EU proposes slower ETS cap cuts and longer free permits to ease industry pressure on carbon market

The European Commission has proposed a significant overhaul of the EU Emissions Trading System, slowing the annual emissions cap reduction from 4.3% to 3.7% from 2031 and then to 1.7% from 2036. The plan also extends free CO2 permits for industries like steel and cement until 2038, two years later than previously scheduled, and ties 80% of free permits upfront to companies with decarbonization investment plans. This revision responds to industry and member state pressure over competitiveness, but faces pushback from countries like Spain who argue it penalizes early movers on emissions cuts. The ETS has generated 260 billion euros since 2013, and the Commission wants 50% of future revenue reinvested in covered sectors. The proposal also expands the system to cover smaller ships and some international flights, though the American Chamber of Commerce warned this could trigger retaliatory trade measures.