The European Commission has proposed significant changes to the EU Emissions Trading System (ETS) aimed at accelerating climate action and addressing carbon leakage. Here are the key points:
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Carbon Border Adjustment Mechanism (CBAM): The CBAM will be phased in gradually from 2026, replacing free allocation of emissions allowances for certain industries. This aims to prevent companies from moving production outside the EU to avoid higher costs.
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Free Allocation Phase-Out: Free allocations are being phased out between 2026 and 2038, but the commission proposes reintroducing 15% of these allocations starting in 2028 to mitigate carbon leakage risks.
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Emissions Cap Reductions: The proposal suggests a slower reduction in emissions caps from 2031 onwards:
- From 4.4% annually (2028-2036) to 3.7% per year over 2031-35.
- Then dropping to just 1.7% annually over 2036-40.
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Aviation Sector: The proposal includes more airline emissions in the ETS:
- From 20
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