EU Overhauls Emissions Trading System: Airlines to Pay CO2 Costs, Industry Gets Conditional Free Allowances
The European Commission announced a major overhaul of its Emissions Trading System (ETS) on 17 July 2026. Key changes include requiring international flights arriving in Europe from destinations within 5,000 km to pay for their CO2 emissions starting in 2029, addressing the aviation sector's rising emissions and competitive imbalances with Gulf carriers. Industrial companies will continue receiving free emissions allowances beyond 2030, but 80% will be contingent on publishing a board-approved decarbonisation investment plan, with the remaining 20% released only after verified investments and emissions reductions. National governments, which currently spend less than 10% of ETS revenues on industrial decarbonisation, will be required to allocate 50% of their ETS revenues to such investments. Climate Commissioner Wopke Hoekstra framed the reform as balancing climate action with competitiveness, while Commission Vice President Teresa Ribera emphasized the 'polluter pays' principle. The ETS has generated €270bn for decarbonisation and cut CO2 emissions by 50% since 2005, but remains politically divisive over sector coverage and reduction pace.
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