Key facts
- The EU's Emissions Trading System (ETS) is a cap-and-trade program requiring industries to pay for greenhouse gas emissions.
- The revision aims to balance climate goals with industrial competitiveness and energy affordability.
- Covered sectors include heavy industries like steel, cement, chemicals, and also aviation and maritime transport.
- The ETS has generated over €265.7 billion in revenue since its inception, with a proposal to earmark 50% for industry decarbonization.
- Some industries and countries want the ETS scrapped due to concerns about high energy prices and competitiveness, while others support its continuation.
The European Commission has proposed revisions to the European Union's Emissions Trading System (ETS), a cornerstone of the bloc's climate policy designed to reduce greenhouse gas emissions from heavy industries. The ETS operates on a cap-and-trade principle, requiring polluting industries to purchase allowances for each tonne of CO2 they emit, thereby incentivizing emission reductions and funding green technologies.
The current ETS framework is based on the EU's 2030 climate targets, which aim for a 55% reduction in greenhouse gas emissions compared to 1990 levels, with a legally binding goal of net-neutrality by 2050. The proposed revisions are driven by the EU's new intermediary target to cut net GHG emissions by 90% by 2040, necessitating adjustments to ensure predictability and stability for investments.
Key industries covered by the ETS include steel, iron, cement, chemicals, oil refineries, paper, pulp, glass, ceramics, and aluminium, along with aviation and maritime transport. Flights within the European Economic Area are already covered, and international flights arriving in Europe will be required to pay for emissions from 2029. Large ships calling at EU ports have been included since 2024.
The ETS has generated significant revenue, totaling over €265.7 billion since its inception, with funds intended for clean technologies and the green transition. The Commission now proposes that member states earmark at least 50% of these revenues for the decarbonization of domestic industries, a move that could be politically sensitive as some finance ministries have used ETS income for general budgets.
The proposed revisions have ignited debate. Some industries, particularly the chemical sector, argue that the ETS contributes to high electricity prices, making European industries less competitive against rivals in China and the United States. These concerns are echoed by countries like Italy, Austria, Hungary, and Poland, which have traditionally relied more on fossil fuels. Conversely, countries such as Portugal, Spain, Denmark, and Finland, along with those producing substantial renewable energy, are lobbying to maintain the ETS's climate ambition and revenue streams. Some companies that have already invested in decarbonization also support a robust ETS for regulatory certainty.
The controversy stems from a fundamental trade-off: supporters view the ETS as a cost-effective emission reduction tool, while critics contend it could increase energy costs for industries and households, especially with the planned introduction of ETS2 for road transport and buildings in 2028. The European Council and Parliament will now engage in political negotiations on the Commission's proposals.