How does the EU's proposed overhaul of the ETS slow the pace of emissions reductions?

The European Commission proposed lowering the 'linear reduction factor'—the annual rate at which the cap on CO2 permits declines—from 4.3% to 3.7% in 2031 and 1.7% in 2036, and halving the market stability reserve’s adjustment rate from 24% to 12%, both of which increase permit availability and allow industries to emit more CO2 for longer. Additionally, the EU will use international carbon offset credits to cover 2% of required emissions reductions, further softening domestic abatement efforts.

What changes does the EU propose regarding free CO2 permits for heavy industry?

The Commission proposed extending free CO2 permits for sectors like steel and cement production until 2038 instead of ending them in 2034, reducing the annual benchmark cut rate from 2.5% to 2% starting in 2030, and introducing conditional disbursement—80% upfront for companies with decarbonisation investment plans in Europe and the remaining 20% only after implementation—while exempting the top 10% most efficient installations from these conditions.

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