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. 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 rising aviation emissions and leveling the playing field with subsidized 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 investments and emissions reductions are delivered. National governments must now 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 cut CO2 emissions by 50% since 2005, but remains divisive over sector coverage and pace of reductions.
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