European Commission Intent to Extend EU ETS Cap Beyond 2039

The European Commission has signaled its intention to continue the issuance of EUAs up to and beyond the year 2039, marking a significant shift in the long-term framework of the EU ETS. Currently, the emissions cap is mandated to decline to zero by 2039; however, as described by Director-General for Climate Action Kurt Vandenberghe, this trajectory is deemed “prohibitive” and “cannot go to zero by 2039.” This modification will be addressed in the forthcoming 2026 ETS review, which aims to redefine the emissions trajectory post-2030, thereby ensuring a sufficient supply of allowances into the 2040s.

The Commission reaffirmed its objective to position the EU ETS as “the workhorse” of Europe’s decarbonization strategy. Nonetheless, it emphasizes the necessity of safeguarding industrial investment, fostering innovation, and maintaining competitiveness. Additionally, there are plans to increase the proportion of ETS revenues directed towards energy-intensive industries, which currently receive approximately 5% of total auction proceeds for decarbonization projects. An anticipated €100 billion Industrial Decarbonization Bank, supported by ETS revenues, free allowances, and contributions from member states, aims to mitigate risks associated with large-scale industrial investments.

To prevent the oversupply and integrity issues encountered during the Kyoto Protocol period, the Commission is considering the utilization of international carbon credits via a centralized public procurement mechanism, rather than direct integration into the ETS. Alongside establishing accounting standards for carbon capture and utilization (CCU) practices, the Commission is also assessing how long-term carbon removal strategies, such as direct air capture (DACCS) and bioenergy with carbon capture and storage (BECCS), could be integrated into the ETS framework.

In anticipation of COP30 in Brazil, EU policymakers are striving to achieve consensus on a climate target for 2040. A more holistic transformation in European climate policy, linking decarbonization to industrial strategy, is reflected in the decision to elevate the ETS cap. Vandenberghe emphasized that “Climate policy is becoming industrial policy,” underscoring the Commission’s aim to balance emissions reduction with economic resilience.