European Commission proposes revisions to ETS climate policy

The European Commission has proposed significant revisions to the Emissions Trading System (ETS) to provide industry with more time for transition. Key changes include a slower pace for emission reductions and the extension of free allowances until the late 2040s, provided that 50% of revenue from allowance sales is reinvested in emission-cutting measures.

The proposal seeks to include permanent carbon removal, such as carbon capture and storage, and climate credits within the system. Additionally, the ETS is set to expand to cover maritime activities, aviation, and municipal waste incineration. To ensure price stability, the Commission suggests expanding the ‘carbon bank’ stabilization reserve, allowing the EU to release more allowances if necessary.

While Commissioner Wopke Hoekstra emphasized that the goal of climate neutrality by 2050 remains unchanged, the proposal faces scrutiny. Critics, including Sweden’s Naturvårdsverket, have pointed to the ‘95% rule’—where companies lose free allowances if they reduce emissions by more than 95%—as a potentially counterproductive measure that penalizes companies for leading in decarbonization.