EU proposes ETS revamp, slower cap cuts, more free permits

The European Commission is set to propose a significant overhaul of the European Union's Emissions Trading System (ETS) on Friday, July 17, 2026, a move that would slow the pace of required emissions cuts for major industries while extending financial support for their transition to cleaner technologies. The revision comes amid intense political pressure from a bloc of ten member states demanding a reconsideration of a separate, upcoming carbon price on transport and heating fuels.

The proposed changes to the ETS, the EU's cornerstone climate policy, would reduce the annual rate at which the system's emissions cap falls. According to officials, the cap reduction rate would be lowered to approximately 3.7% from 2031, down from the current 4.3%, with a further reduction planned from 2036. The Commission also intends to extend the provision of free CO2 permits to industries until the end of 2037, a delay from the previous phase-out date of 2034. These free permits would come with new conditions, with 80% granted upfront to companies that commit to investing in decarbonization within Europe, and the remaining 20% delivered upon completion of those investments.