Brake and accelerator at the same time: what the new EU ETS revision means

The European Commission has published the long‑awaited revision of the Emissions Trading System (EU ETS). It slows down the pace of decarbonisation for industry — but at the same time wants to direct much more money from the ETS into its own transformation.

What's on the table:

Slower cap reduction. The linear reduction factor (LRF) falls from the current 4.3 % to 3.7 % per year for 2031–2035 and 1.7 % from 2036 onward. According to the Commission, this still meets the target of −90 % by 2040 and climate neutrality by 2050.

Longer lifespan for free allowances. Their issuance will be extended into the 2040s; for sectors covered by the CBAM, the phase‑out is pushed back to as late as 2038.

Carbon removal is entering the ETS. The inclusion of 250 million tonnes of permanent domestic removals is intended to free up space for the hardest‑to‑decarbonise sectors and kick‑start a removals market.

Capital back into decarbonisation. Member states will have to allocate 50 % of national ETS revenues to the decarbonisation of ETS sectors. An Industrial Decarbonisation Bank is being created with up to €100 billion, with the first “booster” around €30 billion. And free allowances will now be conditional on investments equal to 100 % of their value into EU decarbonisation.

Broader scope. The ETS will be extended to parts of aviation and maritime transport and, for the first time, to waste incineration.

The proposal now heads to the European Parliament and the Council. The ETS has been operating since 2005, has generated over €270 billion, and the Commission is credited with a 50 % emissions reduction in covered sectors.