EU Commission Unveils Major Emissions Trading System Reform

On 17 July 2026 the European Commission presented a comprehensive reform package for the EU Emissions Trading System (ETS I) (COM‑2026‑616). The proposal slows the annual emission‑reduction path for power plants and industry to 3.7 % per year until 2035 and 1.7 % thereafter, unless international carbon credits become available. It introduces up to 260 million tonnes of non‑EU credits from 2036, new oversight to prevent market flooding, and direct removal mechanisms such as bio‑CCS and DACCS to generate negative emissions.

The reform also adjusts the Market Stability Reserve, ends automatic cancellation of allowances, and links free allocation for carbon‑leakage‑prone sectors (steel, cement, aluminium, fertilizers) to verified EU decarbonisation and investment plans, extending free permits until 2038. While the Commission argues the changes balance decarbonisation with industrial competitiveness, environmental groups and Green parties warn the reforms weaken a key climate tool that has helped cut sector emissions by roughly 47 % since 2005. Member‑state pressure, notably from Italy and nine other countries, is driving the extension of free permits despite concerns over energy costs and global competitiveness.