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The European Commission has published its proposed revision of the EU Emissions Trading System (EU ETS). The package touches nearly everything: how fast the emissions cap declines, how long industry keeps free allowances, whether removals can be sold into the scheme, and how far Brussels leans on international credits and CORSIA to hit its 2040 target of a 90% net emissions cut below 1990 levels.
This is a proposal, not law — it now heads into negotiation with Parliament and Council, likely a 12–18 month process, and every figure below is still open. This is the moment the EU decides how hard to keep pushing industrial decarbonisation, and how a scheme that's already halved Europe's industrial emissions since 2005 adapts to years of energy shocks and competitiveness anxiety.
Below, we break down what's changed by topic — and what it means for those trading, buying, developing, and investing in carbon markets.
The EU ETS and CORSIA
Going into the proposal, the expectation was that CORSIA's Phase 2 rules would bite hard on the EU side: flights departing EU airports were widely expected to fall under the EU ETS rather than CORSIA, stripping a meaningful share of demand from CORSIA-eligible units.
What Brussels has actually proposed is narrower than that. The "stop-the-clock" exemption that's shielded international flights from the ETS stays in place, with one carve-out: flights heading from Europe to any airport within 5,000km of the “geographical centre of the Union” come into scope from 2029.
That pulls in routes like Doha, Istanbul, and Dubai while leaving transatlantic and China routes under CORSIA. The Commission will revisit the wider scope in 2032, reverting to the narrower geography if CORSIA is judged sufficiently ambitious and effective by then.
Paired with the proposal to drop the EU's additional eligibility criteria for CORSIA Phase 1 (CP1) units, this looks less like a threat to the CORSIA market and more like exactly the boost it's needed — demand erosion that industry had been bracing for isn't materializing, and eligibility just got easier at the same time. Alongside both changes, the EU plans to keep CORSIA running in EU law through 2027–35 (its Phase 2), with a deduction mechanism so airlines aren't paying twice under both schemes.
For a deeper look at what this shift means for airlines, credit sellers, and other players across the carbon market, see our dedicated blog on CORSIA.
Carbon removals: the ETS opens a door, but doesn't say what's behind it yet
The design question has been answered, at least in outline: this won't be an open removals market. The Commission's proposal integrates 250 MtCO2e of permanent removals into the ETS, phased in over a decade from 2031 to 2040, with direct air capture and BECCS the two technologies expected to qualify under the EU's Carbon Removals and Carbon Farming (CRCF) certification framework.
But emitters won't be able to buy CRCF credits from any certified project directly — the same new centralized body handling international credits (the "shopping proposal," in the Commission's own words) will procure removals on their behalf, and companies can only use volumes sourced through that body to offset their own residual emissions.
That's a meaningful guardrail against compliance demand flooding a still-unsettled quality market — land-use accounting is still being litigated by environmental groups, so the underlying additionality debate isn't resolved. But the market-structure question — direct fungibility versus a controlled, intermediated pool — has been decided in favor of the latter.
For project developers and removals suppliers, this creates a single, powerful buyer rather than open compliance-market access.
For investors, how that purchasing body prices and allocates procurement is now the thing to watch alongside the CRCF registry itself.
International Article 6 credits: direct compliance value, centrally gated
The Commission's proposal lets international credits count directly toward ETS compliance from 2036 but only through a new centralized body that will vet and purchase credits on operators' behalf, rather than letting companies source and surrender units themselves. The cap: 260 million credits between 2036 and 2040, representing the ETS's share of the broader 5% point ceiling EU leaders agreed for the bloc's 2040 target.
The remaining share of that 5% is expected to be delivered outside the ETS through national policies. Credits don't start counting until 2036, preceded by a 2031–2035 pilot phase meant to build up market infrastructure and quality standards. The Climate Law itself doesn't fix the eligibility criteria — origin, quality, and other conditions are left to future EU legislation still being drafted — and the same centralized body expected to handle procurement will also vet credits before they can be used for compliance.
Averaged over five years, 260 million credits works out to roughly 52 million a year — close to the ~50 million figure implied by a flat 5% offset cap on the ETS's ~1,009 MtCO2e of facility emissions (year 2025), so the headline scale hasn't moved much. What has moved is the mechanism: direct compliance use, gated by a single EU purchasing and vetting body rather than an open market that operators can access individually. That centralization may matter more for credit quality and pricing than the volume cap itself.
So what does this mean in practice?
Open-market access some buyers and intermediaries were positioning for isn't coming — one centralised counterparty replaces direct sourcing from operators.
For project developers, it's a narrower but more concentrated channel: one buyer, one quality bar, for the whole pool.
For investors, centralised vetting likely raises the quality floor, but ties pricing and volume to one body's decisions rather than the wider market. And with a 2036 start date, this is a mechanism to plan around, not trade on yet.
Everything else: pace, free allowances, and the fight over competitiveness
How fast does the cap keep falling?
The Linear Reduction Factor — the rate at which the ETS cap shrinks each year — has been the most contested figure in this process, and now we have the actual numbers.
It holds at 4.4% through 2028–30, then drops significantly: to 3.7% for 2031–35, and down to just 1.7% for 2036–40. Officials say that's a deliberate trade-off — the current trajectory would have hit zero allowances by 2039, which almost nobody in industry believed was realistic — designed to make the path to the 2040 target "more manageable and gradual" while still hitting the 90% cut cost-efficiently.
See our deeper breakdown of these implications here.
Commission officials indicate roughly 55% of the emissions reductions needed between 2030 and 2040 should come from ETS sectors directly, with the rest depending on how much room removals and international credits end up filling.
Free allowances and CBAM, running in parallel.
Free allowances are being rebuilt as "investment allowances": 80% paid out once a company publishes board-endorsed decarbonisation plans, the rest only after those investments and cuts are actually delivered — with top performers exempted from the conditionality. CBAM-exposed sectors now keep free allocation until 2038, not 2034, doubling as leakage protection.
A fast-tracked side proposal also loosens fallback benchmarks through 2030, freeing up ~80 million allowances (€6bn) and widening the buffer reserve to 4%. Add a strengthened Market Stability Reserve (MSR), and together this sets how much allowance supply stays in the system — the floor for how much real demand ever reaches removals and credit markets.
For deeper details on what the revision means for the commodity market, including EACs, check this blog.
Get more data and detail
The CORSIA and Article 6 provisions discussed here are exactly the subjects we track closely in Sylvera's Article 6 & CORSIA Hub. The platform brings together our ongoing analysis, data, and ratings on international credits and aviation offsetting, including the modelling behind the CORSIA demand shift referenced above. If you want to go deeper on credit demand, pricing, and quality, get a demo here.
