EU COMMISSION PROPOSES OVERHAUL OF CARBON MARKET SYSTEM

The European Commission has proposed changes to the European Union Emissions Trading System (ETS), Europe's primary mechanism for reducing greenhouse gas emissions. The proposal would allow companies a less demanding and cheaper pathway to cut greenhouse gas emissions by extending free pollution permits to heavy industries and reducing the pace at which permits are withdrawn from circulation. The review follows deadly wildfires in Spain and extreme heatwaves across Western Europe, which recorded its hottest June on record. The changes respond to pressure from ten EU member states that argue the current ETS contributes to higher energy costs and damages European competitiveness.

The ETS has required the EU's largest polluters to purchase permits to emit since 2005, creating financial incentives to invest in cleaner energy and manufacturing. Recorded data suggests the system has reduced greenhouse gas emissions by 47 per cent between 2005 and 2023 compared with 2005 levels. The review aims to align the ETS with the EU's target to reduce greenhouse gas emissions by 90 per cent by 2040 and to transition away from fossil fuels by 2050. The system was previously extended to intra-EU aviation and shipping.

The Commission's proposal extends the ETS to municipal waste, aiming to increase recycling and reduce incineration. It would also apply the system to flights within 5,000 kilometres of a central European point, affecting airlines travelling to North Africa and the Middle East. Private jets would be included in the ETS for the first time, ending a previous exemption. The Commission stated these extensions seek to increase the system's reach whilst avoiding trade conflicts with other nations.