EU Emissions Trading System: The Commission publishes a proposal for the revised Emissions Trading System.

On 17 July 2026, the European Commission published its proposal for a review of the EU’s Emissions Trading System (ETS), presented alongside a new Action Plan for Electrification. This proposal follows intense political pressure from Member States for a comprehensive review of the EU’s main instrument for carbon pricing, in a context of sustained high energy costs and a populist resurgence of climate change denial. Accordingly, the revision is comprehensive and includes a recalibrated emissions cap, new direct financing mechanisms to support industrial decarbonisation, revised rules on free allocation, expanded sectoral coverage and the gradual inclusion of municipal waste incineration.

Key takeaways from the Commission’s proposal:
• A slower emissions reduction trajectory. Under current rules, the annual rate of reduction of the Emissions Trading System’s emissions cap (the linear reduction factor or FRL, currently 4.3%, which will increase to 4.4% between 2028 and 2030) would have reduced the cap to zero around 2040. The new proposal slows this decline: an FRL of 3.7% between 2031 and 2035, which will gradually reduce to 1.7% between 2036 and 2040. In practice, this means that there will be more allowances on the market for longer, giving the industry more room for manoeuvre and time to transition.

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