The European Union has put forward a revised set of climate policy changes that would ease the pace of emissions reductions required for industrial operators under the bloc’s signature cap-and-trade program, the Emissions Trading System (ETS). First launched in 2005, the ETS has stood as the EU’s core regulatory mechanism for cutting greenhouse gas output for nearly two decades, creating a financial incentive for heavy emitters to shift to cleaner energy by requiring permits for every tonne of carbon dioxide released.
Under the newly proposed reforms, the annual rate at which the ETS’s total cap on emissions is lowered will be reduced. Currently, the cap shrinks by 4.3% each year; starting in 2031, that rate would drop to 3.7%, and fall further to 1.7% by 2036. The reforms also extend the availability of free emission allowances for qualifying industries by four years, from the previously scheduled phase-out date of 2034 to 2038. For companies that formalize decarbonization investment plans within the EU, 80% of these free allowances will be allocated upfront, with the remaining 20% released only after the committed upgrades are completed. A carbon border adjustment mechanism on carbon-intensive imports, originally set to replace free permits in 2034, will also be delayed to match the new timeline.
EU Climate Commissioner Wopke Hoekstra framed the adjusted rules as a pragmatic, business-friendly approach that remains aligned with the bloc’s broader climate target of cutting total emissions by 90% from 1990 levels by 2040. The proposal comes after years of criticism from several member states, most notably Italy, which has argued that the ETS acts as an implicit tax that has driven up energy costs for businesses and consumers alike.
Reaction to the plan has been sharply divided along political and national lines. Polish Climate Minister Paulina Hennig-Kloska celebrated the proposal as a breakthrough, noting it marks the first time the EU has softened rather than tightened ETS rules, and committed Poland to pushing for even further concessions. On the opposite side, green lawmakers have decried the reforms as a major step backward for climate action. German Member of the European Parliament Michael Bloss argued the changes will lock in decades of “gigantic climate pollution” and erode quality of life for future generations.
Before the reforms can take effect, they must gain formal approval from all EU member states and the European Parliament, a legislative process that is expected to take approximately one year to complete.