EU proposes major reform of CO2 trading system to balance climate goals and industry concerns

The European Commission has unveiled a significant overhaul of its Emissions Trading System (ETS), the world's largest carbon market. This reform, the most substantial since the system's launch in 2005, seeks to navigate the complex challenge of combating climate change while safeguarding European industries from collapse.

At the core of the ETS is the principle that major CO2 emitters must hold certificates for every ton of greenhouse gas they release. The system traditionally tightens emissions pressure by gradually reducing the total number of available certificates each year, thereby increasing their price and incentivizing investment in cleaner technologies. However, the Commission acknowledges that the global landscape has shifted, with European industries facing unequal competition and substantial state subsidies abroad.

"The world has changed significantly," stated Wopke Hoekstra, the EU Commissioner for Climate Policy. "European key industries are confronted abroad with unequal playing field, heavy state subsidies, dumping, dubious working conditions. All this has caused devastating damage in key sectors of our economy."

To address these concerns, the proposed reforms include easing the burden on heavy industries. The rate at which emissions allowances are removed from the market will slow down, decreasing by 3.7 percent annually between 2031 and 2035, and then by 1.7 percent from 2036 onwards, a less aggressive reduction than the previously planned 4.4 percent annual decrease. Additionally, the Commission proposes extending the period during which industrial companies receive free certificates, pushing the end date from 2034 to 2037. Currently, 47 percent of ETS certificates are allocated for free, a measure intended to discourage companies from relocating production to countries with less stringent climate policies, a phenomenon known as 'carbon leakage'.

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The world has changed significantly. European key industries are confronted abroad with unequal playing field, heavy state subsidies, dumping, dubious working conditions. All this has caused devastating damage in key sectors of our economy.