The European Commission plans to slow the pace of the EU emissions trading system (ETS) to align it with the bloc's 2040 climate targets, rather than the current 2030 trajectory, the commission said at a stakeholder roundtable on the system's upcoming review, scheduled for 15 July.
This change would result in EU ETS allowances being issued well into the 2040s, the commission said. Under current rules, the ETS supply cap was expected to fall to zero by 2039.
The commission said the shift would translate to a lower linear reduction factor (LRF), which sets the annual rate at which the ETS supply cap falls. The LRF is currently set at 4.3pc until 2027 and 4.4pc from 2028, a level that centre-right EPP lawmaker Peter Liese described in February as "quite dramatic". The commission has not specified the extent to which it aims to reduce the LRF.
The commission is also considering reforms to the market stability reserve (MSR), which could include the introduction of a dynamic threshold. Under this approach, the volume of allowances released would decline annually, at a fixed percentage, in line with reductions in overall market size, rather than the current fixed release rate of 100mn permits.
This reform would complement the commission's proposal in April to stop the automatic cancellation of ETS allowances and retain permits held in the MSR above the current 400mn threshold, it said.
The review will also examine ways to increase transparency around member state spending of ETS revenues. While 78pc of past ETS revenues have gone to national budgets, only 5pc of spending has supported industrial decarbonisation, the commission said. Since 2023, member states have been required to allocate all ETS revenues to climate and energy purposes.
International credits could also be indirectly integrated into the ETS. The commission is preparing a separate assessment on how such credits might fit into the framework, but it has confirmed that direct use of international credits for ETS compliance, as previously allowed, will not be permitted.
The review may also address the maritime and aviation sectors. The ETS could be extended to some small vessels to ensure a level playing field with larger ships, the commission said.
In the aviation sector, the commission may also reduce ETS obligations where the carbon offsetting and reduction scheme for international aviation (Corsia) applies to extra-European flights, while continuing to assess the integrity of Corsia offsetting.
Following the review in July, the European Council, Parliament and Commission are expected to agree on the proposed changes in the first quarter of 2027, with implementation planned for 2028.
