This Friday, the European Commission is expected to unveil its proposal to revise the EU Emissions Trading System (ETS), one of the EU’s flagship climate policies.
By putting a price on carbon pollution, the ETS in theory requires major polluters, in sectors like steel, cement and chemicals, to pay for the emissions they produce. It also generates billions of euros in revenues that Member States must reinvest in climate action, including clean technologies as well as a just transition for households, workers and affected communities. This revision is the first real test of the EU’s commitment to its 2040 climate target, setting the tone for a wave of other climate policy revisions later this year.
What is happening and why does it matter?
In recent months, the ETS has become the subject of intense political debate. Some Member States and industry stakeholders have wrongly blamed it for high energy prices, where unreliable and dirty fossil fuels are mostly to blame. Rather than weakening the ETS, the EU’s dependence on fossil fuels underlines the urgency of leveraging the system to break that reliance.
At the same time, several Member States, businesses and civil society organisations have warned that weakening the ETS would undermine investment certainty, slow climate action and penalise companies that have already invested in decarbonisation while rewarding those that delay action.
The ETS also enjoys strong public backing. A recent YouGov poll found that 72% of EU citizens support the polluter-pays approach underpinning the ETS, including majorities among voters of parties that have criticised the ETS, such as Meloni’s Fratelli d’Italia.
Camille Maury, Senior Policy Officer on Industrial Decarbonisation at WWF EU: “Policymakers should listen not only to the industry lobbyists calling for a weaker ETS, but also to EU citizens who support a strong carbon price based on the polluter pays principle. This review is the first real test of how serious the EU is about meeting its 2040 climate target.”
“The key question is who the EU wants to reward. A strong ETS provides certainty for companies investing in decarbonisation and underpins Europe’s long-term competitiveness. Europe needs a system that rewards industrial frontrunners, not the laggards resisting change,” concluded Maury.
What does WWF want?
WWF is advocating that EU policymakers stay the course with the ETS and in particularly:
- Keep the current Linear Reduction Factor (LRF) and the ETS cap trajectory
The ETS cap sets the maximum amount of pollution covered by the system, while the Linear Reduction Factor (LRF) determines how quickly that cap declines over time. WWF is advocating for the current LRF to remain unchanged until 2036 as to preserve the carbon price signal and provide investment certainty. Weakening it would also increase emissions under the ETS, even a one percentage-point reduction in the LRF until 2035 would significantly increase cumulative emissions, which would shift the burden of emissions reductions onto other sectors, such as agriculture, buildings and transport.
- Continue the phase-out of free permits to pollute
Many companies still receive freebies, meaning free permits to pollute under the ETS. WWF is calling to maintain the agreed phase-out of freebies for sectors covered by the Carbon Border Adjustment Mechanism by 2034. The European Court of Auditors has already warned that free permits to pollute slow industrial decarbonisation.
WWF believes revenues from these permits should instead be reinvested through the Innovation and Modernisation Funds to support the transition. However, if any remaining freebies exist, they should be strictly linked to decarbonisation investments and measurable emissions reductions.
- Use ETS revenues strategically
Most revenues go to Member States, while some are allocated to the Innovation Fund and Modernisation Fund. Under the current rules, all ETS revenues shall support climate action.
Over the next five years alone, the system is expected to generate €120-150 billion. This presents a major opportunity to accelerate industrial decarbonisation, expand renewable energy and support households through the transition.
To maximise their impact, greater transparency and stronger safeguards are needed to ensure these funds are spent as intended and exclude support for fossil fuel-related activities and infrastructure. Phasing out freebies more quickly would also increase the resources available for these investments.
- Safeguard the integrity of the ETS
The integrity of the ETS cannot be compromised. Introducing international credits or carbon removals into the system would dilute the carbon price, and weaken incentives for European industry to invest in actual emissions reductions.
