Overview
- The European Commission published the ETS overhaul on July 17, 2026, setting out a formal proposal that slows the pace of mandated CO2 cuts and pairs relief for firms with new investment conditions.
- The proposal reduces the annual cap decline to about 3.7% from 2031 and to 1.7% from 2036, which keeps more emissions permits available in future years and slows how fast companies must cut CO2.
- Free permit allocations are extended into the late 2030s and will be delivered on an 80/20 basis, with 80% upfront for firms that pledge European decarbonisation investment and the remaining 20% paid after the investments are made.
- The ETS scope is widened to include flights departing Europe up to 5,000 km, smaller ships and phased-in waste incineration, and the plan allows limited use of international offset credits and domestic removal credits.
- Brussels would force stricter rules on revenue use, requiring at least half of ETS proceeds to be reinvested in domestic industry and setting aside hundreds of millions of permits for investment funds, while the text now moves to up-to-yearlong talks in member states and the European Parliament that will determine its final shape.