The European Union (EU) has decided to ease regulations on its key climate policy, the Emissions Trading System (ETS), to reduce the impact on domestic industries and enhance competitiveness.
On July 17, the European Commission announced a reform plan for the ETS aimed at slowing the pace of greenhouse gas reductions and increasing investments in green technologies.
Introduced in 2005, the EU ETS imposes limits on carbon emissions from high-polluting sectors such as oil refining, steel, and chemicals, requiring companies to purchase emission allowances. Currently, the price of these allowances is around 79 euros (approximately $86) per ton.
Initially, the EU planned to pressure companies to decarbonize by reducing the annual emissions cap by 4.3% until 2040. However, the new reform adjusts this reduction rate to 3.7% from 2031 to 2035 and 1.7% from 2036 to 2040.
The provision of free emission allowances for high-emission industries has also been extended, with the end date pushed back from 2034 to 2038. A new incentive program will provide 80% of free allowances upfront to companies that can demonstrate decarbonization investment plans, with the remaining 20% granted once the actual investments are made.
This sudden shift by the EU reflects the realities of soaring energy costs due to conflicts in the Middle East and the struggles of European industries caught between the U.S. and China. Some member states, including Italy and Poland, have strongly opposed the current regulations, arguing they hinder growth.
Conversely, Nordic countries and environmental groups advocating for a green transition have vehemently opposed this rollback in climate action, deepening internal divisions.
The EU also unveiled a 'Decarbonization Action Plan' to reduce reliance on fossil fuels. The plan aims to double the share of electricity consumption from the current 23% to 46% by 2040, transforming Europe into a continent centered on electricity to mitigate vulnerabilities from geopolitical risks.
The ETS reform and electrification plan announced are expected to undergo final approval after detailed coordination with member state governments and the European Parliament over the next year.
* This article has been translated by AI.
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