Carbon Counts 2026: EU ETS Reform Proposal - Key Takeaways & Stock reactions

Research evidence excerpt

Carbon Counts 2026: EU ETS Reform Proposal - Key Takeaways & Stock reactions

J P M O R G A N Europe Equity Research

17 July 2026

Carbon Counts 2026

EU ETS Reform Proposal - Key Takeaways & Stock

reactions

The European Commission unveiled its proposed reform of the EU Emissions

Trading System. According to the Commission, the proposal is intended to

preserve the core carbon price signal while providing industry with the

flexibility and incentives to pursue the least-cost decarbonisation pathway

and to remain competitive within Europe.

EMEA Sustainable Investing

• Timeline: The reform proposal sets the scene for negotiations between EU Research

member states and the European Parliament, with negotiators aiming for a vote AC Jean-Xavier Hecker

by Q1 2027. Ireland, which holds the Council presidency, aims to reach a (33-1) 4015 4472

common position among the EU 27 in December. jean-xavier.hecker@jpmorgan.com

• Important Changes to LRF & MSR: One of the principal changes concerns J.P. Morgan Securities plc

the emissions-cap trajectory, with the Linear Reduction Factor set at 3.7% for Hugo Dubourg

2031–2035 and 1.7% from 2036, which would allow allowances to continue (33-1) 4015 4471

hugo.dubourg@jpmchase.com

being issued into the 2040s rather than declining to zero around 2039–2040 J.P. Morgan Securities plc

under current rules. This adjusted supply path is accompanied by a recalibrated Noemie de la Gorce, CFA

Market Stability Reserve, which reduces the allowance intake rate from 24% (44-20) 7134-4229

to 12%, and by two new supply-side flexibilities: high-integrity international noemie.delagorce@jpmorgan.com

credits of up to 2% of the cap and the integration of 250 Mt of permanent J.P. Morgan Securities plc

domestic carbon removals. Ojasvee Shah

(91-22) 6157-3757