La European Commission recalibrates its climate strategy to prevent the transition from becoming a further obstacle to competitiveness. Brussels has presented a review of the ETS emissions market which slows down, starting since 2031, the rreduction of the CO2 ceiling and maintains longer free shares intended for sectors exposed to the risk of relocation.
The reform is accompanied by a Action Plan for Electrification, with the aim of increasing the share of electricity in European energy consumption from the current 23% to 46% by 2040. According to Commission estimates, the result could allow the Union to save €260 billion annually on fossil fuel imports.
The reduction in quotas will slow down from 2031
The ETS system will continue to provide for a annual decrease of the emissions cap, but with a slower pace compared to the current path. The linear reduction factor, expected to reach 4,4%, will be reduced to 3,7% between 2031 and 2035 and will decrease to 1,7% from 2036. The proposal is thus more industry-friendly compared to the hypotheses circulated in the previous weeks and responds at least in part to the requests made by the production sectors most exposed to the cost of energy and CO2. The Commission has also included a safeguard clause which provides for a review from 1 January 2033, with particular attention to the availability and quality of international credits usable from 2036.
The European system, introduced in 2005, operates through a "cap and trade" mechanism. Brussels sets an emissions cap and allocates a corresponding number of allowances, each equivalent to one ton of CO2. Companies can buy and sell certificates according to their needs, while those considered most exposed to international competition receive a portion of the allowances for free.
Free certificates beyond 2030, but tied to investments
The review also extends the deadline after 2030. free distribution of certificates to companies This risks shifting production to countries with less stringent climate regulations. Between 2031 and 2035, the decline in allocations will be more gradual, while in the subsequent period, companies will be able to rely, within a 2% limit, on decarbonization projects implemented in third countries.
However, the free allowances will not be distributed without conditions. Eighty percent of the certificates will be awarded to companies that publish concrete emissions reduction projects each year. The remaining 20 percent will be assigned only after the submitted programs have been effectively implemented. "The goal is to ensure that the ETS becomes an investment tool, compatible with climate, competitiveness, and energy independence objectives," explained the European Commissioner for Climate Change. Wopke Hoekstra.
Brussels thus aims to transform the carbon market from a simple emissions penalty system to a lever to finance innovation and industrial reconversionThe proposal in fact provides that at least half of the revenue generated by the auctions must be allocated to decarbonisation interventionsAccording to Hoekstra, today only 10% of revenues go directly to support the industry.
Electrification as a response to energy dependence
The revision of the ETS is accompanied by a plan for accelerate the use of electricity in industry, transport, and buildings. Although 70% of Europe's electricity is already produced from clean domestic sources, electricity's share of total energy consumption has been stagnant at 23% for about ten years.
The Commission wants bring it to 46% by 2040, addressing the price gap between electricity and fossil fuels and allowing Member States to reduce network charges and taxes for certain categories of consumers and energy-intensive businesses. The plan also includes greater deployment of smart meters, financial instruments to reduce the upfront costs of heat pumps, batteries, and electric vehicles, and new investments in networks, considered essential to sustaining increased demand.
“The best way to reduce Europe's dependence on fossil fuels is fuel our economy with electricity produced from clean, domestic sources“, said Commission President Ursula von der Leyen. “From reducing electricity prices to adapting our carbon market to new global realities, this is also a plan for investment and independence.”
Waste, aviation and maritime transport in the new perimeter
Finally, the reform proposes to gradually expand the scope of the ETSWaste management is among the sectors expected to be affected, although Brussels has introduced safeguards to take into account the specificities of a sector in which the client is often public and companies do not directly control the quality of the materials treated.
The Commission also intends to extend the system to private flights and commercial connections within 5.000 kilometers of central Europe. In the maritime sector, the scope could also be extended to some ports in third countries close to the Union.
Since 2005, the ETS market has generated over €270 billion and, according to Brussels, has helped reduce emissions in the sectors it covers by 50%. The new approach now seeks a balance between climate objectives, the protection of European production, and the need to mobilize capital for the transition. "We must abandon the idea that climate and economy cannot go hand in hand," said Hoekstra. "In reality, they can go hand in hand."
