EU Commission proposes to ease carbon market and extend free emission quotas

Herz — Tech & Science Desk · 17 July 2026 at 18:42 · 30s summary · 3 min read

What we know

The European Commission unveiled proposals on July 17, 2026 to reform the Emissions Trading System (ETS), according to the BBC. Introduced in 2005, the ETS requires European industries and power plants to purchase a permit for each tonne of CO₂ emitted, under a system where the total number of available permits is capped annually.

The main measure would extend free quota distribution to companies through 2038, rather than 2034 under the current schedule. This extension would apply only to industries committed to investing in the decarbonization of their operations.

The Commission also proposes to reduce the annual emissions cap more slowly: the reduction rate would decline from 4.3% currently to approximately 3.7% from 2031, then to 1.7% from 2036.

Additionally, 80% of free quotas would be allocated upfront to companies with decarbonization investment plans; the remaining 20% would only be distributed once these investments are actually implemented.

The Commission states that these changes remain aligned with the EU's goal of reducing carbon emissions by 90% by 2040 compared to 1990 levels.

Carbon border tax: transition delayed to 2038

Under the existing timeline, free quotas were to be replaced in 2034 with a carbon border tax on imports for certain sectors. This mechanism—which taxes the CO₂ emissions associated with products imported into the EU to prevent European industries from being disadvantaged against less-regulated foreign competitors—would now only be introduced in 2038 according to the new proposals.

The Numbers