EU Carbon Market Review 2026: Slower ETS Cuts, Free Allowances Extended, and Climate Impact

The European Commission has proposed changes to the EU Emissions Trading System (ETS) that would slow the pace of emissions cuts from 2031 onward. Key elements include extending free allowances for industry longer than planned, conditional on climate investment plans, and pushing the zero-emissions target for the ETS out by a decade. Analysts estimate this could add around 2 billion tonnes of CO2 emissions from covered sectors. The proposal aims to balance competitiveness with climate goals, but critics argue it shifts the burden to other sectors. The ETS covers about 40% of EU emissions, including power generation, heavy industry, and aviation. The plan is now subject to negotiation with EU member states. The outcome will directly affect carbon prices, industrial decarbonization timelines, and the bloc's ability to meet its 2030 and 2040 climate targets.