EU ETS Review Proposes Looser Emission Caps Amid Industry Pressure

The European Commission has released a draft review of the European Union Emissions Trading System (EU ETS) that seeks to balance climate ambition with industrial competitiveness. The proposal adjusts the CO₂ budget for the fifth ETS period (2030‑2040), expands the system to new sectors, and introduces mechanisms for negative‑emission offsets while keeping costs manageable for energy‑intensive firms.

The draft also slows the annual emissions‑reduction rate after 2031, cutting the target from 4.4% to 3.7% between 2031‑2035 and to 1.7% thereafter. Analysts estimate this could allow up to 2 billion tonnes of additional CO₂ emissions by 2040. Free allocation of permits will continue for certain companies, notably ArcelorMittal and BASF, which critics say generate billions of euros in revenue without reducing emissions.

The review aims to preserve the EU ETS’s role as a leading carbon‑pricing mechanism while providing flexibility for sectors that face high energy costs and geopolitical uncertainty.