EU Commission Seeks to Reform Emissions Trading

July 17, 2026

Source: E & M powernews

The European Commission wants to adjust the European emissions trading system to ease the burden on industry and competition. Business and environmental groups have very different views on the proposals.

The European Commission has proposed a reform of the European Emissions Trading System (EU ETS). According to the Commission, the goal is to adapt the system to economic and geopolitical conditions as well as the new EU climate target for 2040. Among other things, the proposals call for slowing the reduction in the number of available emission allowances starting in 2031 and providing additional free allowances in certain sectors.

According to the Commission, emissions trading should continue to help reduce greenhouse gas emissions by 90 percent by 2040 compared to 1990 levels. At the same time, the competitiveness of energy-intensive industries is to be strengthened. Companies had recently pointed to high energy costs and increasing international competitive pressure and warned of production relocations and plant closures.

Background on Emissions Trading

Since 2005, the ETS has required large industrial companies and power plant operators to hold emission allowances for their CO2 emissions. The total volume of allowances has been decreasing annually, causing the price of CO2 to rise and making investments in climate-friendly technologies more economically attractive. According to the Federal Environment Agency (UBA), emissions from sectors covered by the ETS have fallen by about 50 percent across Europe since the system’s introduction.

Specifically, the Commission proposes to slow the annual reduction in the number of allowances after 2030. Instead of the previously planned annual reduction of 4.4 percent, the number of allowances is to decrease by 3.7 percent between 2031 and 2035 and by 1.7 percent between 2036 and 2040. In addition, waste-to-energy plants are to be included in the system in the future, and further requirements for aviation and maritime transport will be introduced.

Avoid Unsettling Businesses

However, the German Association of Energy and Water Industries (BDEW) warns against weakening the price signal from emissions trading. Chief Executive Kerstin Andreae stated: “The ETS must retain its core function as a reliable instrument for CO2 pricing.” Companies have made significant investments in decarbonization based on this framework. These investments must not lose their value.

In the BDEW’s view, emissions trading cannot shoulder the burden of industrial transformation alone. Additional industrial and trade policy measures are needed, as well as targeted relief, such as through electricity price compensation or Carbon Contracts for Difference (CCfD). In addition, the association calls for revenue from emissions trading to be used more extensively for investments in power grids, renewable energy, hydrogen, and carbon capture and storage technologies.

Chemical companies could relocate

Mixed signals are also coming from the industry. The Federation of German Industries (BDI) is calling for a reform that secures industrial production in Europe for the long term. According to media reports, BASF CEO Markus Kamieth, who is also president of the European Chemical Industry Council (Cefic), criticizes the fact that emissions trading in its current form is prompting companies to build production capacity outside of Europe.

In contrast, companies that have already invested substantial sums in climate-friendly production processes are warning against weakening the system. In their view, a lower CO2 price would devalue investments in low-emission technologies and distort competition. Environmental organizations also continue to view emissions trading as a central instrument of European climate policy and advocate for stricter measures rather than relaxation.

European Politicians Divided

In the European Parliament, the proposals are also receiving mixed reactions. CDU MEP Peter Liese considers additional free allowances justified if they are tied to investments in European facilities. Green Party MEP Michael Bloss, on the other hand, warns against a step backward in climate protection. SPD MEP Tiemo Wölken calls for more flexibility for companies but also sees support as contingent on binding investment and employment commitments.

The reform proposals must now be debated by the European Parliament and the member states. Only after an agreement is reached between the two legislative bodies can the changes to the European emissions trading system take effect.

The full press release from the European Commission can be found here.

The European Commission’s proposals for reforming the EU ETS are available online.

Author: Susanne Harmsen