The European Commission proposed on Friday to significantly slow the reduction of emissions allowances under the Emissions Trading System, cutting the annual decline to 3.7% between 2031 and 2035 and then to just 1.7% from 2036 to 2040, after ten member states demanded a more flexible carbon market to shield industry.
The overhaul would extend free allocation of CO2 permits and weaken the bloc's carbon trajectory for industry, a move loudly demanded by leaders including German Chancellor Friedrich Merz and Austrian Chancellor Christian Stocker. In return, companies and governments would have to invest more heavily in industrial transformation, and member states must earmark at least half of ETS revenues for greener industry. The aviation sector would pay for emissions on more flights, excluding the longest routes.
The plan also supports carbon-removal technologies to absorb 250 million tonnes of CO2 and would allow up to 2% international carbon credits from 2036. Chemical maker Solvay welcomed the proposal, saying it brings the carbon market closer to industrial reality.