EU proposes to relax carbon market to boost industrial competitiveness

The European Commission has proposed a reform to the EU Emissions Trading System (ETS) that would allow industry to emit more CO2 for longer, in a bid to ease energy costs and protect competitiveness. The plan, announced on 17 July 2026, reduces the annual emissions cap reduction rate from 4.4% to 3.7% (2031-2035) and 1.7% (2036-2040), extends free allowances beyond 2034, and introduces international credits from 2036. In exchange, companies must present tangible decarbonization plans and invest in green technologies Source: La Vanguardia; Source: El Mundo.

Key proposals

The reform slows the overall emission reduction trajectory while maintaining the 90% net reduction target for 2040. Free allowances will be extended to 2038, with 80% granted upfront and the remaining 20% contingent on proven investment in cleaner processes Source: El Confidencial. Additional support of €4 billion in emission permits is earmarked for chemicals and refineries Source: La Vanguardia. The Commission also proposes expanding the ETS to flights over 5,000 km, municipal waste incineration, and more maritime activities Source: El Español.

Reactions and divisions

The proposal has deepened splits among member states. Spain and Nordic countries oppose any weakening of climate ambition, while Poland, Italy, and the Czech Republic push for even greater industry relief Source: Infobae; Source: El País. Climate activists warn the reform delays necessary action, yet the Commission insists flexibility is vital for competitiveness against China and the U.S. Source: Euronews.

Broader energy plan