EU relaxes carbon market rules and unveils electrification plan

The European Commission has proposed major reforms to the EU Emissions Trading System (ETS) that would extend free carbon allowances for industry until 2038 and slow the annual reduction of emission caps, while also unveiling an Electrification Action Plan aiming for 46% electrification by 2040. The changes are intended to support industry competitiveness but have drawn criticism from environmental groups.

Carbon market reforms

Under the revised ETS, the annual cap reduction rate would decrease from 4.3% to 3.7% between 2031 and 2036, and then to 1.7% thereafter, pushing zero emissions target to the 2040s Source: BBC. Free allowances for sectors covered by the carbon border tax would continue until 2038 instead of ending in 2034 Source: CNA. From 2036, companies could also purchase international carbon credits from outside the EU Source: CNA.

EU climate commissioner Wopke Hoekstra described the approach as "more business-friendly" Source: CNA, while Polish minister Paulina Hennig-Kloska called it "a huge success for Poland" but said they would "fight for more" Source: BBC. However, Green MEP Michael Bloss warned the plans would cause "gigantic climate pollution" Source: BBC, and the WWF questioned how the EU would meet its 2040 target Source: Engadget.

Electrification Action Plan

Separately, the Commission set a target to double electrification of transport, industry, and buildings to 46% by 2040, aiming to cut €260 billion in imported fossil fuel costs . It proposed a principle that electricity should not be taxed higher than gas . The plan also promotes heat pumps and electric vehicles, targeting 100 million heat pumps and 120 million battery EVs by 2040 .