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EU Emissions Trading System regulatory reforms

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2026-08-18 07:40 UTC → 2026-08-19 07:41 UTC · added ~~removed~~

The European Union’s Emissions Trading System (ETS) is undergoing significant regulatory updates to align with the ‘Fit For 55’ climate targets, which aim for a 55% reduction in emissions by 2030 and climate neutrality by 2050. In July 2026, the European Commission presented a reform package (COM-2026-616) that adjusts the annual emission-reduction path for industry and power plants to 3.7% per year until 2035. To address concerns regarding industrial competitiveness and ‘carbon leakage,’ the reform proposes extending the conditional allocation of free allowances for sectors such as steel, cement, and ~~aluminum.~~ aluminum, potentially beyond 2039. While the Commission seeks to balance decarbonization with economic stability, environmental groups have warned that these changes may weaken a mechanism that has reduced sector emissions by approximately 47% to 50% since 2005. Recent market data shows average prices in 2023 reached approximately 86.17 euros per tonne, with 2026 projections estimated between 80-82 euros per tonne. The updated framework also introduces provisions for up to 260 million tonnes of non-EU carbon credits starting in 2036 and explores direct removal mechanisms like bio-CCS and DACCS to generate negative emissions. Expansion efforts are also targeting the transport and waste sectors. A new ‘ETS2’ for fuels is expected to begin in 2028, shifting diesel carbon pricing to a market-based European system. Additionally, the Commission has proposed including municipal waste incineration plants in the EU-ETS 1 starting in 2031, with annual increases of 25 percent until 2034. The industry association ITAD has warned this could create a paradox where carbon pricing makes thermal waste recovery more expensive than landfilling, potentially undermining the European circular economy.

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