EU Overhauls Emissions Trading to Tighten Carbon Costs

Climate Commissioner Wopke Hoekstra identified aviation as the only major sector where emissions continue to rise, noting that the move aims to counter subsidies offered by non-EEA competitors, particularly in the Gulf. The reform mandates that industrial companies retain free emissions allowances only if they commit to verified green investments. Firms will receive 80 percent of these allowances upon publishing a board-approved plan, with the final 20 percent contingent on documented emissions reductions.

The policy also forces a shift in how member states manage carbon revenues. Historically, national governments spent less than 10 percent of ETS proceeds on industrial decarbonization, despite receiving 80 percent of total revenues. Under the new rules, governments must dedicate 50 percent of their ETS income specifically to sector-wide green investments. While the Commission credits the system with generating €270 billion for climate projects and halving emissions in key sectors since 2005, the proposal now moves to the European Parliament and Council, where intense lobbying is expected to challenge the scope and pace of these changes.