The European Commission proposed a revision to the Emissions Trading System (ETS) on July 17, extending the availability of free pollution permits for industries like steel and cement until 2038. While the overhaul slows the pace of required emission reductions, it introduces a new requirement starting in 2031 that ties these free allowances to domestic decarbonization investments. Companies must invest an amount at least equal to the financial value of the permits they receive into European low-carbon projects.
Under the proposed rules, companies would receive 80% of their free allowances upon submitting a decarbonization plan, with the remaining 20% released once the investment is delivered. Failure to meet these milestones or provide a credible plan could result in the withdrawal of the permits. Since 2013, the EU has issued free CO2 permits valued at approximately €255 billion to help local industries compete with foreign firms.
Investment managers from Storebrand Asset Management and Aberdeen Investments stated the policy could increase corporate accountability by replacing voluntary disclosures with binding, audited plans. However, some investors, including representatives from AkademikerPension, expressed concern that these measures may not fully offset the impact of allowing higher overall emission levels. The proposal will now move to negotiations between EU member states and the European Parliament.