EU Commission proposes extending free ETS allowances for CBAM sectors to 2038

The European Commission has unveiled a proposal to revise the EU Emissions Trading System (ETS) and launch a new Electrification Action Plan aimed at speeding industrial decarbonisation and boosting the EU’s competitiveness. While about 70 % of the EU’s electricity now comes from domestic clean sources, the electrification rate of final‑energy demand has stagnated at roughly 23 % over the past decade. The Commission targets a 46 % electrification rate by 2040, which could cut the bloc’s annual fossil‑fuel import bill by €260 billion.

Key ETS changes include updating the Linear Reduction Factor to 3.7 % for 2031‑35 and 1.7 % for 2036‑40, and allowing up to 2 % high‑quality international carbon credits in the 2036‑40 period. Financial support will be expanded through a €100 billion Industrial Decarbonisation Bank, an ETS Investment Booster before 2030, and continued funding from the ETS Innovation Fund. Member states must allocate at least 50 % of national ETS revenues to decarbonising covered sectors, translating into more than €100 billion of investments before 2030. The steel industry association EUROFER has voiced concerns about the proposal’s impact on its members.