EU ETS Reform Targets 90% Emissions Cut by 2040 With Free Allowances Extended, Revenue Ring-Fenced

The European Commission has proposed a major reform of its Emissions Trading System (ETS) to align with a 90% emissions reduction target by 2040. The plan extends free carbon allowances for heavy industry beyond 2030 with a gentler reduction curve, but ties them to strict conditions: companies must publish annual decarbonization roadmaps to unlock 80% of allowances, with the remaining 20% tied to execution. A key change forces member states to ring-fence at least half of all future ETS revenue for industrial decarbonization projects, addressing criticism that only 10% of the 260 billion euros generated so far went to industry. The reform also expands the ETS to cover waste management, private aviation, commercial flights under 5,000 km, and nearby maritime ports. Critics like Carbon Market Watch argue the proposal relies too much on carrots and not enough on sticks, potentially weakening the EU's key climate tool.