The European Commission on Friday published its long-awaited EU ETS reform package, following a two-day delay. The proposals aim to provide “relief to industry, while preserving the essential role of the ETS in the climate and energy transition, in line with the EU Climate Law.”

Among the key measures proposed by the Commission are:

• Slowing the annual reduction in the EU ETS emissions cap from 4.4% to 3.7% between 2031 and 2035, “making the trajectory more gradual and aligned with domestic climate ambition level.”
• Allowing companies to use up to 2% of high-quality international carbon credits to finance decarbonisation projects abroad, “providing breathing space in 2036-2040 when the emission reduction in Europe will become more challenging.”
• Increasing free allocation to industry by €6 billion over the 2026-2030 period.
• Slowing the phase-out of free allowances for sectors covered by the Carbon Border Adjustment Mechanism (CBAM), allowing them to continue receiving free allocations until 2038.
• Rewarding leading performers by granting the 10% lowest-emitting installations additional free allocations without conditionalities.

According to Politico, the proposed changes are expected to be well received by industry, which argues that “these measures will likely be welcomed by industry, that claim the ETS in its current trajectory is unrealistic and costly” while noting that “whether pro-ETS groups in Parliament and member countries accept the looser rules is less certain.”

For the carbon market, the proposed reforms represent a significant shift in the long-term supply outlook, easing the pace of tightening under the EU ETS while maintaining the system as the EU’s primary decarbonisation instrument. The proposals will now enter the legislative process, where they are likely to face intense negotiations between member states and the European Parliament.

Both the Council and the European Parliament are expected to finalise their negotiating positions by the end of the year, allowing trilogue negotiations to begin in January. Peter Liese, the European Parliament’s lead negotiator on the upcoming reform of the EU Emissions Trading System (ETS), stressed the importance of keeping to the proposed timetable, saying: “This timetable is very ambitious, but necessary. The sooner we have clarity, the better.”