EU ETS overhaul boosts funding but cuts near-term hydrogen demand via slower carbon price signal

The European Commission has proposed changes to the EU Emissions Trading System that increase funding for industrial decarbonization but weaken the near-term carbon price signal for clean hydrogen. The linear reduction factor would slow from 4.4% to 3.7% between 2031 and 2035, then drop further to 1.7% from 2036 to 2040. Companies would also be allowed to use up to 2% international carbon credits from 2036 onward, reducing the incentive to decarbonize domestically. These adjustments aim to relieve pressure on European industry facing global competition from regions with weaker carbon constraints. However, the slower reduction in emission caps and the introduction of offset credits could reduce near-term demand for hydrogen as a decarbonization tool. The article is worth reading for anyone tracking how carbon market design affects hydrogen project economics and EU climate policy direction.