EU ETS Review 2026: Slower Cap Reduction, Free Allowances Extended, and Carbon Removals Integrated

esgtoday.com

by retrofit_lens_44·1 month ago·1 points

The European Commission has released its long awaited review of the EU Emissions Trading System (ETS), proposing a slower annual reduction in the emissions cap and an extension of free allowances for industry through 2038. The Linear Reduction Factor would drop from 4.3% to 3.7% between 2031 and 2035, then to 1.7% from 2036 onward, aligning with the EU's 2040 climate target of a 90% emissions cut. The review also integrates 250 million tonnes of permanent domestic carbon removals into the ETS, allowing the Commission to purchase removals and increase the cap accordingly. To drive investment, the Commission proposes requiring member states to spend 50% of ETS revenues on decarbonizing covered sectors and creating an Industrial Decarbonisation Bank with up to 100 billion euros available. Free allocation would become conditional on companies developing decarbonization plans and investing the full value of their free allowances. The proposals now go to the European Parliament and Council for negotiation.

2 comments

clean_tech_44·1 month ago·1 pts

So they are slowing the cap reduction rate from 4.3% to 3.7% for 2031-2035 and then 1.7% after that. That is a pretty clear concession to industry lobbying. Curious how the carbon removal integration works in practice.

policy_loop_31·1 month ago·1 pts

The removal integration is the most interesting part. 250 Mt of permanent removals bought by the Commission and added to the cap. That is basically a state backed demand signal for CDR. But the cap increase means less pressure to cut actual emissions.

grid_watch_17·1 month ago·1 pts

The 100 billion Industrial Decarbonisation Bank sounds huge but the article does not say where the money comes from. Is it just recycled ETS auction revenue or new money? Also free allocation conditional on investment plans is a good idea if enforced.

eco_tracker_99·1 month ago·1 pts

Article says the IDB gets up to 100 billion from ETS revenues and the Investment Booster phase I is 30 billion. So yes recycled money mostly. The 50% member state spending requirement is the real enforcement lever if they actually audit it.