ETS and CBAM are here to stay

This article is last updated on 2 April 2026, following an announcement by the European Commission of its first concrete measure to strengthen the EU ETS.

The European Council concluded its spring summit on 19 March 2026 by reaffirming the EU Emissions Trading System as the cornerstone of European climate policy. This despite relatively urgent calls to suspend or soften the system, in light of the currently rising (energy) prices and the short-term EU competitiveness in general. Eight Member States, including Spain and the Netherlands, had warned ahead of the summit that undermining the carbon market would harm (long term) competitiveness and energy security, a position backed by nearly 150 major companies and investors including Unilever, IKEA, Tata Steel and Heidelberg Materials.

With the already-scheduled ETS review approaching in July 2026, the conclusions sharpen its focus on three priorities: reducing CO₂ price volatility, limiting the impact of carbon costs on electricity prices and industrial supply chains, and mitigating the risk of business relocation. Commission President Ursula von der Leyen signaled the review could extend free emission allowances for energy-intensive industries. She also unveiled plans for a 30 billion Euro "ETS Investment Booster" — an industrial decarbonisation fund financed through the auctioning of 400 million ETS allowances.  

First Concrete Measure: Strengthening the Market Stability Reserve

On 1 April 2026, the Commission delivered on one of the commitments made at the March European Council by proposing an amendment to the Market Stability Reserve (MSR) Decision. The MSR has been operational since 2019 as a rules-based mechanism to adjust the supply of allowances in the EU ETS. It reduces the supply of allowances to the market when there are too many in circulation and injects allowances when there is market scarcity.

Under the current system, all allowances in the reserve above 400 million are invalidated — by the end of 2024, 3.2 billion allowances have been invalidated. The proposed amendment will stop this invalidation mechanism, allowing these allowances to be kept as a buffer that can support market stability. This change, which may be applicable as per 2027 at the earliest, will better equip the MSR to respond to future market developments, including potential tightness in supply in the coming decades.

The proposal preserves the fundamental rules-based design of the MSR and the integrity of the EU ETS as a market-based instrument, while strengthening the system's ability to ensure both stability and predictability. As the suggested adjustment aims to reduce the risk of a significant scarcity of allowances in the future. The proposal will now be submitted to the European Parliament and the Council and would need to follow the ordinary legislative procedure (co-decision) for adoption. A comprehensive review of the EU ETS will follow in July 2026, which is expected to assess the ETS benchmarks and is expected to include any relevant adjustment to keep the MSR fit for purpose in the next decade.

Other Key Developments

The launch of ETS2, covering buildings and road transport, has been delayed by one year to 2028 amid concerns over the impact on household energy costs. More broadly, affordable energy dominated the summit agenda, with leaders calling for targeted interventions on electricity prices and faster deployment of grids and renewables — framing the upcoming ETS review firmly within the context of industrial competitiveness and energy affordability.

For aviation, the EU extends the ETS to departing flights within the European Economic Area, as from 2027, unless the destination country is deemed to be adequately covered by CORSIA.

Maritime has been included in the ETS since 2024, cargo and passenger ships of 5,000 gross tonnage and above are included for their emissions during voyages between EU/EEA ports, and for 50% of emissions from voyages involving a third country. For global coverage of a CO2 trade system, the International Maritime Organization is finalizing its Net-Zero Framework, aiming for a global levy to be implemented by 2027.