Brussels Unveils Overhaul of Flagship Carbon Market

The Commission’s proposal includes a significant concession to European industry by slowing the linear reduction factor, which dictates how quickly the annual cap on carbon allowances shrinks. Under the new plan, the rate will drop to 3.7% between 2031 and 2035 and 1.7% thereafter. This adjustment prevents the allowance cap from hitting zero by 2039, a shift Climate Commissioner Wopke Hoekstra defended as fully compliant with existing climate laws despite pushback from environmental advocates.

Aviation reforms are also on the table, with the Commission proposing to expand the carbon market to include all departing flights to destinations within a 5,000-kilometre radius. This move targets a significant gap in current regulations, which largely exempt long-haul travel to regions like the United States and China. According to data from the NGO Transport & Environment, this expansion aims to claw back some of the €8.5 billion in emissions costs that airlines avoided last year.

Finally, the proposal mandates that member states dedicate at least 50% of future carbon market revenues to supporting domestic industries. This marks a shift in how the ETS functions, moving away from the common practice of using carbon income to plug national budget deficits. By tethering revenue directly to industrial transition support, Brussels hopes to secure political buy-in from member states wary of the economic fallout from aggressive decarbonization.