European Commission Proposes Revisions to EU Carbon Market Rules

The European Commission has proposed revisions to the European Union Emissions Trading System (EU ETS), introducing changes that would slow the reduction of carbon allowances and extend free allowances for energy-intensive industries until 2038.

The proposal forms part of a broader effort to strengthen Europe's industrial competitiveness while supporting the transition to a low-carbon economy.

Alongside the revised carbon market trajectory, the package also includes measures to increase funding for industrial decarbonisation and make free allowances conditional on climate-related investments.

Under the proposed framework, the annual decline in emissions allowances would be reduced from 2031 onwards, creating additional emission allowances over the lifetime of the scheme.

According to the Commission's impact assessment, the revised trajectory could result in higher cumulative emissions compared with the current framework, while extending the availability of allowances for sectors covered under the EU ETS.

The proposal also expands the scope of the system to include additional sectors and strengthens financial support for industrial transition through increased use of ETS revenues.

The proposed changes have generated mixed reactions across Europe.

Industry groups have welcomed additional flexibility to support competitiveness during the energy transition, while climate experts and clean technology investors have expressed concerns that a slower reduction in allowances could weaken long-term carbon price signals and delay industrial decarbonization.

Several stakeholders have also cautioned that policy certainty remains critical for investments in emerging low-carbon industries such as green steel.

The proposal will now enter negotiations with the European Parliament and EU Member States before it can be formally adopted. If approved, the revised framework would reshape the EU carbon market over the coming decades while balancing industrial competitiveness with the bloc's long-term climate objectives.

ETS revisions directly shape industrial-decarbonisation investment cases across covered sectors, which cascades into CBAM interaction and long-term capex planning. Our climate-action and market-intelligence teams help clients evaluate what ETS reform scenarios mean for carbon-cost planning.