The European Commission has proposed major adjustments to the EU’s influential Emission Trading System (ETS).
The ETS is the main scheme underpinning Europe’s carbon market.
The proposal aims to ensure that the revenues from carbon costs provide tangible results for Europe’s decarbonising industry.
The revision introduces a conditional allowance scheme that ties part of the free allocation to investment in clean processes.
The proposal also tightens rules to ensure more revenues go to industrial decarbonisation on the Member State level.
One aim is to lower the linear reduction factor from the current 4.4% to 3.7% starting in 2031. From 2036, it would be further reduced to 1.7%.
Reacting, Peter Liese, the European Parliament’s lead negotiator on ETS reform, said, “It is now clear that emissions trading, the world’s most important climate protection tool, is here to stay.
“The Commission recognises that it makes no sense to demand zero emissions from energy-intensive industries or aviation as early as 2039. These adjustments are fully compatible with the EU’s 2040 climate target and the goal of climate neutrality by 2050,” emphasised Liese.
A key aspect of the reform is an increase in the number of free allowances. The phase-out of free allowances under the Carbon Border Adjustment Mechanism (CBAM) will be delayed from 2034 to 2038.
In return, stricter conditions apply from 2031: companies must submit investment plans, and some allowances will only be allocated once construction of climate-friendly facilities begins.
The MEP added, “We want to give industry more time, but during this period, they must not sit back and do nothing; instead, they must prepare the specific investments.
“Climate protection that leads to unemployment is not a global role model. Investment within the EU is our goal, and this proposal achieves it far more effectively,” stressed Liese.
“Frontrunners in decarbonisation must not be penalised,” said Liese.
Under the Commission’s proposal, he says the lowest 10% of emitters would be exempt from conditionality rules, and zero-emission companies would be able to remain in the ETS until 2040, instead of 2030, to finance investments using free allowances.
Both the Council and Parliament must have finalised their positions by the end of this year so that the trilogue can begin in January.
“This timetable is very ambitious, but necessary. The sooner we have clarity, the better,” said Liese.
Elsewhere, Jorgo Chatzimarkakis, Hydrogen Europe’s CEO, commented on the revision, saying, “This is a strong signal that Europe is moving from climate ambition to delivery.”
He added, “Hydrogen Europe commends the introduction of investment allowances, as well as the new SMAP mechanism for maritime, which reflects our long-standing proposal to accelerate the uptake of sustainable maritime fuels through targeted ETS support. The proposal also rightly reinforces the principle that ETS revenues should be reinvested into Europe’s industrial transformation, helping maintain competitiveness, strengthen resilience and secure quality jobs.”
Further comment comes from BusinessEurope Director General Markus J. Beyrer, who said, “It is important that the European Commission has recognised the urgent need to reform the EU ETS.
“The system needs to be adapted to reflect changing market realities and incentivise investments in decarbonisation without putting businesses at a competitive disadvantage. Decarbonisation has to happen in a way that acknowledges the competitive needs of companies and must not lead to further deindustrialisation.”
Beyrer added, “The proposal announced by the European Commission today addresses key elements such as the pace of emission reduction and the phase-out of free allocations. However, as it presents concrete figures and details for these parameters for the first time, we now need to assess their implications together with our members in order to gauge the overall impact of the proposal.
“Some aspects of the proposal already raise concerns. For example, new conditionalities for free allocations risk increasing bureaucratic complexity and the uncertain role for international carbon credits is unsatisfactory.”
