Reform of the Emissions Trading System (ETS) in the EU

Free (emission) allowances for companies in the EU will gradually be phased out in 2026 and disappear completely from 2034.

The Emissions Trading System (ETS) in the EU is considered to be a central tool of European climate policy on the way to the targeted climate neutrality in Europe. The ETS determines the price of European greenhouse gas emissions and therefore ultimately leads to such emissions being reduced because it sets a systematic incentive for affected companies to specifically drive forward climate-friendly investments. The ETS is an integral part of "Fit for 55 in 2030" through which the EU intends to significantly reduce emissions generated in its territory. 

All companies which generate at least 20 megawatts of electricity or heat from fossil fuels in the course of their business activities participate in the Emissions Trading System. Operators of energy-intensive plants in the steel, cement or oil industries are therefore the ones primarily affected. 

EU bodies have agreed on a reform of emissions trading

Between 2026 and 2034, the number of free (emission) allowances for companies will gradually be reduced until they are completely abolished in 2034. For the aviation sector, free (emission) allowances are to already become a thing of the past from 2026. In addition, the quantity of available free (emission) allowances will successively become scarcer meaning that the market price will increase on the basis of general principles. 

Finally, starting next year, cargo and passenger ships of 5000 gross registered tonnes and upwards will also be included in the Emissions Trading System. 

At the same time, the Member States have agreed to put a stop carbon leakage to non-EU countries and to also introduce an Emissions Trading System (ETS II) for carbon emissions in the transport and building sectors by 2027. 

In summary, it can be said that the emission of greenhouse gases within the EU will in future be controlled across all sectors exclusively via emission rights and that the intention is for the market price of environmentally harmful activities to increase. 

Companies should keep an eye on the reform of the Emissions Trading System and develop company-specific strategies for the future

Affected companies would be well-advised to prepare for these changes in the market at an early stage and to draw up a company-specific strategy for the future. This is a question of sustainability and profitability, but also a question of which investments are sensible, profitable and minimise risks. 

Various subsidies are now available as well as (in some cases also subsidised) financing options for these kinds of investments. In some cases, financing is only or primarily made available for these kinds of purposes, for example by KfW and state banks, but also by house banks, which, due to regulations and equity requirements, must look carefully at what kind of financing they can still provide and are still permitted to provide.