EU Overhauls Emissions Trading System: Airlines to Pay CO2 Bills, Industry Gets Conditional Free Allowances
The European Commission announced a major overhaul of its Emissions Trading System (ETS) on 17 July 2026. From 2029, international flights arriving in Europe from destinations within 5,000 km will be required to pay for their CO2 emissions, addressing rising aviation emissions and leveling the playing field with subsidized Gulf carriers. Industrial companies will continue receiving free emissions allowances beyond 2030, but with conditions: 80% of allowances are granted after publishing a board-approved decarbonisation investment plan, and the remaining 20% only after investments and emissions reductions are delivered. National governments will be required to spend 50% of their ETS revenues on decarbonising ETS sectors, up from less than 10% currently. Climate Commissioner Wopke Hoekstra framed the reform as balancing ambitious climate action with competitiveness. The ETS has generated €270bn for decarbonisation investments and reduced CO2 emissions by 50% since 2005, but remains politically divisive.
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