Full Breakdown
EU Proposes Major Revision to Emissions Trading System, Slowing Cap Reductions and Expanding Scope
7/17/2026, 9:39:28 PM
Core Proposal and Key Changes
On 17 July 2026 the European Commission announced a draft overhaul of the EU Emissions Trading System (ETS). The revision would lower the annual shrinkage of the emissions cap from the current 4.4 % (effective 2028) to 3.7 % for 2031-35 and then to 1.7 % for 2036-40. It also extends the period during which allowances are issued, allowing emissions in covered sectors to continue until 2048 instead of reaching zero in 2039. A parallel element adds municipal waste-incineration plants to the ETS, starting with 25 % of their emissions priced in 2031 and reaching full coverage by 2034, with optional opt-outs for member states meeting recycling or landfill-diversion criteria.
Background and Context
The ETS, launched in 2005, is the EU’s flagship market-based climate policy. It caps total CO2 allowances for power generation, industry, aviation and intra-EU shipping, forcing participants to surrender permits equal to their emissions. The cap declines each year, creating a price signal that has driven a 50 % emissions drop in covered sectors, especially in power generation. Recent political pressure from countries such as Italy and Poland argues that the system harms industrial competitiveness, prompting the current revision.
Data and Statistics
- The ETS currently covers roughly 40 % of EU greenhouse-gas emissions and has generated €260 billion in revenue since 2013, of which 75-80 % flows to national budgets.
- Free allowances amount to €250 billion in total value since the scheme’s inception.
- Research released 16 July 2026 shows a 41 % reduction in industrial emissions (?800 million t CO2 yr?¹) between 2021-23, bringing annual emissions 1 billion t lower than at the system’s start.
- Permit prices sit around €80 per tonne, up from under €10 in the early 2010s.
Official Statements & Responses
The Commission highlighted the ETS’s track record, noting that it “has helped drive emissions reductions of 50 percent in the sectors that it applies to, including power generation.” The proposal is framed as a way to “bring relief to industry while preserving the continent’s climate goals” and to align the system with the EU’s 2040 target of a 90 % net-emissions cut. The Commission also announced that a portion of auction revenues may be earmarked for local waste-management upgrades.
Criticism and Opposition
Industry groups and several member states argue the slower cap decline will “undermine existing climate targets for the next decades,” according to Carbon Market Watch. Linda Kalcher, executive director of Strategic Perspectives, warned that the plan “looks like a gift for companies to delay their emission reductions while in reality this puts them at a competitive disadvantage with Chinese companies that accelerate.” Italy and Poland have called for a weakened ETS, while Sweden and Denmark push for a stronger price signal. Zero Waste Europe contended that the phased-in carbon price and extensive opt-outs “will not deliver the transformation this sector urgently needs.”
Conflicting Reports & Gaps
Sources differ on the drivers of past emissions cuts: the Reuters analysis attributes most reductions to the ETS, whereas some firms claim they stem from plant closures and deindustrialisation caused by high energy prices. The proposed waste-incineration timeline (EU start 2031) also diverges from the UK’s plan to incorporate incineration into its ETS from January 2028, raising concerns about cross-border waste leakage that remain unresolved.
Verbatim Quotes
- “It looks like a gift for companies to delay their emission reductions while in reality this puts them at a competitive disadvantage with Chinese companies that accelerate,” — Linda Kalcher, Executive Director, Strategic Perspectives
- “The Commission has taken an important first step by recognising that waste incineration must be part of Europe's climate policy,” — Janek Vahk, Zero Pollution Policy Manager, Zero Waste Europe
- “But a carbon price phased in until 2034, and riddled with opt-outs for Member States and outermost regions, and still handing out free allowances for waste-to-energy heat, will not deliver the transformation this sector urgently needs.” — Janek Vahk, Zero Pollution Policy Manager, Zero Waste Europe
- “Frank Venmans, Associate Professorial Research Fellow at the Grantham Research Institute on Climate Change and the Environment, said: “Our research shows that the EU’s ETS is paying off massively and is arguably the most impactful climate policy in the world.” — Frank Venmans, Associate Professorial Research Fellow, Grantham Research Institute
- “The proposed gradual transition, together with support for investment, carbon capture, support for district heating, and closer alignment with the Circular Economy Act, provides a strong basis for reducing emissions while continuing to deliver safe waste treatment with low emissions, energy recovery, and valuable secondary raw materials.” — Dr Siegfried Scholz, President, ESWET
What’s Next
The Commission’s draft will be examined by EU member states and the European Parliament, which can propose amendments before entering a year-long negotiation phase. The Commission has indicated it will fast-track parts of the proposal, including rules on free allowances for heavy industry, for approval later in 2026.
