In the 2014-20 CAP, environment is targeted through a combination of measures in both Pillar 1, through cross-compliance and green payments, and Pillar 2, mainly through voluntary measures with compensation for cost incurred and income forgone. The European Commission's legislative proposals for the CAP after 2020 would suppress green payments but their objectives would be retained as part of new conditionality requirements. A new environmental instrument would be introduced in Pillar 1, the 'eco-scheme', and the CAP would be implemented through national strategic plans offering Member States large room for manoeuvre in application of the principle of subsidiarity. This article explains the weak environmental effectiveness of the CAP until now. It then analyses the extent to which the European Commission's proposals could improve the regulation of the environment and climate impacts of European agriculture. Pillar 2 measures are largely unchanged with their strengths and weaknesses. There is a risk that short-run political pressures will lead numerous countries to opt for limited ambition in their eco-schemes. However, there is an urgent need to tackle climate and biodiversity issues seriously. This could be done following the principles of public economics and environmental federalism. In that perspective, defining simple and robust agri-environmental indicators is crucial.