The European Commission has proposed major changes to the EU's carbon market, slowing the annual emissions reduction pace from 4.4% to 3.7% between 2031 and 2035, and extending free pollution permits for heavy industry until 2038. The plan also allows limited use of international carbon credits from 2036 to 2040, brings carbon removals into the compliance system, and creates a 100 billion euro Industrial Decarbonisation Bank. Alongside this, the Commission set a target for electricity to cover 46% of final energy demand by 2040, aiming to cut fossil fuel imports by 260 billion euros per year. Environmental groups pushed back hard. Agora Energiewende warned the slower reduction rate could oversupply the carbon market and weaken price signals, making it harder for clean technologies to compete without subsidies. Climate Action Network Europe called the proposal a gift to polluters that rewards delay over real investment. The aviation sector also objected to plans to extend the ETS to international flights from 2029. The debate highlights a tension between protecting industrial competitiveness and maintaining the credibility of carbon pricing as a climate tool.
