Brussels, Belgium – July 2026 – The European Commission has unveiled a comprehensive proposal to reform the European Union Emissions Trading System (EU ETS), introducing measures designed to support industrial competitiveness while maintaining the bloc’s long-term commitment to climate neutrality.
The proposed reforms aim to provide European industries with greater flexibility in reducing carbon emissions, expand financial support for clean technology investments, and strengthen incentives for industrial decarbonisation.
A More Gradual Path to Emissions Reduction
Under the proposal, the Commission plans to slow the pace at which the overall emissions cap declines. The annual reduction rate—known as the Linear Reduction Factor (LRF)—would decrease from the current 4.3% to 3.7% in 2031 and 1.7% in 2036, allowing industries additional time to transition toward lower-carbon operations.
The Commission also proposes reducing the intervention rate of the Market Stability Reserve (MSR) from 24% to 12%, ensuring a more stable supply of emissions allowances and providing businesses with greater predictability.
Additionally, the EU intends to purchase international carbon offset credits to account for 2% of the emissions reductions required under the ETS, easing compliance requirements for domestic industries while maintaining overall climate objectives.
Extended Free Emissions Allowances with Investment Conditions
Recognising the challenges facing energy-intensive sectors, the Commission has proposed extending free emissions allowances for industries such as steel and cement until 2038, instead of phasing them out by 2034.
The proposal introduces a performance-based approach to these allocations. Companies with credible decarbonisation investment plans in Europe would receive 80% of their free allowances upfront, while the remaining 20% would be awarded upon successful implementation of those investments.
Industrial facilities ranking among the top 10% most carbon-efficient would be exempt from these investment conditions, rewarding early leaders in emissions reduction.
The Commission also plans to increase the overall volume of free allowances by reducing the annual benchmark adjustment rate from 2.5% to 2% beginning in 2030.
Greater Investment in Industrial Decarbonisation
Since its launch in 2013, the EU ETS has generated approximately €260 billion in revenue, with around 80% allocated to national governments. However, the Commission estimates that only 5% of those funds have been reinvested directly into industrial transformation.
To address this, the proposal would require Member States to dedicate at least 50% of future ETS revenues to supporting domestic industries in their transition to cleaner technologies.
The Commission also plans to establish a €30 billion Clean Technology Investment Booster Fund by reserving 400 million carbon allowances through 2030 to accelerate industrial innovation and decarbonisation projects.
Furthermore, an existing programme supporting clean energy investments in the EU’s lower-income Member States would be extended beyond 2030, with 280 million carbon allowances allocated to continue financing sustainable energy initiatives.
Supporting Europe’s Green Industrial Transition
The proposed reforms reflect the European Commission’s commitment to balancing ambitious climate action with economic resilience. By combining greater flexibility for industry with stronger incentives for investment in clean technologies, the revised EU ETS seeks to safeguard Europe’s industrial competitiveness while advancing the EU’s long-term climate ambitions.
The proposals will now be considered by the European Parliament and the Council of the European Union as part of the legislative process before any changes take effect.
