EU extends carbon allowance timeline, boosts industry funding under ETS overhaul

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EU extends carbon allowance ETS reform

Highlights

European Commission proposes mandating at least 50 per cent of member states’ annual €24bn ETS revenue for industrial decarbonisation, up from less than 5 per cent.
ETS free carbon allowances, now priced at about €80/tonne, would be extended up to 2048, with steel and aluminium industries eligible for free permits until 2038 if they invest in Europe.
The ETS reform faces mixed political support, with negotiations targeted for resolution by early 2027 and expectations of a slower industrial transition impacting carbon price signals.

ETS reform links funding to industrial decarbonisation

As reported by Financial Times, the European Commission proposes a broad revision of the emissions trading system that channels a larger share of carbon market revenue into cleaning up industrial operations while extending the life of free allowances for major emitters.

Climate commissioner Wopke Hoekstra says at least half of member states’ annual €24bn income from carbon costs would have to go towards industrial decarbonisation, compared with less than 5 per cent now. He also says companies would keep receiving free allowances if they commit to invest in Europe, with businesses eligible for 80 per cent of free permits upon presenting an investment plan and the remainder after the investments are completed.

The ETS raises about €40bn a year for the EU and currently prices carbon at about €80 a tonne, down from a peak of more than €90 earlier this year. A senior official says the allowance regime, originally due to end by 2039, would now continue until as late as 2048, while sectors such as steel and aluminium would be able to collect free allowances for an additional four years until 2038.

Longer transition period draws mixed political response

Hoekstra argues the revision remains consistent with the EU’s 2050 net zero target, even as critics say the longer transition weakens incentives for early movers that have already invested in reducing emissions. The ETS covers industries responsible for 40 per cent of Europe’s carbon emissions and is estimated to have nearly halved their pollution since 2005, largely through cuts in the power sector.

The extension is opposed by several climate-focused governments, including Nordic countries and Spain, but it still falls short of what Italy, Poland and other central and eastern member states seek. Joop Hazenberg of CLG Europe says the approach gives slower-moving industries more room to catch up while reducing the expected carbon price signal for frontrunners, which he says will lead to higher emissions and a slower industrial transition.

The proposals now move into negotiations with member states and the European Parliament, with the Commission targeting early 2027 for agreement. In a separate clean energy plan released the same day, energy commissioner Dan Jørgensen also sets a nonbinding goal to raise the EU electrification rate to 46 per cent by 2040 from 23 per cent, though that plan receives mixed feedback amid criticism over the lack of new funding.

We previously reported on the FAA’s push for a major upgrade of the U.S. air traffic control system as air travel demand is expected to double over the next 20 years. In that article, the agency sought an additional $10 billion on top of $12.5 billion already approved, arguing that the network is safe but increasingly inefficient and at risk of capacity strain without accelerated modernization.

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