European Commission lays out core priorities for ETS July review

The European Commission has laid out its key priorities for the upcoming review of the Emissions Trading System, eyeing a predictable carbon price, strengthening investment and ensuring an even playing field for sectors covered by the cap-and-trade scheme, according to a document seen by Platts, part of S&P Global Energy.

The project brief was circulated ahead of a commission orientation meeting taking place June 10. It highlighted three core objectives for the review, including improving support for Europe's industrial and clean tech sectors in the 2030s.

"The review will preserve the strength of the carbon market and its price signal as a driver for investments," the EC said, adding that it will "adapt its design and introduce targeted simplifications to reduce administrative burden and make the system more effective," including simpler monitoring, reporting and verification of maritime emissions and simplified reporting for air carriers. The draft also said that the review will align the ETS with the 2040 and 2050 climate targets, allowing "for a more gradual decarbonization pathway."

Executive Vice-President of the European Commission for Cohesion and Reforms Raffaele Fitto said the orientation talks were constructive, with the EC now working toward the July 15 deadline for the ETS review.

"The discussion and the contributions were very, very positive and important for this very crucial goal of July 15," Fitto said at a press conference following the meeting.

Carbon removal inclusion in the ETS was also part of the discussion, alongside a review of the Market Stability Reserve, which governs the supply-and-demand dynamics of EU Allowances.

Free allocations

Strengthening investment in green energy was another core priority, the document showed.

The commission said the review will "ensure that substantial ETS revenues are invested in innovation, clean tech and industrial decarbonization in a cost-effective manner," adding that it would look to extend free allocations "while clearly linking it to much-needed investments inside Europe."

It said that the Innovation Fund will continue to support first commercial applications in technology, supplemented by the Industrial Decarbonization Bank with Eur100 billion ($115 billion) in funding within the governance of the future Competitive Fund.

The ETS Investment Booster will help kick-start investments, the commission said, adding that the booster will be available before 2030 "to ensure timely supply."

Finally, the EC said the review will need to ensure member states are compelled to spend more of their national ETS revenues on investments in decarbonization of the ETS-covered sectors.

"Specific mechanisms ensuring continued solidarity with lower-income Member States, such as the redistribution of 10% of auctioning revenues, the Modernization Fund, and guaranteed access to the ETS Investment Booster, will continue to assist lower-income Member States in modernizing their energy system and accelerating industrial transformation," said the commission.

The EU's carbon market has emerged as the unlikely flashpoint in Europe's industrial competitiveness debate, with political pressure mounting throughout 2026 over its impact on heavy industry and manufacturing.

This political pushback dragged EU carbon prices down by almost Eur30/mtCO2e ($34.93/mtCO2e) in mid-March since mid-January, when prices were near Eur93/mtCO2e.

But values have recovered since March after the commission confirmed it will address these concerns in its ETS review proposal in July, which will examine critical aspects of the carbon market architecture, including the trajectory of free allowances to energy-intensive industries, supply-and-demand mechanisms, and sectoral expansions.

Aviation

The commission further said that the review should ensure that all sectors under the ETS contribute fairly to the EU's climate targets.

"This includes applying an effective carbon price signal to the EU's fair share of aviation emissions for extra-European flights," said the EC.

The scope of aviation under the EU ETS, including the option of extending coverage to departing international flights, has been featured in previous EC-stakeholder engagements. While the industry opposes such an expansion, citing administrative hurdles and overlapping obligations, others have argued that most aviation emissions linked to Europe remain outside the ETS and that reliance on CORSIA is inadequate.

The Carbon Offsetting and Reduction Scheme for International Aviation, or CORSIA, is the UN's global market-based carbon credit scheme, managed by the International Civil Aviation Organization and is aimed at reducing emissions from international aviation.

Platts last assessed the CEC price for CORSIA-eligible credits at at $9.90/mtCO2e on June 9, the lowest level since June 2024.

Meanwhile, EU Allowance prices are trading at significantly higher levels, with the latest Platts assessment for the nearest-December benchmark at Eur76.10/mtCO2e ($87.92/mtCO2e) on June 9.