A leaked Commission note reveals plans to tie free ETS permits to industry decarbonisation commitments, signalling a high stakes July 15 proposal.
The European Union is considering changes to the emissions trading system (ETS). According to an internal European Commission document, which became known in June 2026, the plan is to extend free allowances for certain sectors in exchange for investments in decarbonization and support for local development.
ETS remains the EU’s main tool for limiting CO2 emissions: enterprises, power plants, ships, and aviation are required to buy allowances for each polluting emission.
Currently, heavy industry receives part of the quotas for free to ensure competitiveness relative to companies outside the EU that do not pay for carbon costs.
The document notes that the Commission plans to propose an ETS review on July 15 this year. It also proposes obliging Member States to spend a larger portion of ETS revenues on decarbonizing industry.
Key directions for the upcoming ETS revision
– Expanding ETS coverage to international air travel, ensuring a ‘fair share’ of emissions, but without detailing the steps.
– Reviewing the permit supply mechanism by refining the special reserve to reduce price volatility after minor changes were proposed in March.
– Simplifying rules for shipowners and air carriers within the new regulatory framework.
– Preserving and developing existing components of the ETS: a fund to support innovative low-carbon technologies and a mechanism by which 10% of permit revenues are directed to EU countries with lower incomes.
– Considering the gradual inclusion of waste-to-energy plants in the ETS as part of the overall system.
Overall, the upcoming ETS revision demonstrates the EU’s commitment to maintaining a balance between supporting the competitiveness of European companies and accelerating the transition to a cleaner economy through funding decarbonization initiatives and increasing the participation of lower-income countries in this system.