EU Debates the Future of ETS

As global energy prices and economic uncertainty rock the European Union's (EU) political leadership, its environmental agenda is becoming a battleground between parties that want to preserve its vision and those that want to scrap it altogether.

The EU's Environment Council held a policy debate on October 12, 2026, about the EU Commission's July 17, 2026, proposal to revise the Emissions Trading System (ETS1). The debate is part of ongoing work dedicated to the bloc's “One Europe, One Market” roadmap.

The ETS imposes a payment scheme on the electricity, heat, manufacturing, and aviation industries for greenhouse gas (GHG) emissions. Industries are subject to a cap on annual emissions, which is lowered each year in accordance with the EU's emissions targets. Companies hold allowances, each of which permits the emission of one ton of carbon dioxide (CO2) equivalent. Some of these allowances are free, but others are sold at auctions and then traded between companies. Allowances are gradually reduced in line with cap reductions.

As part of the revisions to the Green Deal that have been underway since the publication of the 2024 Draghi Report on EU competitiveness, the EU Commission proposed overhauling the ETS by decreasing the reduction factor applied to the cap. Under the original ETS, the cap decreased by 1.74% each year. In 2021, the capping factor was increased to 2.2%, and an increase to 4.3% was planned for the period from 2024 to 2027, followed by an increase to 4.4% after 2028. Under the proposed revisions, the factor would be reduced to 3.7% for the period 2031 to 2035 and then to 1.7% after 2036.

The proposal also includes the use of up to 2% carbon credits from outside the EU for international decarbonization projects, while the emission allowances that were set to expire in 2039 would be extended into the 2040s.

ETS2 - part of a 2023 revision of ETS - extends the emissions cap to cover CO2 emissions from fuel combustion in buildings, road transport, and other sectors.

At the Environment Council session, attendees discussed the ambition of the proposed ETS revisions, as well as the proposed funding mechanisms and allocation of allowances. Some countries, such as Denmark, said that the proposal in its current form lowers the ambition of ETS and weakens it too much. Denmark proposed a 90% domestic emissions reduction target without using international credits. It also addressed the question of whether to lower the 90% target itself.

“The 90% target was agreed on last year. It's not up for discussion,” said Minister for Climate, Energy, and Utilities Samira Nawa Amini, noting that reducing the ambition of ETS for these industries could mean that other sectors, like agriculture, would bear a greater burden for meeting the emissions targets, and that they would likely pass those costs onto consumers. “Second, we recognize that carbon leakage protection is necessary, but free allowances should not be a free lunch. They should help drive investments in decarbonization efforts.”

Other countries, such as the Czech Republic, said that the economic competitiveness of Europe should take precedence over climate ambitions.

“Europe's economic weight is declining,” said Minister of the Environment Igor Červený. “Our choices must strengthen Europe as a whole. We share the goal of climate neutrality, but Europe needs a strong economy to deliver it. We call for a real, substantial review of the ETS. Cosmetic changes may not be enough.”

The council debate was, however, only a small taste of a much more significant battle going on behind the scenes.

Knives Out for ETS and ETS2

During the week of October 12, 2026, the leaders of Belgium, Germany, and Italy sent a letter to European Council President António Costa advocating for boosting EU competitiveness by accelerating planning and approval procedures and suspending certain regulatory procedures. According to Politico, the letter calls for additional simplification packages to reduce the bureaucratic burden.

The same week, the EU leaders' summit in Brussels was engulfed in conflict about both ETS and the upcoming ETS2.

Italy and Greece joined Czechia, Hungary, Poland, and Slovakia - known as the Visegrad group - in calling for an overhaul or withdrawal of ETS, accusing it of contributing to higher energy costs and of imposing constraints on EU competitiveness. Right-wing leaders in France have supported the move. In a X post from May 21, 2026, the Patriots for Europe party shared a post from French lawmaker Jordan Bardella accusing Brussels of using ETS as an ideological attack on the economic interests of the working class.

“ETS,” said Bardella in the post. “Three letters, an acronym that reeks of detached bureaucracy, with one question that keeps coming up: who's going to pay?”

Other countries like Denmark, Finland, and Sweden countered that revising ETS and ETS2 would punish those industries that have already invested and would create unpredictability in the markets that would slow investment in clean technologies and decarbonization.

In 2025, the implementation of ETS2 was delayed from 2027 to 2028 after an analysis showed it could raise energy prices and push more households into energy poverty. With the energy crisis continuing to spin out of control during conflict in both Iran and Russia, the Visegrad countries and their allies are advocating for a further delay in implementation until 2030.

Despite the bitterness of the conflict, insiders said the push by the Visegrad countries is unlikely to succeed without more support. As one insider told Euronews, “There is little support for it and they know it. That's why they try it at the European Council instead of the Environment Council because there's no majority there for this.”

For now, the Visegrad countries must settle for an impact assessment on ETS2's design and safeguards by the EU Commission.