The European Commission is set to unveil an overhaul of its Emissions Trading System (ETS) on Friday, a move many anticipate will be the biggest climate debate of the year. This revision aims to balance the EU's ambitious climate targets with growing concerns over the competitiveness of European industries. The current ETS requires sectors responsible for nearly half of the EU's total greenhouse gas emissions to reach zero emissions by 2039, but the new proposal would extend this target well into the 2040s. This proposal follows a "green backlash" in Brussels policymaking since 2024, shifting focus from environmentalism toward industrial competitiveness.
Key changes include a proposed weakening of the linear reduction factor (LRF), which determines the annual rate at which industrial pollution is reduced. The current LRF is 4.4% per year from 2028, leading to a zero-allowance cap by 2039. The new plan suggests adjusting the LRF to a range of 3.5-3.9% from 2031 to 2035 and then to about 2.2% after 2036, effectively giving heavy industry more time to reduce emissions. This adjustment is expected to keep the bloc on track for its 2050 net-zero goal, but concerns are raised regarding the EU's legally binding target for climate neutrality. Carbon permits currently trade around €80 per ton of CO2.
The reform is also contentious regarding the allocation of ETS revenues, which generated €43 billion in 2025. Industries want a larger share redirected towards decarbonization, while governments are reluctant to lose this growing funding source. Italy and Austria are leading calls to substantially weaken the carbon market, citing competitiveness concerns, while climate-leading nations like Denmark, Finland, Luxembourg, Portugal, Slovenia, Spain, Sweden, and the Netherlands argue against easing the ETS, emphasizing its role as a cornerstone of the bloc's climate strategy. German chemicals giant BASF CEO Markus Kamieth warned that without major changes, investments would leave Europe before emissions do.
