On 17 July, the European Commission published its proposal to revise the EU Emissions Trading System (EU ETS), marking the start of the legislative process with the European Parliament and the Council. The revision aims to maintain the EU ETS as a key instrument for achieving climate objectives while strengthening industrial competitiveness and supporting the clean transition.
The revision of the EU ETS aims to support industry during the clean transition while ensuring that the EU remains on track to meet its climate targets. The proposal introduces a more gradual emissions reduction pathway by adjusting the pace at which the ETS cap declines, with a Linear Reduction Factor of 3.7% per year for 2031–2035 and 1.7% per year for 2036–2040. This approach gives companies more time to adapt while remaining consistent with the EU Climate Law. It also provides additional flexibility by allowing the use of up to 2% high-quality international carbon credits between 2036 and 2040, supporting emissions reduction projects outside the EU and helping sectors facing greater decarbonisation challenges.
Furthermore, a key element of the revised ETS is its stronger focus on investment in industrial decarbonisation. The Commission proposes establishing a €100 billion Industrial Decarbonisation Bank to support European industries in adopting cleaner technologies. The ETS Investment Booster would provide funding before 2030, while the Innovation Fund would continue supporting the development and commercial deployment of innovative clean technologies. Member States would also be required to allocate 50% of their ETS revenues to decarbonising ETS sectors, helping mobilise more than €100 billion in investment before 2030. The proposal also maintains the principle of solidarity through the Modernisation Fund, which will continue supporting lower-income Member States in upgrading energy systems, transforming industry, and advancing the clean energy transition.
Moreover, the proposal maintains support measures for industry while strengthening incentives for decarbonisation. Free allocation of emissions allowances will continue beyond 2030 but will become more closely linked to companies’ investments in clean technologies and emissions reductions in Europe.
Maritime Implications: Overall, the European Commission has not reopened the core architecture of ETS Maritime but instead proposes a series of targeted amendments aligning the ETS with the 2040 climate target, reducing risks of evasion, preparing for the future IMO global carbon pricing mechanism, providing direct financial support for maritime decarbonisation, and simplifying implementation.
The most strategically important developments are the creation of a dedicated ETS-funded maritime decarbonisation support mechanism and a commitment to review the EU ETS if the IMO adopts a global market-based measure, so as to avoid double payment without weakening the EU carbon price signal. Furthermore, the maritime ETS is strengthened through an extension to smaller vessels (400 to 5,000 gross tonnage) and the establishment of the Sustainable Maritime Alternative Propulsion (SMAP) support mechanism. SMAP will utilise 110 million allowances between 2028 and 2040 to fund the uptake of sustainable fuels and zero-emission propulsion technologies. To protect the Single Market, the proposal includes reinforced safeguards against evasion and simplifies compliance by merging reporting cycles for ETS and FuelEU Maritime. Current derogations for ice-class ships and outermost regions are extended to 2035, and a review clause is included to avoid double payments once a global IMO measure is adopted.
Kindly note that CUS is closely monitoring the matter and will provide further updates regarding its proposals and positions in due course.
In this context and for your reference, ECSA previously shared its position on the matter earlier this week, which can be found in the links below. In its latest communication, ECSA highlighted what works, what needs improvement, and what should be strengthened in the proposal.
What works:
What needs improvement:
What must be strengthened:
Related Article:
EUROPEAN COMMISSION 17/07 - Proposal for EU ETS
ECSA 15/07 - European Shipowners urge Commission to deliver on key EU ETS conditions