Based on reporting by Marco Kisic.
The European Commission’s proposed revision of the EU Emissions Trading System (ETS), alongside its Electrification Action Plan, points towards a significant recalibration of Europe’s climate-policy framework. One of the most important changes is about the pace at which emissions allowances are removed from the market. For 2031–2035, the Commission proposes reducing the Linear Reduction Factor from the previously planned 4.4% to 3.7%, followed by a 1.7% rate for 2036–2040. The reform would also extend free allocation beyond 2030. For sectors covered by the Carbon Border Adjustment Mechanism, the phase-out would be extended until 2038. However, this would come with a stronger link between free allowances and decarbonization investment. Eighty percent of the allocation would go to companies with plans to invest in decarbonization in Europe, while the remaining 20% would only be allocated after investments had been verified and significant emissions reductions demonstrated. The Commission is also proposing to allow emissions offsetting of up to 2% through high-quality international carbon credits, particularly providing additional flexibility during 2036–2040. At the same time, the Commission is proposing an ETS Investment Booster as an initial phase of a €100 billion Industrial Decarbonization Bank.
The Market Stability Reserve would also be reformed, with the stated objective of improving market stability and predictability, maintaining liquidity and reducing excessive price volatility. This is particularly significant for businesses making long-term investment decisions, because the effectiveness of a carbon market depends not only on the existence of a price, but on confidence that the regulatory framework will remain sufficiently predictable. The second major element of the policy package is electrification. The Electrification Action Plan proposes doubling Europe’s electrification rate. The plan also envisages sufficient grid connections for publicly accessible heavy-duty vehicle charging and depot charging to enable 40% of EU trucks to operate with battery-electric propulsion by 2040. Fossil-fuel subsidies are also expected to be addressed through the post-2030 Energy Union package.
FACS Perspective
At FACS, we see this as another indication that the European carbon market is becoming more sophisticated and more difficult for companies to navigate. The proposed changes suggest a shift towards a framework in which carbon costs, industrial policy, investment support and energy strategy are increasingly interconnected. For companies, this creates both opportunities and uncertainty. But companies should not interpret a slower ETS trajectory as a reason to postpone strategic planning. The direction of travel remains towards greater carbon exposure and deeper integration of climate policy into industrial decision-making.
The proposed link between allowances and verified investment is particularly important. Carbon policy is increasingly moving from simply penalizing emissions towards rewarding credible transition strategies. Companies that can demonstrate measurable progress, maintain high-quality emissions data and connect carbon obligations with investment planning will be better positioned to benefit from this evolving framework. The electrification push reinforces the same message. Carbon markets cannot operate effectively in isolation from energy markets. If Europe wants industry to electrify, businesses need access to affordable electricity, grid capacity and infrastructure. For businesses, the practical lesson is to prepare for a carbon market that is becoming increasingly integrated with broader industrial and energy policy. Regulatory flexibility may increase, but so will the importance of demonstrating that companies are using that flexibility to invest, adapt and decarbonize.
This article is based on publicly available reporting by Nordea. All rights, including copyright, remain with the original source.