ESG: EU ETS revision proposal published

Research evidence excerpt

ESG: EU ETS revision proposal published

ure on companies to decarbonize, to

some extent.

In our view, the more gradual reduction rates proposed for 2031 onward would make the

system more sustainable (Figure 2). The issuance of emission allowances was expected

to fall to zero by 2040 if the current LRF had been left unchanged for Phase 5 onwards.

The proposal also calls for slowing the pace of reductions in free allocation for sectors and

products covered by the carbon border adjustment mechanism (CBAM). Under the

proposal, free allocation will still be reduced gradually from 2026 onward, but complete

phaseout has been pushed back from 2034 to 2038 (Figure 3).

Decarbonization investment: Support measures proposed alongside stronger

obligations for participating countries and companies

Promotion of investment in decarbonization has also emerged as an important element in

this latest EU ETS review. The EC has proposed investment support measures, but it also

plans to strengthen decarbonization obligations for participating countries and companies.

As a support measure, the EC proposes to establish the Industrial Decarbonisation Bank

and provide roughly EUR100bn through the ETS Investment Booster. In its first phase, the

EC aims to attract around EUR30bn in investment via investment incentives by 2030.

Starting in 2031, the EC proposes requiring participating companies to prepare

decarbonization investment plans in order to receive free allocation. Companies would

receive 80% of their free allocation upon submitting their plans, with the remaining 20%

provided after investment has been completed.

EU ETS participating countries would also be required to allocate at least 50% of their

emission allowance auction proceeds to investment in decarbonization. Until now,