermeasure strategy used to reduce overall carbon levels. This solution-focused framework shifts emphasis from who emits to how emissions are addressed. Our analysis proceeds in three steps:

  • Mapping strategic areas for intervention
  • Assessing gaps and opportunities in carbon reduction markets and policies
  • Conclusion

2. Mapping strategic areas for intervention

To gain a clear and structured understanding of the total volume of emissions and its share addressed by EU policy and regulation, it is useful to segment existing measures according to their scope and approach. For this, we propose the Prohibit-Mitigate-Remediate-Moot  (PMRM) framework that offers a valuable analytical framework by mapping emission countermeasure efforts along two key dimensions: “temporal orientation” (past versus future emissions) and “policy approach” (prohibition and limitation versus offsetting and restoration). This matrix helps identify which categories of emissions are currently regulated and which remain poorly addressed, thereby revealing potential gaps in the global climate policy architecture and highlighting areas where complementary regulatory action may be required.

Time Dimension

The time dimension in the PMRM matrix captures the full span of human impact on the climate, from the onset of industrial-era emissions to the future period during which such emissions are expected to have effects. It distinguishes between past, current, and future emissions, highlighting the need for policies that address both cumulative and anticipated climate impacts.

Approach DimensionTime Dimension

The policy approach dimension of the PMRM matrix contrasts multiplicative and subtractive strategies.

A multiplicative strategy involves reducing the rate at which emissions occur. E.g., a 10% annual reduction allows for 90% of the previous period’s emissions. Or as a formula: 10 × 0.9 = 9. Multiplicative strategies rely on property rights, granting regulated permission to emit, typically via permits or market-based tools and often relying on preventive investments.

Subtractive strategies focus on removing a fixed percentage of the emissions that have already occurred. As a formula: 10 − (10 × 0.1) = 9.  Subtractive strategies are grounded in liability rights, protecting third parties with potential legal claims to environmental health.

To summarise, the former authorises emissions under defined conditions, while the latter obliges emitters to offset or restore harm, upholding liability-based accountability.

The two dimensions, time and approach, yield four quadrants (see figure below). This allows for a new type of segmentation, one that focusses on the potential impact for specific intervention areas. The size of each area is calculated based on the 2024 UNEP Emissions gap report, and estimates the additional effort that is needed on top of the current policy scenario to reach the 1.5-degree by 2050 goal affirmed by the International Court of Justice’s opinion.

Figure 1: Strategic areas for policy intervention – the PMRM greenhouse gas countermeasure matrix.
Source: own calculations based on UNEP 2024 Emissions Gap Report

Estimated intervention potential by segment:

  • Prevent market potential (prohibit and limit), is estimated at approximately 900Gt CO2 and covers the amount of additional carbon emissions that should be avoided between 2024-2050 to stay within 2-degrees. For prevent measures to achieve a 1.5-degree scenario, the market increases to 1600 Gt. As this however would imply that the world would reach net-zero in 3 years, it is deemed unrealistic. The inner circle reflects the size of current submitted nationally determined contributions (NDCs) focussing on prevent measures, which are estimated at around 440 Gt, or 50% of what is needed.
  • Mitigate market potential (offsetting and partial restoration) is estimated at 700Gt, corresponding to the required additional reduction needed between 2024-2050 to get from the 2-degree to 1.5-degree scenario. As these emissions will take place in the future, they can be allocated to existing emitters, thus can be addressed through the polluter pays principle. Approximately 90Gt of emission reductions included in NDCs over the period are aimed at offsetting and restoration, which was split between the mitigate and remediate markets.
  • Remediatemarketpotential (offsetting and restoration) equals 2750 GtCO2 of past emissions since the start of the industrial revolution (see quadrant III). Although the type of interventions is similar to the Mitigate market, attribution of emissions is more complicated. As such, a different cost allocation mechanism is needed.
  • Moot market potential is irrelevant as it is impossible to prohibit or limit past emissions, and therefore zero (see quadrant IV).

Translating the PMRM market potentials into actionable climate interventions requires a comprehensive alignment of the following overlapping measures and regulatory fields:

Aligning specific measures and regulatory fields to complete the PMRM matrix

  • Indirect measures, like taxes and cap-and-trade, shape economic behaviour and limit emissions by raising costs or through other market mechanisms.
  • Direct measures, such as reforestation, carbon capture, or ecosystem protection, reduce net emissions.
  • International- and national regulation. The fight against GHG is guided at different levels. Local initiatives target specific needs, such as energy efficiency or electrified transport. Nationalagreements set broader, often legally enforced targets. International agreements like the Paris Agreement align global goals but are limited by the structural weaknesses of public international law.
  • Environmental measures. They may target specific ecosystems such as air, oceans, forests and agricultural land - or broader atmospheric conditions.
  • Carbon market regulation. Two approaches exist: the compliance market, regulated by regional and (inter)national carbon regimes, covers +/-50% of global GHG emissions (+/-25 Gt/year), while the voluntary market, lacking legal obligations, remains small at +/-0.1 Gt/year from existing air carbon offset systems.

3. Assessing gaps and opportunities in carbon markets and policies

In order to link the current opportunity created by the International Court of Justice to a sustainable and effective environmental policy, it is advisable to assess which quadrant existing policies occupy in the PMRM matrix:

  • Quadrant I (Prevent): Most current policies focus here, using regulations to reduce ongoing emissions.
  • Quadrant II (Mitigate): Underdeveloped area with high potential, especially through scalable offset projects.
  • Quadrant III (Remediate): Significant but underutilized potential to reverse damage from historical emissions.
  • Quadrant IV (Moot): No viable handling through limitation or prohibition - emissions are already in the system.

Based on this segmentation, it becomes clear that subtractive GHG control has the potential to address 5 to 10 times more GHGs until 2050 compared to multiplicative control, while current policies primarily focus on the latter.

A possible question in climate governance is why subtractive control measures based on liability rights, particularly in Quadrants II and III, remain underdeveloped compared to multiplicative measures in Quadrant I. In our view, the assessment is clear: recent legal developments provide a strong basis for reconsideration. Cases such as “KlimaSeniorinnen v. Switzerland”, “Lliuya v. RWE AG”, and the ICJ’s advisory opinion in the Vanuatu initiative show how liability grounded in human rights, combined with recognition of systemic risk, can enhance the legal role of third parties across borders.2

This emerging “local third-party power”, grounded in established legal principles, is increasingly shaping the actions of Member States and corporate actors across the European Union. As its influence expands, a timely strategic opportunity arises for legislators to strengthen and extend liability-based rights and obligations at both EU and national levels. Such an initiative would help reinforce the legal framework, ensuring that executive and judicial authorities operate in alignment with the Union’s climate objectives - promoting legal coherence, enhancing legal certainty for economic actors, and safeguarding the participation of structurally underrepresented groups in climate governance.

Europe can lead by clarifying responsibilities in the climate transition, including:

Responsibility for the remediation of an estimated 2,750 Gt of historical greenhouse gas emissions cannot be meaningfully assigned to individual citizens or companies, given the diffuse nature of these legacy emissions and their origin in past activities often undertaken without full knowledge of their long-term harm. Rather, the burden lies with society as a whole, and by extension, governments and taxpayers. These legacy emissions constitute a "negative public good"- a collective liability that necessitates a public policy response.

When assessing this public burden, it is critical to avoid simplistic net present value calculations of damages, which may obscure both the historical benefits produced by past emissions and the cumulative societal learning that accompanied them. A more equitable and pragmatic basis for allocating responsibility may lie in a subtractive control approach: defining costs in terms of the actual resources needed to offset emissions and restore affected environments. This offers a clear pathway to identify appropriate legal responsibilities and legitimate third-party actors.

Responsibility for adaptation, disaster preparedness, and broader socio-economic impacts may be more effectively addressed through public investment and development cooperation mechanisms, rather than liability frameworks.

Deferring action, especially in the face of an additional 1600 Gt of projected emissions by 2050, is neither equitable nor sustainable. Long-term mitigation must be financed increasingly by current emitters, ensuring the polluter-pays principle is applied with integrity and foresight.

To allocate these responsibilities, the European Union should implement the following measures:

  • Ensure a uniform cost tag for identically emitted substances across Member States. This requires a more refined and harmonised methodology for pricing externalities, potentially through the adoption of an "externality equation" that quantifies environmental harm based on the cost of restoring damage, applied in a consistent and transparent manner.
  • Establish standardised definitions of third-party standing, ensuring that any person, community, or ecosystem suffering environmental harm is granted appropriate legal status - rights and duties - to participate meaningfully in relevant legal processes.
  • Guarantee equal access to justice and enforceable liability mechanisms for all affected third parties across the Union, irrespective of national legal disparities, to ensure legal consistency and uphold fundamental rights.

The development and adoption of such a framework3 would support a more equitable and uniform assessment of both historical and ongoing externalities, particularly greenhouse gas emissions, while providing a coherent legal foundation for climate liability across the EU.

4. Conclusion

The ICJ’s advisory opinion marks a significant step in clarifying international legal obligations regarding climate change and provides short-term political and long-term legal opportunities. In this context, the PMRM Matrix highlights a significant policy gap: although mitigation and remediation constitute the largest dimensions of the climate change response, there remains substantial untapped potential for regulatory development at the European and international level - particularly with regard to enforceable mechanisms grounded in liability rights.

To close the identified policy gap, European and international legal frameworks should evolve to standardise and mandate subtractive climate measures grounded in liability rights. The European Union is well positioned to lead in this area by advancing binding legal instruments that establish clear liability rules for residual emissions, enhance legal certainty, and enable effective cross-border coordination. Introducing enforceable mechanisms to address both legacy and future emissions aligns with the Union’s climate neutrality objectives, strengthens the integrity of its legal framework, and upholds the principles of environmental justice for both current and future generations.

Erik Tamboryn is a senior economist and a published author. Marc Rosiers is a senior economist with expertise in the agro-food sector.  Milan Petit is steward of the Systems Transformation Hub. Janez Potočnik is co-founder of the Systems Transformation Hub, co-chair of the International Resource Panel, and partner at Systemiq.

The content presented in this opinion piece is solely those of the author in their personal capacity, and does not necessarily reflect the position of the Systems Transformation Hub or its members.

References
1. Land use, land-use change and forestry (LULUCF).

2. European Court of Human Rights, Verein KlimaSeniorinnen Schweiz v. Switzerland, judgment of 9 April 2024; District. Higher regional court of Hamm, Germany, Saúl Luciano Lliuya v. RWE AG, judgement on 28 May 2025; International Court of Justice, Advisory Opinion on Climate Change and International Law, released 23 July 2025.

3. For an introduction, see E. Tamboryn (upcoming) “Carbon and Agriculture: Reality Enables the EU to Rethink the Coase Theory.”