The European Commission presented a reform proposal for the EU’s Emissions Trading System on 17 July, introducing several modifications aimed at balancing climate action with economic competitiveness. The proposal would extend free emission allowances to companies through 2038, conditional on their submission of climate investment plans, rather than phasing them out by 2034 as previously scheduled. Additionally, the Commission suggests a slower reduction in the overall emissions cap after 2030, with annual decreases of 3.7% during 2031-35 and 1.7% during 2036-40, compared to the currently mandated 4.4% annual reduction.
According to analysis by environmental organizations including WWF, these modifications would permit approximately 2 billion additional tonnes of carbon dioxide equivalent emissions from sectors covered by the trading system. The proposal recommends incorporating expanded aviation coverage, beginning in 2029, to include flights departing from the European Economic Area and traveling to destinations within 5,000 kilometers. The Commission also proposes gradual inclusion of the maritime and waste-incineration sectors and integration of permanent carbon removal technologies to provide flexibility for sectors difficult to decarbonise.
The proposal mandates that EU countries allocate half of auction revenues toward decarbonization activities, potentially generating over 100 billion euros in investments before 2030. The Commission maintains that these changes remain aligned with the EU’s 2040 climate target of reducing emissions to 90% below 1990 levels and its net-zero requirement by 2050. However, climate advocates and some analysts contend the modifications would substantially weaken the system’s effectiveness and jeopardize achievement of long-term climate objectives.
Responses to the proposal have been divided. Some policy experts acknowledge the flexibilities provided for industrial competitiveness, while environmental groups warn that extending free allowances rewards delay rather than decarbonization progress. Business organizations express concerns about administrative complexity and regulatory uncertainty, while aviation industry representatives oppose the expanded coverage provisions. EU member states will now negotiate the terms of the Commission’s proposal, with Ireland, holding the rotating EU presidency, aiming for agreement by year-end, though analysts suggest the technically complex legislation may require extended negotiation timelines.
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