The European Commission will propose an overhaul of the EU's Emissions Trading System today, allowing industries to emit CO2 longer while offering more financial support to invest in clean technologies in Europe. This revision of the European Union's largest climate change policy comes amidst political pushback against Europe's climate agenda, despite record-breaking heatwaves and wildfires across the continent. The ETS forces power plants, airlines, and shipping firms to buy permits when they emit CO2. It also caps their overall emissions.
The EU executive has long prepared to overhaul the ETS, extending it into future decades and aligning it with the EU's 2040 climate goal to cut net emissions by 90%. The plans also respond to pressure from industries and countries, including Italy and Poland, which argue the current system undermines competitiveness. Brussels is trying to balance these concerns with warnings from member states like Spain, which contend that weakening the ETS would punish industries that invested early in cutting emissions.
EU officials told Reuters on Thursday that the Commission plans to cut the annual rate at which the ETS emissions cap falls to around 3.7% from 2031, down from 4.3% currently. They also indicated a further reduction from 2036. The proposals were still being negotiated and could change before publication, and a Commission spokesperson declined to comment.
Fortress Europe's Climate Calculus
The EU currently gives industries some CO2 permits for free to help them remain competitive. A single EU CO2 permit currently trades at around €79 ($90) per metric ton. The Commission will propose continuing these free permits until the end of 2037, rather than ending them in 2034, when they were due to be replaced by the EU's carbon border charge on imports. This extension would also likely delay the full phase-in of the carbon border levy to end-2037, the officials said.
The Commission also wants to attach conditions to these free permits. Companies with plans to invest in decarbonisation in Europe would receive 80% of their permits upfront. The remaining 20% would be granted once those investments are made, according to officials. The proposal would also impose stricter rules on how governments spend their ETS revenue, mandating that 50% is reinvested in domestic industries.
The ETS has generated €260 billion in revenue since 2013. This week, ten countries, including Poland and Italy, opposed parts of the EU plans, specifically the conditions attached to industries' free permits. EU countries and lawmakers will negotiate the final ETS revision over the next year.
Exacerbating Global Inequality
This long-planned ETS revision comes amid broader political pushback against Europe's climate agenda. Brussels has already weakened environmental rules for cars and farmers following industry concerns. Some governments have urged the EU to uphold ambition on the ETS, partly because a weaker system would increase pressure on politically sensitive sectors, such as farming and forestry, to cut emissions faster. The system covers 40% of all EU emissions, and emissions from ETS-covered sectors have halved since 2005.
The Commission proposal would expand the ETS to cover emissions from international flights departing Europe for destinations up to 5,000 kilometres (3,107 miles) away, officials said. This could capture emissions from flights to hubs in Turkey and the Middle East. However, it would exclude the United States. The American Chamber of Commerce warned this week that extending the EU ETS to international flights risked "potentially provoking retaliatory measures from key international partners."