EU proposes ETS reform to fund decarbonisation, sparks finance debate

The European Commission has drafted a reform of the EU Emissions Trading System (ETS) that would require member states to allocate 50 % of auction revenues to investments in decarbonising the sectors covered by the scheme. The proposal aims to lower electricity prices and accelerate the EU’s energy transformation, including a target of 46 % electrification of final energy demand by 2040 under the Electrification Action Plan.

Finance ministers warn that the new spending mandate could strain national budgets, especially in countries like Poland where ETS‑related costs already make up 40‑50 % of household electricity bills, far above the EU average of about 10 %. The reform also seeks to give large emitters more flexibility while tying any relief to demonstrable decarbonisation actions. Analysts note that the EU still depends heavily on imported gas (87.6 % in 2025), exposing the bloc to geopolitical and price risks.

The debate reflects a broader tension between maintaining competitiveness and meeting climate goals, with the ETS reform seen as a key lever for financing the transition while managing fiscal pressures across the Union.