The European Commission has proposed slowing the annual reduction rate of the EU Emissions Trading System cap from 2031 onward, effectively weakening the trajectory that drives up carbon prices and incentivises industrial decarbonisation. The plan also extends free allowance allocations to heavy industry, reducing the financial pressure on polluters to invest in low-carbon technologies. This shift signals a political prioritisation of industrial competitiveness over the carbon market’s original design as the bloc’s primary climate policy engine.
The EU ETS has long functioned as the cornerstone of European climate policy, with its steadily tightening cap forcing power generators and energy-intensive industries to either cut emissions or buy increasingly expensive allowances. Carbon prices above €80 per tonne in recent years have made coal-fired generation uncompetitive and spurred investment in hydrogen, carbon capture, and electrification. By flattening the reduction pathway after 2030, the Commission risks eroding that price signal precisely when deep industrial decarbonisation must accelerate to meet the 2040 climate target.
Industry groups have argued that the current linear reduction factor — 4.3% per year from 2024 to 2030, rising to 4.4% thereafter — threatens European steel, cement, and chemical producers facing cheaper imports from jurisdictions without carbon pricing. The Commission’s proposal appears calibrated to address those competitiveness concerns ahead of the 2026 review of the Carbon Border Adjustment Mechanism. Yet analysts warn that generous free allocation undermines the CBAM’s effectiveness and delays the innovation cycle needed for net-zero production routes.
The proposal now moves to the European Parliament and Council, where member states divided between climate ambition and industrial protection will negotiate the final parameters. A weaker ETS trajectory could also complicate the EU’s international credibility, particularly as it presses trading partners to adopt comparable carbon pricing. The outcome will shape investment decisions across European heavy industry for the next decade.
Read the full report at CleanTechnica.