Brussels Redesigns Its Carbon Market for the 2030s, Betting €100 Billion on Industry Buy-In
- ▸The European Commission proposed a reform of the EU Emissions Trading System on July 17, 2026, setting the legal framework for Phase 5 (2031-2040) and aligning it with the EU's target of a 90% net reduction in greenhouse gas emissions by 2040 versus 1990 levels.
- ▸The centerpiece is a new Industrial Decarbonisation Bank backed by a €100 billion budget to help fund emission-cutting projects in heavy industry, alongside a slower annual allowance-reduction pace (3.7% for 2031-35, down from 4.3% today) and an extended phase-out of free allowances for CBAM-covered sectors through 2038.
- ▸Free allowances from 2031 become conditional: 80% released once a company publishes a verified decarbonisation investment plan, with the remaining 20% paid only after emissions cuts are actually demonstrated — a shift from allocating credit up front to paying most of it on delivery.
The European Commission published a proposal on July 17, 2026 to overhaul the EU Emissions Trading System (EU ETS) for its next phase, running 2031 through 2040, tying the reform directly to the bloc's target of cutting net greenhouse gas emissions 90% by 2040 versus 1990 levels.
The proposal's central new institution is an Industrial Decarbonisation Bank, backed by a €100 billion budget, meant to channel more of the carbon market's own revenue back into funding emissions-cutting projects at the industrial sites actually paying the carbon price. The pace of allowance tightening also slows — the annual reduction rate drops to 3.7% for 2031-2035 and 1.7% for 2036-2040, down from today's 4.3% — and free-allowance phase-out for sectors covered by the Carbon Border Adjustment Mechanism is extended out to 2038.
From 2031, receiving free allowances stops being automatic: 80% will be released once a company publishes a verified decarbonisation investment plan, with the remaining 20% withheld until actual emissions cuts are demonstrated. The proposal now goes to the European Parliament and Council for negotiation, alongside a parallel Electrification Action Plan the Commission unveiled the same day.
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Cite This Article
EconoLens Editorial Team. (2026, July 24). Brussels Redesigns Its Carbon Market for the 2030s, Betting €100 Billion on Industry Buy-In. EconoLens. https://econolens.co.in/news/eu-ets-phase-5-reform-industrial-decarbonisation-bank-2026
The EconoLens editorial team covers global macroeconomics, monetary policy, fiscal policy, and international trade. All content is AI-assisted and fact-checked.