The European Commission is about to reveal its revision of the EU Emissions Trading System (ETS), the cornerstone of European climate policy. Since 2005, this cap and trade system has capped greenhouse gas emissions across covered sectors while letting companies trade allowances. But with the Linear Reduction Factor, free allocation and price volatility all up for debate, and a possible extension to private jets and waste incineration on the table, how much climate ambition will survive the rewrite? We put three questions to MEP Michael Bloss (Greens/EFA), shadow rapporteur for the ETS reform, on where the real red lines should be drawn.
1. There have been debates about the extension of free allowances and the Linear Reduction Factor (LRF, the rate at which the overall emissions cap shrinks each year). Why are these relevant, and where would you draw the line between legitimate transition support for industry and a substantive weakening of the ETS's core ambition of ensuring an effective climate policy?
The most important aim is to preserve the ETS's integrity and credibility to provide a stable environment for investments. Companies like Salzgitter, Heidelberg Materials and Saarstahl have built their business case on the current ETS design, and we need to ensure they remain competitive. It is therefore crucial to keep the LRF stable until 2035 and to avoid short-term measures that increase the amount of allowances.
On free allocation, we recognise the difficult situation some companies face and the need to keep supporting them through this transition. However, to this day many pay little or no carbon price. This shows that the real causes of their lack of competitiveness lie elsewhere: dependence on expensive fossil fuels, competition from China amid the changed geopolitical situation, and a lack of demand-side instruments. That is where we must act, for example, by strengthening intra-European markets and using all ETS revenues for climate investments.
We have to stop framing industry and climate ambition as an either-or situation. The ETS is not only beneficial but crucial in creating the investment environment companies need to commit billions of euros to the jobs and production technologies that will carry our economy a decade from now and well beyond.
2. Given the pending amendments to the Market Stability Reserve (MSR, the mechanism that adjusts the number of allowances in circulation to prevent oversupply or scarcity) and calls from several EU Member States to reduce carbon price volatility, what is necessary to preserve the system's integrity as an ambitious climate policy while addressing legitimate concerns about price predictability?
A stable ETS is key for stable prices. Friedrich Merz’ remarks at the European Industry Summit in Antwerp in February 2026 questioning the instrument as such showed how political interference can lead to an immediate price drop. The ETS can only have an impact if the system is credible for investors and companies. Consequently, it is important to preserve a balanced supply and demand. Under the current design, this is the case until 2035. After 2035, minor changes to the LRF will be necessary to allow for unavoidable residual emissions around 2040.
In addition to that, the MSR release thresholds should be changed to a more dynamic mechanism. At the moment, the Directive states that the MSR releases a fixed quantity of 100 million allowances if the total number of allowances (TNAC) falls below 400 allowances. However, this mechanism was designed for a much larger market and would flood it with a big amount at once. A more gradual release could tackle scarcity earlier and lead to more price stability.
3. The outlook on the ETS revision from a climate perspective seems rather bleak as most of the currently debated changes would lead to an increase in emissions. Are there any silver linings?
Yes, the outlook is bleak indeed. As with many other files, such as the ETS 2 and the CO₂ standards for cars, we are currently fighting against a rollback of the European Green Deal. However, the revision could still bring some changes in the right direction: The ETS scope should be extended to departing flights which could generate nearly €14 billion revenues by 2030, nearly ten times as much as in 2024. It would also cover an additional 80 Mt of CO₂ emissions, compared to the current 64 Mt.
Furthermore, an extension should also cover private jets for both departing and incoming flights. This is not only terrible for the climate but also impossible to explain to ordinary citizens: why should private jets and their owners be exempt from paying for their footprint when their ordinary holiday flights do?
Additionally, the European Commission might include waste incineration in the scope of the ETS. This would reduce at least 4 to 7 Mt CO₂ emissions in 2030 and 18 to 32 Mt CO₂ emissions in 2040 due to a combination of precollection sorting and sorting of residual mixed waste, recycling of waste, waste prevention, CCS measures and reduction measures in other sectors.
The views and opinions in this article do not necessarily reflect those of the Heinrich-Böll-Stiftung European Union | Global Dialogue.
